I am away in warm weather (Newport beach) all week with my clients. The weather is not warm by Southern Californian standard and it was raining. I am writing this post sitting in Air New Zealnd Business Lounge in LAX waiting for my red-eye flight home. This is a much better lounge compare to United or Air Canada's by North Amercian standard. Since they are all part of Star Alliance so rather use their facilities. The Luthansa and SAS lounges are the best. Air New Zealand lounges serve decent food and a some good New Zealand wines for tasting. Service is excellent. Talking about service, I started thinking about Starbucks. Only two weeks ago, there was a story about McDonald is now competing with Starbucks on high quality coffee and research are showing some promising signs. Obviously this would be something you’d never heard of a few years ago when new Starbucks continue to pop up every corner of the world.
People are spending $7-$15 every time they drop by a Starbucks for a coffee. So Starbucks (for the first time) is taking competition (especially low end competition) seriously. They are now experimenting with offering the $1 "short" brew in the Seattle area as a pilot. Starbucks is now fighting a war on the high end with niche competitors slowly eroding their market share and at the same time being attacked by deep pockets at the low end of the market. The eight-ounce short size isn't on Starbucks's menu but has long been ordered by in-the-know patrons. Typically, a short, brewed coffee would sell for around $1.50, although that can vary by several cents depending on the store. They also testing the offer of free refills for traditional-brewed coffee in the Seattle area. May be they'll start giving away free muffin soon.
I think within the next 3 months Starbucks will start to get rid of some of its product lines (breakfast sandwiches and CDs possibly) and start closing some of their underperforming stores in the US over a 12 months period. I think we can expect a layoff in the next 9-days and this is only the first one starting from the corporate office. This is very predictable and is a logical step and is the beginning of a different stage of Starbucks lifecycle. It is also avoidable. It is not a growth business anymore, unless someone can help them with a growth strategy.
My friends and I kept wondering why Starbucks continues to miss the whole Internet opportunity. Particualr the whole social network thing. Their stores attract young, affluent, tech-savvy customers and there are those free agents -- exactly the sort of people who spend time on Facebook and make Starbucks special in the first place. In 1999, they estimated that 70% of its customers were Internet users, and the number should be at 98%. They still don't have a strategy to integrate the Starbuck experiences..I remember they did have a wireless-connectivity initiative that never took off. It is not too late. But need to move fast.