interpellate

The fortunes of Starbucks have recently taken a turn for the worse. According to a recent article in The Globe and Mail, the first quarter has seen them weather a relatively sharp downturn in U.S. sales and a stock that is spiraling downwards (having lost almost 50% its value from this time last year). While the recession south of the border and an increasingly crowded “coffee space” (evidenced by the entry of MacDonald’s in the gourmet coffee market) can certainly be blamed, this isn’t what I find most interesting about this case. What really sparks my imagination is the way in which this downturn appears to be largely attributable to Starbucks’ marketing strategy — the brilliant way that it situated itself as a purveyor of all things cosmopolitan and “indie” to disaffected middle-class suburbanites — eating itself!

For me, Starbucks is notable because its branding strategy has appealed to me in such a direct fashion. Even while living in Montreal, a city with a thriving independent coffeshop culture, I found myself being unable to firmly exclude Starbucks from the mix. I often found myself drawn to its warm atmosphere, its comfortable chairs, its tables that perfectly accommodated a grande latte, a muffin and my laptop. In this way, my reading of the space completely aligns with the intended meaning, according to CEO Howard Schultz:

Starbucks was designed to be a home away from home, the Third Place, redolent with the aroma of a latte, the hiss and steam of a freshly tapped espresso, a big comfy chair for a chilly afternoon’s embrace.

In other words, Starbucks didn’t just sell coffee, it sold affect. More than this, though, Starbucks promoted their coffee experience as connoisseurship, suggesting that we all enjoy our coffee is like we enjoy a fine wine. This strategy worked not only to attract an elite market segment, but also those lower-income consumers wishing to be a part of the “bobo” — bourgeois bohemian — class:

Starbucks was a luxury brand that benefited greatly from the trickling down of aspirational desires of the non-elites. You may not be a rich man, but in a pinch you can buy the rich man’s coffee.

But now this shifting in economic fortunes, charted most recently by a recent New York Times article, “Does This Latte Have a Funny Mainstream Taste to You?” Apparently, music sales at Starbucks stores have also begun to suffer, yet another blow to a recording industry that once saw the coffee chain as part of their offensive to save the CD.

Critics in the music industry say the company squandered its cachet by mismanaging the effort to broaden its music mix. The choices that reflect its early taste for the offbeat — like an album from Lizz Wright, a torchy pop singer — are now squeezed in with offerings not unlike those at Wal-Mart, including the latest releases from Alicia Keys and James Blunt. The shift has not been lost on some customers.

While Starbucks claims to have never intended to be perceived as a champion of “indie” music, and that the changes in their CD selection reflect the tastes of their customers, I would argue that this example is symptomatic of the larger problem plaguing this corporation: greed.

In short, Starbucks has broken the promise of its brand. In order to maintain an image of connoisseurship, Starbucks’ needs to maintain a certain level of scarcity. Instead, they pursued a strategy of hyper-distribution. If initially consuming Starbucks meant separating yourself from the mainstream — and this is where independent recording artists complemented the mix perfectly — suddenly Starbucks is the mainstream.

Along with this rapid expansion, other aspects of their brand began to erode: automated espresso machines were introduced and a variety of accessory products were introduced that increasingly made customers feel like they were in just another fast-food restaurant. The most infamous example cited is the introduction of breakfast sandwiches in some U.S. locations, sandwiches that have now been eliminated because their smell, among other things, interfered with the Starbucks’ atmosphere. People have begun to wonder what exactly is distinctive about Starbucks, because this distinctiveness was exactly what most of them were buying. I mean, you can certainly find a cheaper cup of coffee…

I’ll admit it, I love the irony that the initial success of Starbucks is what is now leading to its slow death. It’s really a simple supply and demand issue: Starbucks has undermined itself by having creating a demand — it changed marketplace by introducing people to high-end coffee — that it can no longer supply. Clearly, there is still a demand for a high-end experience, but it is now being fulfilled by other, seemingly more “authentic” retailers. I experienced this myself recently when seeking out a quiet corner to catch up on some reading and enjoy a hot cup of coffee. I gravitated to Higher Ground, a local, independent café here in Calgary that I prefer over the chains, but it was full. I had to go next door to Starbucks, which was empty.

Schultz, who has only recently reclaimed the position of CEO at Starbucks, has claimed that he intends to help the corporation reaffirm its position of authority and exclusivity in the coffee marketplace. I believe that the only way to save Starbucks is to go the opposite direction: they need to embrace their destiny as a fast-food vendor, perhaps re-branding a number of locations to create a new, “indie” brand that can compete with the rising locals. Either way, they’ll have to change their marketing mix. By closing stores, scaling back locations, but also introducing the $1 “short” coffee, it looks like Starbucks hasn’t decided what it will do.