There's a lot to dislike about Starbucks (SBUX, news, msgs). But even if you hate the company right down to the canned art on the walls and the sticky-sweet goo passed off as coffee, you've got to admit those businessmen in Seattle sure know how to build an empire on faux exclusivity and inflated prices.
When profits plunged 97% in the fourth quarter of 2008, optimists interpreted it as a sudden outbreak of good taste. No such luck. In the third quarter of 2009, the company earned 20 cents a share, compared with a penny for the same period a year earlier.
What happened? Analysts will prattle endlessly about Starbucks closing 600 weak stores to get costs in line, improving customer experience and -- get this -- continuing innovation intended to differentiate its 7,087 company-operated and 4,081 licensed stores in the U.S. from the competition.
Don't believe it.
There's evidence that far from innovating, Starbucks's latest innovation -- the independent-coffeehouse-themed 15th Avenue Coffee and Tea -- was ripped off from small nonchain coffee shops in the Pacific Northwest.
Sebastian Simsch, a co-owner of Seattle Coffee Works near the city's landmark Pike Place Market, said Starbucks employees elbowed their way into his 300-square-foot store last year to nose around.
"I thought it was funny," he told The Seattle Times. "We're this little store, and I thought Starbucks didn't need to learn from me."
Starbucks' drones reportedly got so thick that Simsch called corporate headquarters to complain. After that, the spies didn't return, even when he moved into a bigger space next door.
It seems Starbucks finally figured out that one size doesn't fit all, especially if you're catering to customers who pride themselves on their up-to-the-minute, cutting-edge looks and attitudes. The chic new stores will be rebranded with individual names to create the illusion that they're locally owned. Who says you can't buy authenticity?
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Starbucks also faces increased competition from unlikely blue-collar sources: McDonald's (MCD, news, msgs) and Dunkin' Donuts.
Thanks to that competition, coffee drinkers may have even more reason to hate Starbucks.
Consumer Reports magazine says a cup of joe from McDonald's beats the expensive stuff at Starbucks. (See "Starbucks to rip off more than just its customers.") The magazine hired trained tasters to sample a medium cup of black coffee from McDonald's, Burger King (BKC, news, msgs), Dunkin' Donuts and Starbucks.
McDonald's beat the rest, Consumer Reports said. Coffee from the Golden Arches was "decent and moderately strong."
Somewhere, there's a poet at Starbucks working on a sonnet who took a punch to the solar plexus. But here's the knockout blow:
"Although (McDonald's coffee) lacked the subtle top notes needed to rise and shine, it had no flaws," the magazine said. Starbucks, it said, "was strong, but burnt and bitter enough to make your eyes water instead of open."
In order to better compete, Starbucks is heading down-market to meet McDonald's on its own turf. It recently rolled out an instant coffee artfully -- no, dramatically -- named Via Ready Brew.
So much for the ritual of preparation, the sense of indulgence and maybe even the ambient glow from being among kindred souls at Starbucks.
The new instant stuff must pack a wallop because the copywriters at Starbucks went into overdrive. Under the heading "How Starbucks Via Ready Brew can change your life," (.pdf file) the unsuspecting pilgrim learns:
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"It's pretty revolutionary, when you think about it. With Starbucks Via, great coffee can be yours anytime, anywhere. A life-altering concept, with tasty consequences, to be sure. But with endless possibilities for enjoyment, where does one begin?" (See also "Why Starbucks' caffeine high may not last" and "Will Starbucks Via be an instant success?")
Some testers say Starbucks' new instant coffee is as good as slightly stale regular coffee, and that almost certainly beats cleaning solvent or battery acid. For the record, the instant coffee comes in two flavors, Colombia and Italian roast, and a three-serving pouch costs $2.95. (Note to Starbucks' corner office: Colombia is a noun; Colombian is an adjective. Make it "Colombian instant coffee" lest you offend the delicate sensibilities of English majors everywhere. You got Italian roast right, apparently by chance.)
Peddling instant coffee looks like a Hail Mary pass from a company that built an empire by convincing people coffee was a luxury product and complimenting them on their taste, wit and sophistication to get them to pay inflated prices for it. But now Starbucks is going for broke with breakfast offerings that include a ham-and-egg sandwich and coffee for $3.95.In fact, Starbucks is becoming a bohemian McDonald's, minus the lip-smacking grease and inexpensive, hearty coffee lacking "top notes." You've got to love the comic opera tone of the latest scam -- and hate the company that hatched it.
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