Will Starbucks Value Push Work Out?

Howard Schultz, as this article puts it, “wants to remind people what Starbucks stands for, and that most of its coffee drinks don’t cost $4.”

So Starbucks is launching a major advertising campaign to let everyone know they can get a deal at the coffee giant. The measure was announced during yesterday’s second-quarter results, a period when the company experienced an 8% same-store sales drop, as well as a profit plunge of 77%, and closed 123 stores.

The new direction of the chain is to cut its own costs and push the value message to consumers. This year Starbucks is opening about 20 stores, down from its original 2009 plan of 1,450, so we can safely say that its rapid expansion plans were scaled back. And the company launched some price-conscious promotions.

A few industry observers out there are saying Starbucks is going on the right direction. This columnist says we should ignore its latest poor financial results and look at its future: “Starbucks continues to deliver a high quality product and is adjusting their business strategy to reflect the reality of weak consumer spending.”

Do you buy that? Can Starbucks shake off the perception that it’s a luxury to weary consumers that have already traded down to McDonald’s or Dunkin’ Donuts?


11 Responses to “Will Starbucks Value Push Work Out?”

  1. 1 Ladislao April 30, 2009 at 8:27 am

    In Melissa Allison’s article she mentioned

    “In a promotion beginning next week, it will sell 16-ounce iced coffee for less than $2.”

    That SHOULD have been a standard price to begin with. On average their coffee costs about $.23 a cup when you buy yourself and make it. Now imagine how much it cost them… Probably about $.05-.08 a cup.

    Now I love Starbucks coffee just like anyone else, but when you go to Costco and find another company like Aspen who produces their version of regular whole bean coffee, Pecan flavor, Hazelnut flavor (which by the way I’m drinking as I’m writing this), etc… I’m STILL amazed at how much we’re still willing to pay for this stuff…

    That’s the reason why I said in the beginning “That SHOULD have been a standard price to begin with.”

    BTW, If anyone chimes in with their “cost to profit” expense comments, please don’t, I already know how much it takes to run a store of this size. The profit that they’ve made from this business already has been INSANE. They could easily cut their prices in half and still go to the banks celebrating while a doing victory dance !!!

    One thing I will say though, they make a darn good cup of coffee…

    Oh, and as always… everything I just said is JUST MY OPINION…

  2. 2 Alex April 30, 2009 at 9:07 am

    forget starbucks – most americans that drink it do it for image sake only. their normal brew is not as good as dunkin donuts (best “retail” coffee) and their pricey drinks are just sugar / coffee that you can make at home or get cheaper at mcdonalds or dunkin donuts. People feel “better” than others when they shop at starbucks – like they’re cooler, which is why they survive today. if people were to know how much coffee actually costs to make and brew yourself they would be SHOCKED! simple things like using filtered water and grinding right before brewing go a long way. Anyways im getting off track. Starbucks has the image of expensive coffee – now they want to CHANGE that image – its going to be interesting to see how this marketing machine will be able to pull that off….. (similar to how mcd’s is trying to show that they have starbucks level coffee despite having the image of crappy food!)

  3. 3 Jarod King April 30, 2009 at 12:02 pm

    How long will it take to grab the attention of a Starbucks executive? The answer to same store sales lies in the fact that Starbucks charges rediculous prices for WiFi. THey are a coffee house that does not give customers a sense of community or reason to remain in the store. I guarantee there are greater profit margins in drip coffee then a vanilla latte.


  4. 4 little nat April 30, 2009 at 12:15 pm

    Being able to hold on to a cup of Starbucks and be seen by your friends and neighbors is a real turn on for the age group that sips this stuff. They can not afford a good looking shirt or top however,they can buy a cup of Starbucks and look hip. I wonder if these people keep their cups and take them home to have them filled with their on brew that is cheaper. Dunkin and 7-11 still have great brews however, they just do not fit with what the hip are wearing.

  5. 5 CoffeeBean April 30, 2009 at 12:23 pm

    The value push will help their sales and possibly bring back some customers who have traded down to Mickey D’s and the Dunkin Man. The key will be as long as there is a substantial distinction between their lower priced coffee and the $4 coffee, without sacrificing overall taste at the lower price point. People are still sensitive to the image they make in the workplace, and having a Starbuck’s cup versus a 7-11 cup may have a psychological effect on the drinker and those who see them. When so many people are worrying about “keeping their spot” in the job jungle, no one wants to look like the injured animal, so image is still important to many.

  6. 6 patrick April 30, 2009 at 4:09 pm

    i’ll follow most of the commenters here on the image argument, as well as proposing another: expensive and frilly coffee drinks were a luxurious convenience for a world that was always on the go. the sad state of things in sbux land these days, though, is that it is no longer chic to appear wasteful, and no one is nearly as bustling these days as they were in 2006-2007. sorry, starbucks, but we just don’t need your high-margin hold-over energy reserves as much these days. maybe when business picks up again, i’ll come back. can you wait that long?

  7. 7 Alex April 30, 2009 at 5:11 pm

    This is a very smart move. We are no longer in 2005, where image mattered. Well, image and branding STILL do matter but no longer is over-priced, luxury, opulent cool the image people are driven to. In this climate affordability, value, sustainability are the new “cool” and Starbucks had better join the space that was already being taken over by more blue collar McDonald’s and Dunkin. This is a message to many mainstream brands out there. VALUE is the new “it” in a BIG way.

  8. 8 Jim fleischman April 30, 2009 at 8:24 pm

    I am sorry to say this but most of you jerks are not thinking or you are making assumptions about McDonald’s or Dunkin’ Donuts.

    I drink my morning coffee at Starbucks as a means of getting out of the house, because I work from my house and I need to get out of it. I pay less than $1.50 for a 16oz cup of coffee and I add milk and cinnamon, which is expensive. Starbuck’s pays most of the cost for health insurance for those who work 20-hours a week or more. Starbuck’s #1 expense is health insurance as is Costco’s. Both socially conscious corporations. I cannot say the same for Dunkin’ Donuts or McDonalds, who each have no insurance for all but top managers and serve horrible unhealthy food and they each charge about a $1.50 or MORE for a cup of coffee.

    Starbucks also has a tuition assistance program for students. McDonads innparticular markets it’s horrible and expensive food to children, and in particular minority children. Micky D’s is a disgusting campaign and it’s food is greasy and of poor quality and expensive on a quality for the $$ basis…

  9. 9 greendiamond May 1, 2009 at 11:49 am

    Build a better coffee shop and customers will come…until this happens, we will continue visiting Starbucks. Everybody has time for a cup of coffee and, in my market, Starbucks is very conveniently located. Starbucks is not so much about value but rather consistency.

  10. 10 DE May 1, 2009 at 1:49 pm

    Starbucks offers what many others don’t – alternative adds like soy milk, etc. For diet restrictives like myself, this is the only reason they are my main coffee break. Panera Bread is sensitive to this issue and sometimes so is a small, local coffe shop. When others offer alternatives, I’ll be glad to drop the expensive Starbuck habit. As far as cleanliness and customer service, no others match it. May this economic downturn bring them in-line with the falling market prices of so many.

  11. 11 Landy May 4, 2009 at 10:32 am

    I’m sorry, but I know very few people that go to Starbucks b/c of their image. Most people go b/c they can get a very cup of coffee and enjoy the environment. I love coffee and I have Starbucks coffee at home, but it’s not the same. I like the taste much more in the store. I pay $ 1.50 for a cup of coffee, which is not much different then in Dunkin Donuts or Mcdonalds and in my opinion, these stores are not even close in taste or Freshness to Starbucks.

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