Starbucks Via: have they lost their beans?
I was full of hope for Starbucks when I posted about founder Howard Shultz returning as CEO, back in Jan 2008. At the time he said:
"We will be re-focusing our entire organisation on
the Starbucks experience by going back to our heritage and what made us
successful in the first place.
Let's get back to the core. Push for innovation and do the things
necessary to once again differentiate Starbucks from all others."
Now, what in the bloody hell has launching Via instant coffee in supermarkets got to do with improving the Starbucks core experience?
This seems like a bonkers bit of brand stretching. Remember, the question to ask is not could Starbucks stretch into instant coffee. I'm sure it tested OK in focus groups, and maybe even quant testing. No, the question is should they do it.
My view is no, no, no. I just can't see a sustainable, profitable business model:
1. Where's the sausage?
There are loads of great instant coffees. Nescafe Gold Blend is a big, established brand that is strong. You can get Fair Trade coffee from Kenco. And own label has a formidable offer. Does Starbucks really bring anything new to the party in product terms?
2. Lack of expertise in consumer goods
Starbucks knows nothing about how to distribute, merchandise and promote products in supermarkets. I assume they will need a 3rd party to do this for them, reducing their profit margins. And it will be up against a "wall" of Nescafe, and risk being invisible.
3. No economies of scale
Nescafe churn out millions of tonnes of coffee and have a cost advantage. Starbucks have no chance of competing on the cost side.
4. The image building mirage
So, this must mean that the launch of Via is running off in search of the "mirage" of brand image building. The theory is that by launching an extension you get a positive "halo" effect on your brand as a whole. In this case, Shultz hope Via will improve his brand's value image.
This is one of the biggest load of bollocks in marketing. Every now and then you get this, when you have an amazing product like the iPod that is a huge hit. But Apple launched the iPod to make money, and selling more PCs was a bonus.
Few people are going to buy Starbucks Via. And even fewer are going to think "Oh, look. Starbucks are entering the instant coffee market. That must mean that they're not expensive like I thought. In fact, their coffee stores are great value."
To fix a value for money problem Starbucks should have focused on the core:
1) Improved and communicated about a better customer experience: They could make the coffee in store even better. And fixed the tatty chairs. And cleared all the empty cups away faster.
2) Used smart promotions to weather the storm
3) Used sizing: promote the smaller sizes as a cheaper option.