Corporate Governance

Starbucks and Social Responsibility: Not Getting the Message

By J. Robert Brown

Starbucks is having a tough time.  The company announced that earnings would not meet expectations.  Same store sales fell for the first time since the company began reporting the data in 2004.  The reason?  "[W]eakness in the U.S. consumer environment," particularly declines in California and Florida, places feeling the brunt of the downturn in the housing market.  One consequence is that it plans to open fewer stores.  The news is particularly bad since competition from McDonalds, which intends to include baristas in every fast food restaurants, has yet to occur.

This is further proof of the commoditization of the Starbucks product.  Despite all of the efforts at improving quality, the company puts out a commodity that can be obtained in other coffee stores and restaurants, often at a lower price.  The company has not done a particularly good job of emphasizing why the purchase of a latte from Starbucks is better than in other locals.  While the effort to market a special blend of coffee (no doubt expensive but likely to be ineffective) or improve the skills of the baristas may result in a modest improvement in quality, it is unlikely to attract in (or keep) the hordes of coffee drinkers that the company needs to maintain its earnings. 

Some effort has been made to expand the menu, with sports drinks (in partnership with Pepsi) and smoothies, an apparent stab at the health conscious market, and "a more-indulgent sweet, icy beverage developed with an Italian company."  But while none of these products has yet reached the stores, they look to be little more than additional commodities, something that may bring in those seeking the convenient but not resulting in strong consumer loyalty. 

Social responsibility is the answer.  To the extent coffee drinkers think they are improving the world through the purchase of a Starbucks latte, they will be less likely to abandon the company when similar products start to flow at places like McDonalds.  Our poster child for this approach is Chipotle, where eating a burrito is more than a culinary experience.  From the looks of it, it will take some additional bad quarters for the company to realize that it needs to take a different approach against the competition, something that will include social responsibility and, by the way, free Internet.

Full post as published by The Race to the Bottom on May 10, 2008 (boomark / email).