I stopped into a McDonald's this morning and couldn't help thinking about their announced coffee assault on Starbucks and the Starbucks' senior management shakeup that this has brought about. It's truly amazing to think that Starbucks now plays in the McDonald's arena. My colleagues at SchmidPreissler noticed this phenomenon in the Spring of 2007; regrettably, for Starbucks, they were right (Please read link at right of page: "A Part of Starbucks Luster Disappeared...."). Starbucks diluted its brand equity and its coffee is tasting rather weak.
More than any financial statistics, or quarter to quarter comparisons, the fact that Starbucks openly admits to any reaction to the McDonald's initiative is a powerful indicator of how much damage the brand has sustained. There is hardly any similarity between these two giants of retail food distribution: the decor evokes a radically different ambiance, the service (if you can call McDonald's treatment, "service"), the product range and presentation. It is obvious that when the initial strategies were created, all of these were targeted to different audiences. Yet they are now poised for a head to head battle to capture the coffee drinking public. The setting is akin to Bentley reshuffling its management to get ready for a fight with Kia's launch of an economy hatch back!
I'm not suggesting that Starbucks shouldn't re-examine its tactics and try to regain its niche. Surely it should. But how did we get here?
When a company enters the public company arena, it takes on an additional set of challenges, not present in the private company sector. Surely, there are many financial benefits. But in the global economy of today, public companies are expected to continuously grow, to expand and to increase sales and profits; they are expected to protect their share price, not only their market share.
Not infrequently, the tension between doing what's good for business and pleasing the investment community, limits the company's flexibility to respond to market conditions. How does a company stay true to its original vision. to its brand equities, when it is pressured to endlessly open store after store, increase its product assortment, emphasize uniformity and consistency, and do away with some of its less economic attributes to illustrate that it is vigilant in protecting its bottom line. For Starbucks, for example, this meant losing the aroma of freshly ground beans and moving towards pre-ground coffee delivered in pristine vacuum packed containers. How do you explain to Wall Street that "smell sells"? How do you explain to Wall Street that Brand Equity drives real value?
It will be interesting to watch Mr. Schultz as he tries to recapture the Starbucks of his dreams and resuscitate it in the multi-national, commoditized, body that it has become.
