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Why Mess with Success?
Starbucks redefined America’s coffee shop. It was the first brand to focus on being a European-style coffee house. The first coffee shop to just sell only coffee albeit high quality coffee, at outrageously high prices served in a friendly, warm, comfortable environment. It has been a fantastic recipe for success. A success story dozens of me-too brands have been unable to duplicate from Seattle’s Best Coffee (recently purchased by Starbucks) to Caribou Coffee. With 6,300 Starbucks coffee shops now open, running on a gross margin of 58% why would they mess with success?
And yet they are. Today, Starbucks is rolling out a plan to expand its food offerings into oven-heated foods. In October of this year, 80 Seattle Starbucks outlets began offering $3 hot sandwiches like bacon-and-egg and spinach-and-egg muffins. The roll-out suggests that Starbucks feel the Seattle test was a success.
Read the story on bloomberg.com and at the Daily News.
Short term vs. long term.
But a three month test? Our line-extension research suggests there is a difference between the short term and the long term. In the short term, a line extension can be successful. It’s new. It’s different. And there are plenty of people willing to give a new and different product a try.
But in the long term, reality sets in. A line extension often undermines what the brand stands for. Starbucks means coffee, not bacon-and-egg sandwiches.
This isn’t the first time that Starbucks had tried to move beyond coffee. Remember Café Starbucks, a proposed chain of fast-food shops that was going to feature chicken pot pie?
Then there is Starbucks ice cream, Starbucks coffee liqueur, Starbucks bottled frapuccino drinks and of course, Starbucks coffee beans sold in supermarkets.
Growth at what cost.
Most companies feel the pressure to grow. As the opportunity to open more and more outlets diminishes for Starbucks, CEO Howard Schultz is looking for other ways to increase revenue. But by adding more and more items to the menu. By making operation and cost of running the store more expensive. By making customers wait even longer in line for a cup of coffee. By diluting the meaning of the brand. Not to mention diluting the aroma in the store. (Nothing is going to spoil the wonderful coffee aroma like the smells of bacon, sausage and eggs. Yuck! Might as well just get your coffee at McDonald’s.) Starbucks risks destroying the brand.
It is the same thing that happened to McDonald’s. McDonald’s was the first hamburger brand. They sold hamburgers, French fries, soda and milkshakes. They were wildly successful, wildly profitable and eventually expanded into every town in America. Then they went crazy with expansion. The menu grew and grew with items like pizza, chicken, fish, veggie burgers, arch deluxe, breakfast, ice cream, salad etc.
When McDonald’s first started they had 11 items on the menu, counting all flavors and sizes. Today, a typical McDonald’s has more than 80 items on the menu. Have sales gone up eight-fold? Not exactly. Factoring in inflation, sales have been relatively flat.
In 1966, the average McDonald’s did $275,000 in annual sales. Factoring in inflation that would be $1,533,000 in 2003 dollars. Considering the fact that the average McDonald’s did just $1,633,00 in sales last year, it’s hard to see the advantage of adding those dozen of additional products.
The answer is not to mess with success. Strong brands stay focused. Strong brands stand for singular ideas in the mind. Starbucks should stay focused on coffee. Look at the success of their recent Pumpkin coffee promotion. So forget the egg muffins Howard and stick to the great coffee.