Thursday, July 31, 2008


I allocate a lot of time to Starbucks because it is a classic example of the rise and fall of a great brand - and because I was one of the company's early adapters in terms of product usage and portfolio holdings. And it all happened in one of the shortest times on record, so it is a great example of what not to do. Time was, you could go into Starbucks with a buck or a buck twenty five and get a great cup of coffee, then expenses and overhead went up as the brand "grew" to become more things to more people. Rather than a great place to go for some quality time that didn't cost an arm and a leg Starbucks became a planned distination for which one had to determine if a stop at an ATM was necessary before dropping by. The beginning of the end.

Now no one believes that recipe dissemination, a few novelty fro-yo drinks, closing stores, trimming the payroll and soliciting user-generated input via an online portal will affect Starbuck's turnaround. The cost reductions are a technical mandate, but the rebuild of unit sales and dollar volume requires the creation of new consumer knowledge (as in tell me something new about yourself) to raise the bar and get foot traffic flowing in the door again. Why not target a number like 400 customers per hour on any given average hour? Why not? That's what Costco does. And why do this? Because every decision Starbucks now makes is based on established consumer habits and practice. And Starbucks already knows what that gets them. I think their stock is trading around $14 a share.

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