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What is going on with Starbucks?

Posted By Ignacio Gafo On January 16, 2011 @ 10:18 pm In Branding,International Marketing,Product Management,Uncategorized | 3 Comments

It has been a while since we spoke about Starbucks [1]. Last time I did so, the company was going through a deep crisis, that plummeted the share value and made Mr Schultz taking back the reigns of the Empire.

[2]

What is going on with Starbucks now?  What have been the key measures adopted in the last year and a half? What can we expect from the new measures adopted? What can we say about the new corporate and marketing strategy under implementation? And last but not least, what does the future look like?W

Quite a few question to be addressed and answered in a blog. So let me stick to the core initiatives and raise some comments and questions around them.

Mr Schultz had to deal with a very difficult situation: Sales were going down dramatically, profits followed the same trend, the brand has lost momentum and the product was compared to that of Mac Donalds and Dunkin Donuts.

[3]

The first decisions were painful. In early 2009, Starbucks announced it would cut thousands of jobs and close 300 stores — but the fortunes of the chain and Mr. Schultz have improved greatly since then. Thanks to more traffic in the stores and renewed earnings growth, shares of Starbucks have risen above $24 a share What is more, in the spring of 2010, Starbucks announced its first dividend to be paid in cash to investors and said its profit rose more than eightfold in the second quarter, as more customers visited its stores and spent more.  If we add that in fiscal 2010 the firm’s operating margins rebounded to 13.8%, the highest in its 40-year history, it looks that the company is in good shape again…

[4]

Good and positive scenario for Mr Schultz, that has decided to move forward with two very controversial decisions:

1. To stop the deal with Kraft Foods [5], for getting their Consumer Packaged Goods sold directly by them.

2. To change their logo [6], and skip from it the wording. The words “Starbucks” and “coffee” will disappear. And the mermaid, or siren, will be freed from her circle.

[7]

Decisions that bring up the following questions to my mind:

1. What is the business of Starbucks? Where is the future growth coming from? It is expected to come from sales at coffee shops or from packaged goods sold? And is it coming mainly from international expansion or from the domestic american market?

2. What are the long term consequences of the change of the logo? It is an evolution like the one we saw with Nike some time a go, or a involution towards chaos? Will they succeed in their diversification or will it be the beginning of another downward cycle?

[8]

I will not take the questions for now. but raise some points that will shed light on the analysis to be done:

- where is the real growth coming from

- till what extent the growth attained is sustainable

- the side effects of their expansion and diversification

- the role that rejectors of the change will play on the Brand and Corporation

Which are closely linked to something fundamental, we could not lose out of sight:

What does Starbucks is actually sellng? Product? Service? Brand? Image? Quality? Customer Satisfaction? Experience?

Whatever the response, as long as the Corporate and Marketing Strategy reinforces it, they will succeed in the mid and long run. If not, the siren queen, will be betrayed again…

THINK DIFFERENT!!!

Ignacio Gafo


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URL to article: http://marketing.blogs.ie.edu/archives/2011/01/what-is-going-on-with-starbucks.php

URLs in this post:

[1] Starbucks: http://marketing.blogs.ie.edu/archives/2007/03/is_the_queen_of.php

[2] Image: http://marketing.blogs.ie.edu/files/2011/01/sb-initial-logo.jpg

[3] Image: http://marketing.blogs.ie.edu/files/2011/01/sb-crazy.jpg

[4] Image: http://marketing.blogs.ie.edu/files/2011/01/sb-addict.jpg

[5] Kraft Foods: http://www.economist.com/node/17857401?story_id=17857401

[6] To change their logo: http://www.economist.com/node/17900472

[7] Image: http://marketing.blogs.ie.edu/files/2011/01/sb-arab-logo.jpg

[8] Image: http://marketing.blogs.ie.edu/files/2011/01/sb-arab-logo1.jpg

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