Wednesday, July 2, 2008

Too Many Starbucks?

Orin Smith

In 1999 when I first met Orin Smith, the now retired ceo of Starbucks, I was impressed with his warmth, intelligence and sincerity. I live in Chicago, where Starbucks had claimed an early beachhead, so I was familiar with the company's proclivity to create storefronts in close proximity with each other, and as a supply chain strategist I needed to know how this pattern would evolve as the chain expanded. Orin explained that the stores reached economies at very small scale; that each store in an urbanized area drew from a very small locale; and that a store in an office building with 20,000-60,000 inhabitants would not infringe on the market territory of one across the street with another 30,000 office workers.

In short, one store with one coffee station in the right location was profitable, even though most of its business occurred before lunchtime.

Starbucks advertising in those heady days was carried on millions of cups and thousands of storefronts and almost nowhere else. Its message was the wafting of the aroma of fresh ground beans through the open doorways.

As Starbucks scales back a bit in the U.S. it is much less likely to do so in urban areas than in suburban and residential locations where the store design and concept is less relevant to its clientele. Despite many false starts, Starbucks has failed to offer food that approaches the quality of its drinks. The "big food" concept (featuring muffins as large as your head), the "soggy sandwich" concept, and now the "reheated breakfast sandwich" concept all lack the basic elements of freshness, value and taste. That matters less in an urban location, where the coffee trade alone can sustain the store. In a suburban location, it takes more than coffee to start the family car.

For Lewis Black's comedic take on the phenomenon check out this video on YouTube.

See our newsletter on Restaurant Lifecycle Management here.

For an update on Starbucks' progress since Howard Schultz re-commandeered the brand, see "Starbucks Says Good-bye to the Bears." See also Chain Restaurant Development for more articles on related topics.

To learn more about our work in consulting, read about our Practice or check out our Case Studies

Print this post

1 comment:

JP Farrell & Associates, Inc. said...

The day after this post Howard Schultz announced that Starbucks would be discontinuing the breakfast sandwich (not a favorite of this reviewer), in part because its aroma competes with that of the coffee. Surprising as that explanation may seem, it is consistent with his longstanding, often-stated objection to in-store baking.

A founder, especially a brilliantly successful one, has a unique right to be unyielding in defense of his concept. Nonetheless, one wonders how many others would stand against the smell of fresh-baked goods in a coffeehouse?

That is a question the stockholders might want to put to market research.