The Starbucks experience

The recession has hit the Starbucks international chain of coffee shops badly. Actually, CNBC noted “people started skipping Starbucks even before the recession got really bad. Traffic has been falling, likely at a rate faster than 2008’s Q1 three percent drop, for a year.”

The days of expanding at the rate of eight new stores a day are over. As Howard Schultz, chairman and CEO of Starbucks puts it, the rapid expansion was “watering down the Starbucks experience,” and turning off customers. They forgot they were primarily in the coffee business, not the real estate business. The recession worsened its business crisis. But even as he closes down hundreds of non performing stores, he isn’t still backing off from the goal of someday operating 40,000 stores worldwide, CNBC reports.

Schultz, who took active management of the coffee chain again in the midst of the crisis, wants to go back to what helped him launch probably the most successful international coffee shop chain ever. The value proposition, he says, is the Starbucks experience. That’s simply a good cup of coffee, a little pricey, but served in an atmosphere of relaxed elegance and service. That’s what’s making people part with good money for a cup of coffee.

I guess no one, outside of small specialized coffee shops with limited local clientele, took coffee seriously until Starbucks. For me, coffee was coffee until I had my first taste of exquisite Jamaican Blue Mountain. That was even before Starbucks came to be. I still remember that cozy inconspicuous coffee shop under the stairs of the now demolished Makati Rotary Club building where the expanded SM Makati now is. From that time on, I am able to understand why people will pay a snooty price for the promise of a good cup of the brew.

The coffee in our leading hotels, including the ones journalists hang out for gossip, serve just about the worse tasting cups of coffee at prices even more outrageous than Starbucks. Somehow, the coffee in hotel coffee shops not only tastes awful but cause heart palpitations by the second cup. That’s why I take hot tea instead whether at the Intercon’s Jeepney Coffee shop for the 365 Club or at the Edsa Shangri-La Hotel’s Heat Coffee shop for the Tuesday Club.

Maybe it is the coffee they use. Maybe it is the way they prepare coffee by the pot full and constantly reheated. We had the Edsa Shang coffee shop bring out the coffee maker machine in the Tuesday Club area but it was still the same. In Starbucks and the coffee shops that followed its business model, coffee is individually prepared, cup by cup with the beans used per cup immediately discarded.

Then again, Starbucks is like Friendster or My Space or Facebook… they caught the social networking mood before it went on line. We have discovered the social networking function of a coffee shop a long time ago too. In my case as a journalist, the coffee shop was like the oasis of freedom during the martial law years… enough reason to endure the awful coffee. We could truly speak our minds and hear stories the newspapers didn’t dare print at the 365 Club at the Intercon Jeepney coffee shop.

I must have inhaled my lifetime’s maximum allowable exposure to second hand cigarette smoke at the 365 Club in those days. That coffee shop was a brick and mortar Friendster where people connected, gossiped and if needed, helped each other when in trouble with the dictatorial regime.

The way I see it, Starbucks merely capitalized on the social value of drinking coffee and combined it with what they called the Starbucks experience. That gave them the right to mint money for almost two decades … until now. Of course the Starbucks success was not lost on newcomers who built on that Starbucks experience and made it even better. There were many rivals internationally. And here in the Philippines, we have homegrown rivals that may even be better than Starbucks.

The Figaro chain comes to mind. Actually, I prefer it to Starbucks. It helped too that when I was visiting Shanghai, my host brought me to one of the Figaro branches there. The Shanghainese are probably thinking it is a Western brand because the ambiance is very tastefully international. But I felt an unmistakable pride in knowing it is a Filipino coffee chain selling Batangas Barako and is now spreading its wings in the hottest growing city of Asia.

So now I learn that Starbucks is in trouble. Not that it will go out of business soon but its growth is suffering the twin effects of an economic recession and an overexpansion of outlets. Snob appeal helped it get established. Its very ubiquity in recent years diminished its appeal.  

The nature of competition has also changed. It is easier now to get a good cup of coffee even from coffee shops in gasoline stations… making it a mystery to me why the luxury hotels still have to learn the fine art of making a good cup.

As for Starbucks, it just became too big, making it difficult for them to keep the Starbucks experience as it pursues the bottom line for its shareholders. Indeed, Starbucks has recently gone into the instant coffee market as a means to fatten that bottom line. Via, the chain’s “breakthrough” instant coffee product, is supposed to be its attempt to make instant coffee more upscale. It might work, but it may dilute the brand then again too.

People seem to have definite ideas of where brands should be. In the same way that no matter how Nestle attempts to make their coffee outlets look upscale, I cannot ever think the coffee there will be as good as Starbucks or Figaro for that matter. But talk instant coffee, and Nescafe immediately comes to mind.

Apparently, the instant coffee market is too big to be ignored and may be worth some dilution of the upscale Starbucks brand. Instant coffee makes up about 40 percent of the global coffee market. It makes business sense for Starbucks to try and take a big chunk of the $17 billion spent on instant coffee every year.

CNBC observed that “people around the world don’t look down on instant coffee like Americans do.” Besides, I read that Via tastes a notch above most instant coffee brands. Or maybe that’s just the Starbucks upscale aura working tricks on consumer minds. Knowing Nestle, they are not going to give up market share without a fight. Starbucks may have its nose bloodied before too long. Or maybe, Nestle will make an offer to buy the chain.

Whatever happens to Starbucks now, coffee will never be the same, in a marketing sense. And they don’t even have to go out of their way to counter the impression that Starbucks is expensive just because the world is in a recession. Just make sure they deliver the Starbucks experience as they did before and recession or not, people will find a way to afford a good cup of coffee, if not from them, from their new rivals who have improved on their concept.

Tourism

Got this reaction from PhilStar reader Barry Williams.

Boo,

Tourism is THE solution for the Philippines. What other industry allows for semi-skilled workers to dominate an industry where service, smiles and hospitality are the key features?

What will Filipinos get?

1) A massive “cash” (tips) business worth 100’s of billions of pesos

2) Requirements to clean up their community

3) Requirements to have law & order, safety

4) Requirements to provide clean water & water treatment

5) Requirements to provide electricity

6) Requirements to provide modern transportation systems

7) Requirements to learn different languages

The list goes on and on. All Filipinos will benefit from Tourism.

If your leaders care about their fellow citizens they will see the light and make Tourism the key to investment, improvement, and enrichment. They will stop talking and start hiring the leading Urban Planners to develop modern infrastructure, and coordinating with the private sector to invest.

Tourism is long over due.

Starbucks jokes

One AIG executive said he would have gladly returned his bonus if he hadn’t spent it yesterday on a Caffe Latte at Starbucks.

Starbucks was handing out packets of their new instant coffee, Via, in Chicago today. Cups of hot water were sold for $4 each.

Police said the man brought the jewelry for down payment on a Starbucks cappuccino.

A 5,500 year-old shopping plaza was discovered in Peru. Archeologists knew it had to be really old, because it was a shopping plaza, and there was no Starbucks.

Boo Chanco’s e-mail address is [email protected]