Starbucks: Ripe for disruption, or already disrupted?

I suspect most people have heard by now of the kerfuffle about an internal memo, leaked through a popular Starbucks fan blogsite and ultimately covered by BusinessWeek, The Wall Street Journal, Forbes, CNN, etc., which was penned by the founder and chairman of Starbucks, Howard Schultz. Certainly the blogosphere is a-buzz with the come-to-Jesus nature of Schultz's personal revelation that Starbucks may have lost its mystique. I counted hundreds of blog postings - right up there with Britney Spears haircut and Anna Nicole Smith in popularity.

The memo itself was an interesting document that raises eyebrows and questions: although addressed to the president and other senior execs, was it always intended to be leaked via social media, into the mainstream press and back to the blogosphere?  It has certainly created a lot of passionate commentary and free advertising for Starbucks. Was it really intended to tell the public that Starbucks knows that people are complaining and that the competitive sands are shifting? Was it a message to investors that the company needs to slow growth and fix the experience to save the brand and that it's going to cost a bundle? Or was it just the confessions of a founder and Chairman, purging feelings of guilt about a loss of soul, and a plea to executives for salvation? (Which, incidentally made Starbucks look good while rallying those who are still passionate about the brand experience to Starbucks' defense?)

No matter which of these it was, it was a brilliant document, but it may be too little too late.

Too Little, Too Latte? Starbucks is the World's Pre-eminent Coffee Brand: How Can it Be So?

It really depends on whether the executives realize that disruption is afoot, and that there's much more going on here than the diminution of brand experience. To properly address this question, and explain why disruption is the real problem, it helps to go back to the beginning, and define the innovation that led to Starbucks becoming a household name approaching 15,000 stores around the world.

What problem did Starbucks solve for its customers?

Anyone who travelled in Europe BS (Before Starbucks) would have marvelled at the quality and variety of coffee, and the cafe culture there. Especially in places like Italy and France. The coffees were strong, but fresh, well-prepared and a perfect complement to a day of sitting on a sidewalk under an umbrella people-watching, or to end a perfect meal, or a delightful jolt to start the day with a pain chocolat or even just toast and eggs. You would have wondered how everywhere you went, coffee could taste so strong, yet be so delicious and universally good. On this side of the pond (outside of your favorite Little Italy restaurant), it was almost impossible to get a decent cup of coffee, and especially to get a strong cup that was drinkable. I remember wondering after every trip why it was that good coffee on our side of the pond was an oxymoron whilst on their side, it was impossible to get a bad one.

It wasn't just that most (North) American coffees were made from Robusta versus the superior Arabica beans. It also had to do with poor roasting, poor quality control, and the fact that we got used to crappy coffee during the second world war when everything was rationed and/or watered down. By the 50s, everything was about speed and automation, and so we made matters worse by going from percolated to instant to freeze dried to Coffee-Mate powdered creamer (another oxymoron). We drank it by the gallon, rotting our stomachs, taste buds and brains in the process. It was purely about the caffeine and the speed. (Wonder why we never distilled out the caffeine and dispensed it straight via injection?)

Yes, in a few big cities, you could find that rare place that would serve a great European-style coffee, and sometimes even with a bit of the ambiance, but that was so small a percentage of consumption that it barely qualified as an exception to the rule.

The story is apocryphal, and published on Starbucks website, and in Schultz's book, about how Schultz felt exactly this way on visits to Milano, and decided that it was time Americans got to upgrade their coffee experience. And, not just create a better cup of coffee, but the same smell and feel and cultured experience and ambiance that you felt in a great Italian coffee bar. That was the beginning of Starbucks as we know it.

We'd been upgrading the experience for ourselves, as much as we could with drip coffee becoming more the norm in the 70s and 80s versus instant, but the vast majority of Americans had never had a quality cup of coffee nor enjoyed the sensuality of the European coffee culture. So, when Starbucks hit Seattle, we were ready for something different.

So What About Disruption?

Disruption theory says that products or services evolve incrementally to better meet the needs of the most demanding customers, but eventually overshoot the needs of most consumers. In this process, the incumbents that dominate the existing market build processes and operational efficiencies that enable them to maximize profitability and continually introduce new "sustaining innovations". In the short term, these series of decisions that improve processes and efficiency are seen as good management, delivering better profits. In the long term, however, they create the opportunity for a disruptive innovator to enter the scene.

At the time when Starbucks began, the big coffee suppliers had enormously overshot the needs of their customers for a cheap, fast cup of coffee. Yet, each "innovation" they introduced kept on making the product either cheaper or faster to prepare, stripping the product of the original reasons we became addicted to it - its flavor first and foremost, but also its ability to facilitate social interaction, savor a great meal, sit and relax, etc.

So Starbucks was a disruptive innovator. It brought flavor, a friendly social setting (the "third place"), quality, plus the consistency that only a chain can do. They brought back the smells, the sensuality, and introduced to Americans a "European experience" -- and, what Schultz has described as the sense of theater.

But, you might be saying, Starbucks introduced a high-end innovation -- disruptive innovations typically are aimed at the low end markets and low end needs.  Well, you'd be right, but the question is: what needs were low end, or more accurately underserved. The characteristic that initially made Starbucks a small niche disruption was the speed. The big producers were optimized for speed above all else, not flavor and certainly not the organic pleasure of a gathering place with great smells where you hang out with your friends.

The characteristic of Starbucks' innovation that was just good enough for the original niche of coffee culture appreciators was the speed.  They were happy to sacrifice the speed of picking up a pot of coffee off the Bunn burner (ironic that they called these things burners, because that's what they did/do to most pots left longer than 5 minutes) and pouring it straight to the cup and from there to the lips, in order to drink something they truly enjoyed, and to experience the coffee bar ambiance.

Initially, potential competitors to Starbucks ignored them because the market wasn't big enough for Dunkin Donuts or McDonalds to care about. To them, Starbucks coffee drinkers were aficionados -- a tiny specialized segment that had nothing to do with the mainstream, who they perceived still mostly wanted speed.

This ignorance is typical (and logical) to mainstream vendors who aim to maximize profit by serving the largest market as efficiently as possible. It also allowed Starbucks to "fly under the radar" for a long time -- over 20 years of strong growth -- allowing them to build their market unimpeded by real competition (yes, there are smaller chain coffee brands, like Caribou and Peets, etc., but their presence serves to expand the market for all specialty coffee vendors, and benefits the leader, i.e. Starbucks, disproportionately) until they became the mainstream and were perceived to be a real threat to the foodservice business of other big companies.

But Starbucks is the leader and still growing. What's this about Disruption?

As noted, disruption can take a long time to play out, and the seeds are sown long before the heavy damage is done. As Starbucks has grown, they have focused on operational efficiencies to grow faster and more profitably. Efficiencies such as automatic espresso machines, flavor-sealed packaging (which eliminates the great smell of a real coffee shop), and expanding merchandise options ("would you like some fries with that doppio mocha latte half-caf with low fat milk?") to extract every last penny of same-store sales growth. In the process, they have incrementally sacrificed seemingly small parts of the experience -- the smell, the theater, the ambiance (who wants a line snaking around the tables while you're trying to relax or have a conversation over a cuppa?), the service quality (rapid growth almost always comes with higher turnover and poorer training -- by now, we've all experienced the surly baristas who won't go the extra mile, but still make too many mistakes), etc. In the process, they've reduced themselves to serving a pretty-good-but-not-outstanding cup of coffee, too slowly and at too high a price.

And, more importantly, they've overshot the needs of their customers, and are ripe for disruption. To speed up coffee service in order to sell everything else too, they installed automatic machines. Automatic machines can be more consistent, especially for inexperienced operators, but they also reduce the flavor and the authenticity of the experience, and show competitors how they too can produce a cup just as good as Starbucks (i.e. open themselves to commoditization). This was an unnecessary and ill-advised "innovation".  Customers didn't ask for it, would probably agree that they didn't need it, and in general would feel that they are getting less for their money. Do I really need a bacon and egg (McMuffin) breakfast with my espresso? Again, the more I overlap with my competition, the more I illustrate to them how to compete with me.  And now I smell eggs cooking, not coffee beans and fresh espresso.  Not wise. Most fanatical customers who still are, were more fanatical 10 years ago, so what have these innovations added?

In becoming ubiquitous, the mystique is demystified, the coffee which was the central feature has become a means to sell myriad other food items and irrelevant merchandise (t-shirts anyone?), and the taste and smell and comfort have all been diminished. Yet, the high price remains. And, therein lie the seeds for potential disruption.

Because now, wanting a good cup of coffee has become mainstream, and Starbucks has become focused on speed (but not really), and efficiency, and foodservice, and add-on sales and rapid growth, they now face a new reality. Its easy to add a pretty good cup of coffee to the menu. Especially for companies like McDonalds and Dunkin Donuts who already served coffee.  All they have to do is add middle-of-the-road or better automatic machines to their operation, and they're almost as good. But, they excel at real speed and efficiency, and are optimized to process customers in seconds or at most a minute or two, whereas Starbucks will never get that fast without redesigning every store and adding a lot more baristas. Moreover, they are value-oriented -- i.e. cheap. For McDonalds, $1.25 for coffee is an improvement in margin, but for Starbucks, it's impossible to go that low. So, if I can get something almost as good for 1/3 the price, is that 'good enough'? Heck, even the the local QuikTrip service stations can create a relatively decent cup of coffee or espresso now.

And, more than commoditization, Starbucks' real problem now is that the competition is 'good enough' to be disruptive and undermine their business. But here's the real conundrum Starbucks faces. It will be almost impossible to go back.

Replacing the automatic machines with better quality semi-automatic or manual, and fresh ground and hand-tamped shots means throwing out a lot of expensive machines. It means they will go a bit slower for each coffee, which also means they'll need more people and more space for brewing. And, they'll need to increase their training expense enormously.

It will be hard to explain to investors why all the superfluous merchandise needs to come out of the stores, and why same-store sales will likely decrease. It will be even harder to recognize that for the mainstream coffee consumer, a $1.25 cup of coffee is good enough, even if I can't quite bring myself to visit McDonalds, and so there will be increasing downward pressure on price. If they don't want to compete on price, then they probably already have too many stores, because the average consumer won't continue to spend a premium price for a commodity that is only marginally better than the competition.

Coffee Customization at Its Finest

To Schultz's credit, he recognizes that all is not well. And, he's recognizing it at a time of apparent strength. Starbucks just announced another record year where revenue grew 23%, 1177 new stores were added, and same-store sales increased 6% over the previous year (although the rate of increase is slowing, these are still impressive numbers for a $6.7B company. If he can convince his executives and board and investors that a strategic overhaul is required to address the looming disruption, then he may well be able to avert it, but it isn't as simple now as returning to the good old days of better quality machines, better service, less merchandise, whole beans scooped out of bins rather than prepackaged in flavor-sealed bags, more uniqueness in each store, etc. They will need a plan designed specifically to address the disruption Starbucks faces from new competitors, or else the disruptor will become the disruptee.

Acknowledging that the market has changed irrevocably, and is now attracting disruptive 'good enough' solutions for quality coffee, but at a lower price and faster pace, what would you do to re-energize Starbucks and fend off a loss of leadership position in the coming years?

Links for coffee fans

Koffee Korner - coffee history and culture
CoffeeResearch.org - the science of coffee
Wikipedia - coffee history
Wikipedia (2) - all about coffee
Starbucks Gossip - blog that broke the story

There is a follow up article to this post here: Has Starbucks gone far enough?

Comments

[frelkins]

i agree with most of your piece, but you don't understand some of the details of coffee retail or the coffee space, which causes you to make some small errors, for example about the role of dunkin.

howard easily has a way forward, not backward. but to see it i guess requires knowing some finer points of coffee retail -- coffee has some unique properties. so perhaps i shouldn't be surprised that few see what howard needs to do.

howard, call me!

[Paul]

frelkins,

Thanks for adding your comment. I am curious what you mean though, since I've said nothing about the role of Dunkin Donuts, other than Starbucks' cheapening of their "experience", i.e. the move down-market, and the move into foodservice, has enabled Dunkin to become a competitor. That's a business reality which has nothing to do with coffee.

But rather than debate whether or not I understand coffee retail or the coffee space, it would be helpful to readers to tell us what you think "the way forward" is. You seem to believe that you know -- the floor is yours.

[Sean Howard]

Wow! Talk about a textbook case of disruption (based on your definition.) And this is an amazingly detailed case review.

I love this post. I love the new direction. I love coffee. It's a win/win/win all around! more! more! ;)

You lost me on this bit:

"The characteristic of Starbucks' innovation that was just good enough for the original niche of coffee culture appreciators was the speed. "

Can you explain the "just good enough" concept in regards to disruption? Interesting use of the phrase and I'm not quite following.

And I LOVE this quote: "And, more importantly, they've overshot the needs of their customers, and are ripe for disruption." Wow. The very concept of overshooting ones customers and their expectations as a normal part of business efficiencies and growth is a sobering one.

One last question for you. Do you see the potential Starbucks disrupters as being other large chains like you mention (McD's, Dunkin, etc.) that can meet Starbucks quality now at a lower price and higher margin or would you see it as being a smaller group flying under the radar?

It seems to me that lower price is likely not the disrupter most likely to attach Starbucks. ie: I'm willing to be a higher or at least equal price for a better experience as a coffee lover...

Teach me!! ;)

[Doug Keeley]

Great story, great discussion.

Some day this will be a textbook case in marketing departments. How well can the power of a brand sustain a company through turbulent times? How much equity has Starbucks created (with little or no advertising)?

I am betting that Starbucks will change successfully. Everything they have done with their n so far has been extremely well thought out and executed. And their fans are almost as loyal as Mac addicts.

Sure McD can make a coffee out of a machine, and so could Wal-Mart, but neither of then has a clue about creating experiences that adults want and will pay premium prices for.

GM, Ford and Chrysler have spent a lot of money going after BMW's brand position and so far, all they have to show for it is red ink.

And I wonder, if it was that easy to make a good coffee out of a machine, how come McDonalds makes the worst coffee in the western world?

I, for one, will bet on Schultz and the evolving Starbucks experience. And as long as he and the senior team are still worried about the experience, I don't think those of us who love Starbucks have much to worry about.

[Rohan Jayasekera]

@Doug Keeley: Whether large numbers of people "will pay premium prices for" Starbucks is very dependent on the general social mood, in particular as reflected in how the economy is doing. In the 1920s tea houses were big, but when the Great Depression hit they pretty much disappeared. When times are tough, most people either make their own coffee/tea or else go somewhere they can buy it at a non-premium price. Sure, the true coffee connoisseurs will continue to appreciate Starbucks and will sacrifice to go there, but their numbers are limited. The only thing holding up Starbucks is that today so many people are feeling rich enough that they'll pay for a connoisseur experience even if they're not connoisseurs.

[Cam Beck]

This is a well researched, informative, insightful article that made me think about Starbucks' situation a little differently. I'll be coming back to read more of your stuff.

[Paul]

Hi Sean:

Thanks for the kind words.

re: good enough.

Good enough is a key concept in disruption theory, as discussed at length in a series of books by Clayton Christensen, a professor at Harvard. These books include The Innovator's Dilemma, The Innovator's Solution, and Seeing What's Next.

As you read this answer to your questions, it would be helpful to click on the graph in the initial posting - it will size up to something more readable and will help you visualize what I'm describing.

To start with, there are two kinds of disruption that Christensen describes: "low end" and "new market".

Low end disruptors

Low end disruption targets customers that don't need the "performance" that high end customers value. Walmart was a low end disruptor.

Low end disruptors focus on the least profitable customers in the beginning. These customers don't value the high end features than incumbents have added to their products over time, and they are happy with a product which is "good enough", but low cost. They will not pay a premium for enhancements, so often are not buying anything in the current scenario (pre-disruptor).

Once a disruptor gains traction in such a low end niche, it starts looking to improve margins by targeting a slightly higher end segment where customers will pay more for quality. This requires a "sustaining innovation" to satisfy the customer whose needs are somewhat greater. Incumbents, not seeing gain in fighting a low cost competitor in a low margin market start retreating up market -- eventually selling only to the most profitable customers, but as the disruptor continues moving up market eventually there is no place for the incumbent to go and they must fight. These battles can be bruising, and last years, but usually the disruptor, with its lower cost basis and market share momentum ends up winning and taking over the incumbent position.

Although McDonalds and Dunkin have been in the foodservice business a long time and served below fit-for-human-consumption grade coffee for a long time (i.e. they aren't new market entrants) their offerings were so far below the "experience" that Starbucks was selling that they were effectively no threat. However, they are optimized for speed and cost-efficiency, have much broader distribution networks, can leverage high levels of traditional marketing expertise, and appeal to a much broader base of consumers.

By the simple installation of better quality coffee making equipment, McDonalds has upgraded their coffee so much that Consumer Reports ranks it superior to Starbucks.

Yet their price is several dollars less. If all I cared about was a better (I don't mean better than Starbucks, because I don't agree with CR) quality coffee, but didn't really have the need for "the best", and didn't have the patience for Starbucks slowness, or wasn't willing to drive out of my way to find one, McDonalds has suddenly become "good enough" for a vast swath of the market that used to feel Starbucks was the only place to go. (Note, many McDonalds now provide free wireless service, and have radically upgraded the decor and comfort so that they also compete with Starbucks' "third place" idea.)

Does this take away Starbucks customers tomorrow? No, of course not. But, it does shrink the Total Available Market (TAM) for Starbucks considerably, and one wonders whether there is room for continued expansion in North America. Several entrants are now pursuing that mid-market customer whose needs are overshot by Starbucks. Can Starbucks remain as big as they already are if their segment is shrunk to only the luxury market, especially when they've downgraded the experience incrementally over time to be far below luxury?

I can name several neighborhood one-of coffee shops that have an authentic experience, with better smells (the coffee is roasted in the store several times a week, and stored in bins, not flavor-sealed packs), enthusiastic staff, who make the espresso the old manual way on the best equipment, and their coffee is the same price or less than Starbucks. These I will drive several miles out of my way for if I'm in the mood.

The only real differentiator Starbucks has is the level of customization and branded drinks.

New market disruption

New market disruption offers a solution to customers that incumbent providers cannot serve profitably, or that incumbents do not initially perceive there to be a market for, so they ignore it. Typically, new market disruptors are technology providers, such as Google.

Over time, products undergo constant "sustaining innovation". Basically, this is straight line incremental enhancement to the existing product to meet higher and higher level needs. Think about microwave ovens. The first microwave heating systems weren't even enclosed (they didn't realize microwave radiation could be dangerous.)

Then we had the massive oven-sized machines that had one power setting, which would be
pretty low power today, and you controlled heating with a timer dial. Then they became digital, with the ability to punch in a time setting directly, and choose different power levels. Oven sizes multiplied from under-the-cabinet small apartment sized, to
built into the wall deluxe models.

Features continued to be added like Defrost, and Popcorn, and Reheat. At some point, the needs of virtually every consumer were overshot.

My parents and parents-in-law still use only the most basic features and don't understand why anyone needs a popcorn button (that's the feature I use the most, other than reheat). If they didn't have to set the clock for the microwave to work, it would still be flashing like the VCR always did. Most of us are somewhere in the middle -- we use about half the features available to us, but don't need or ever learn how to use everything.

Sustaining innovations help market leaders maintain brand dominance, and are how they maintain differentiation and price margins through the early years. They optimize their operations from market research to supply chain management to manufacturing to marketing and distribution to support this continuing evolution, minimizing their costs and building up expertise. Sustaining innovations do not create markets, but they do protect and grow them. Initially, microwaves were new market disruptive innovations (some people don't have a traditional oven anymore). Then, along came the Koreans who we all thought made junk, but their products were aimed at the low end of the market and priced hundreds of dollars below what the Japanese (who used to be dominant) could make them for. The Korean manufacturers improved over time, and moved upmarket but with a lower cost basis and pretty much put the incumbents out of business. That was a low end disruptive innovation. Now, the Chinese are doing it.

But other than cost advantage which enables low end disruption, microwave oven technology long ago reached maturity and exceeded the needs of its customers. All the manufacturers are pretty much able to build the same products and have optimized their processes to be very efficient. This is the definition of commodity.

New market disruptors also use the "good enough" paradigm. Only in their case, it often has features so different from the incumbent technology that the incumbent doesn't even recognize it as a potential threat in the beginning. The features that differentiate it enable a market that incumbents can't serve at all, and that's the early niche for a new market disruptor.

Think about blogging for example. Every blogger is essentially publishing a dis-integrated column or section of a newspaper electronically. A blog is not a whole newspaper, usually isn't done by a trained journalist, but is accessible to anyone with a PC or even just access to a PC. A newspaper requires a huge capital investment in printing equipment, distribution network, writers, advertising sales, and is expected to provide full coverage of all important events daily. Blogging is cheap or often free, depending on what service you sign up for and what limitations you'll accept. Initially newspapers dismissed bloggers as irrelevant. Now reporters often maintain blogs, but the news organizations try to co-opt the technology within a format they understand, and it doesn't work. The community of bloggers, most unpaid, have severely undermined the potential subscriber base and revenue source for newspapers and have become a direct threat to the survival of the industry.

I've probably over-explained this now, so let me address the specific points you asked about:

re: speed being just "good enough" at Starbucks

The incumbents did not think there was a market for better coffee. They were focused entirely on speed, low cost and the lowest common denominator. There was a "luxury" market before Starbucks, but it was a micro-niche. Most cities had at most, one or two places you could go outside of a great Italian restaurant for a superb cup of coffee. To the incumbents this was a very low volume, high cost niche -- could you imagine Maxwell House trying to serve this segment, or a foodservice operator like McDonalds? Starbucks demonstrated that there was demand, and that mainstream customers would not only pay a lot more for coffee, they would wait to get it. So, their offering was not fast, but with training, and automatic machines (instead of more staff), they were able to make it "fast enough" to keep people coming back. Putting coffee into flavor-sealed packs also meant that staff didn't have to scoop and weigh coffee beans, which is a big time saver.

re: overshooting customer needs

This concept is really just taking market segmentation and turning it upside down.

When we segment markets and target specific customer needs and pricing in the products created for that market, we are implicitly considering what is the minimum and maximum requirement of a customer in that segment. To overshoot is simply to add features until you've exceeded the maximum needs of the segment. If you keep on adding features, even after you've met the needs of the most demanding customers, then the majority of the markets you serve could have their needs met perfectly well by a product with less functionality and a lower price.

re: who are the disruptors

Certainly it could be anybody, but its likely to be somebody we already know. The low end disruptors with the most resources and the highest motivation are in the game, but that still leaves Wendy's, Burger King, gas station convenience stores, and all the other quickservice operators that are located at every highway exit. They will either force Starbucks prices down, or take away some market share. Either way, that would affect the stock price dramatically which would severely impede their ability to keep growing quickly, even if they can find untapped markets overseas. While Starbucks is distracted fighting on that front, they don't want to lose sight that there are several comparable but much smaller chains. If any of those went the "super premium" route, and replicated the experience Starbucks had 10 years ago, they could steal much of the very high end and most profitable luxury market. There's also the possibility of a foreign entrant -- the Italians did invent the idea that Schultz copied after all. A company such as Illy has the resources, a strong brand in their home market to grow from, a source (i.e. Italy) that has a lot of brand cachet, and already sells premium coffee. That would leave Starbucks occupying the same mid-high end tier as Buick, and I'm not sure that market is big enough for anyone (it certainly is proving not that profitable for GM) -- we seem to be heading more and more towards either the very best, or the least we can spend to meet our needs. But, it also depends on how Starbucks responds. There is a way to beat back disruption, but it is like a chess game, and you have to first admit that it is happening.

re: is low-price disruption a real threat to Starbucks

Usually, the initial customers for low end disruption are those who either don't participate at all (unserved), or who are underserved (would use more if the good or service was cheaper). There is some spillover into adjacent segments where convenience or speed or other attributes matter more. So, in the early days no, it isn't, unless Starbucks is already too big for the available market or doesn't respond effectively to the threat. But longer term, the general pattern is for low end disruptors to continue to move up market. That does tend to squeeze the incumbent into a smaller and smaller niche. There are many people like you, and today, most say they would never switch. But here's another issue for a luxury service provider: I like a good coffee too, but we were spending so much at Starbucks, that for us, a super high quality machine for home was a worthwhile investment, and now I can make a much better drink than I can buy. It takes surprisingly little time to pay that back if you use it enough.

Here's another way that habits change: Two years ago, it was almost impossible to find a good coffee at a highway exit (it's always baffled me that Starbucks ignored this huge opportunity for people making medium to long drives between cities who often are looking for a shot of caffeine to stay awake). We would not have even considered a place like McDonalds, preferring to get a Coke if we couldn't find a good coffee. We knew every stop along I-75 where there was a Starbucks within 2-3 miles of the highway, and would hold out and drive out of our way to go there. But, in a moment of desperation, and having heard the ads that McDonalds had gone through a significant upgrade, we thought "What the heck -- it's a dollar. If it's really bad, we can just dump it on the pavement". So, we tried it, and discovered that it wasn't horrible. We now have a low price alternative that we can consider if we really feel the need.

That's what demand elasticity is all about -- what does it take to make you consider a substitute.

[Su Doyle]

I read your article in today's Marketing Profs and it led me here. A critical customer experience element that Starbucks is missing is community. Most locations lack the "personal touch" -- with a couple of exceptions. I recently hung an art show at a local Starbucks (Lexington Center, MA), and this particular location was as close to a corner coffee shop or local pub as one could get. Regular customers were recognized and their coffee preferences embedded in the baristas' brains. Newbies and tourists were greeted like old friends. Artists like me (I'm a CMO the rest of the time) were welcomed to show their work, borrow hanging tools and talk with customers. Despite the winter weather, it was a warm place, indeed.

[Paul]

Hi Sue:

I agree that community, which is a big part of what Starbucks was, is missing in most of their locations today. Much has been sacrificed in the race to get big, but the question is, can they go back without raising prices and closing stores.

The stores aren't designed to enhance community and the staff turnover and training, as well as how many work a given shift all affect this aspect of the experience. To fix this would cost an extraordinary amount of money that shareholders are unlikely to support.

This is why I believe Starbucks is being disrupted, and why without strategic changes in business model and plans, they will eventually fall on their sword.

Thanks for your comment. I'm sure Schultz would be glad to hear that the experience is still alive somewhere, and wonders how to get your enthusiasm back everywhere.

[Sean Howard]

Wow...

I'm speechless, Paul.

You went WAY beyond the call of duty in answering my questions and I am moved beyond words.

So, I'll settle for "thank you" and a nod to your expertise and insight in this area. I look forward to reading more!

P.S. I'm back! ;)