Brand Health Check: Starbucks

by Jeremy Lee, Marketing 12-Aug-08, 08:45

LONDON - Starbucks, scourge of many a British high street, with its pricey, frothy coffee and oddly named caffeine-based confections, such as the Frappucino, suffered its first quarterly loss in its 15-year history last week - $6.7m after tax (£3.4m), compared with a $158m profit for the same quarter last year.

Although it is far from alone in the problems it faces, the company admitted that footfall had declined in the UK in the three months to June.

This prompted many commentators to wonder whether Starbucks in Britain was going to endure the woes that have afflicted its operations in its home country, the US, where it has shut 500 stores, and in Australia, where it has been forced to close 61 of its 85 outlets. Starbucks has already scaled back its UK expansion plans, with 78 openings partly offset by 10 closures.

A reduction in its UK presence is likely to be welcomed by conservation groups, independent coffee traders and anyone with a vague interest in the plurality of shops on an ever-more homogeneous high street. However, Starbucks maintains that there are opportunities in the UK; it recently opened Europe's first drive-through coffee store in Cardiff. It also continues to expand its franchise business, having signed deals with Center Parcs, Village Hotels and the University of Surrey.

Health concerns - a large Starbucks' Iced Hazelnut Mocha with whipped cream contains 599 calories - and more sophisticated preferences from consumers, who are put off by the chain's inclusion of watery, milky-coffee-flavoured drinks on its menu, could render this a futile exercise.

In an attempt to retain loyalty in the UK, Starbucks has introduced free coffee refills for anyone buying a hot drink and has ramped up its hitherto negligible marketing activity. Historically, it has relied on in-store activity, but has now rolled out an ad campaign for its Vivanno range.

It also has a music deal with Sir Paul McCartney and runs a national coffee-tasting day, as well as online portals.

Will this be enough, or is the UK turning its back on what is beginning to look like a rather outdated 90s brand?

We asked Warwick Cairns, head of strategy at Brandhouse, which has worked with the Seattle Coffee Company, and Ben Kay, head of planning at RKCR/Y&R, which has worked on the Marks & Spencer account, for their views.

Diagnosis 1

Warwick Cairns, head of strategy, Brandhouse

Starbucks can learn a lot from the rise and fall (and rise) of McDonald's. When McDonald's first opened in the UK, people travelled from miles around to visit this amazing US burger bar, and talked about it for days. They don't now.

The same is true of Starbucks: it introduced people to a whole different way of enjoying coffee, and, by and large, they were excited by it.

The thing is, people know all about it today. Just as Blue Nun and Black Tower introduced an ignorant public to the pleasures of wine, only to be abandoned when that public grew in discernment, so Starbucks, with its bucket-sized frothy milk concoctions, no longer surprises or satisfies those who have come to love the sophistication of high-quality coffee.

Just like McDonald's before it, Starbucks has to grow with its consumers and bring back the specialness. Faced with growing public discernment and massive competition chipping away at whatever points of difference it once had, Starbucks needs to learn how to surprise and delight once more.

Remedy

Give the environment a makeover. Indulgent coffee is as much about the surroundings as the drink itself, and overfamiliarity is the enemy of specialness.
Look at the range of sizes - both sophistication and health-consciousness mean bigger isn't necessarily better. There is a role for a high-quality 'short' size.
Big up the barista - each Starbucks coffee should display skill and craft.
Put back the specialness.

Diagnosis 2

Ben Kay head of planning, RKCR/Y&R

You can blame increased competition, the economic downturn or even the weather, but, in reality, Starbucks' problem is far simpler: it has got greedy and, as a result, harder to like. Its strength lay in delighting customers with what Virgin Atlantic would call 'magic touches': free wi-fi, comfy seats, cheerful welcomes or great tunes. But, looking around the store I'm in now, there are cracked tiles, surly staff and ceiling-to-floor stock-keeping units demanding I buy, buy, buy.

Any sense of occasion or of connection with the individual has been buried by an avalanche of 'commercial optimisation'. Investment has gone into menu innovation and franchise expansion rather than retail experience, with a result that is less 'third place' and more third junction on the M5.

'The place' is what made Starbucks great, not lemon-zest-infused-low-fat-grande-lattes, nor the number of pins in a map. Looking at the new world order, where McDonald's coffee is voted tastier than Starbucks' and continental coffee-houses are stealing the premium spot, it is 'the place' that can save it.

Remedy

I don't know why Starbucks exists: tell me, then prove it.
It probably can't be posher, but it can be different - rediscover the brand's personality and energy.
Get back to basics: clean, comfortable, friendly, great coffee.
Devolve power to the franchisees, they can help make the stores special.
Put a book-case in every store, make people feel welcome.