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Starbucks History Is Worth Repeating

May 23, 2008
There's been a lot written lately about the downfall of Starbucks, the world's largest coffee retailer. Just a few years ago Starbucks coffee couldn't do anything wrong but today many think it has grown too fast and gotten too big. Overexpansion, oversaturation, dismembered product extensions have all made for the siren's fall from grace. Others might argue that the current CEO, Howard Schultz, took his eye off the ball by dabbling in too many extracurricular activities. For one, Mr. Schultz is currently considering suing the group of investors that purchased the Seattle Supersonics from the coffee billionaire and is now threatening to move the team to Oklahoma City.

During the company's stellar rise, Starbucks has bore the brunt of many jokes, but the company's ambitious growth model to cover the globe with 40,000 stores seems to be on hold presently as this has lead Starbucks to build stores fairly close to existing locations, prompting one comedian to exclaim "I saw Starbucks building a new store inside of a Starbucks." The latest controversy is the company's use of a bare-chested siren as its logo. However, this logo has been in place at the coffee giant's first location at Pike's Peak Market in downtown Seattle for almost 40 years. It's only after Starbucks adopted a "get back to its roots" campaign utilizing the logo has the company received strong opposition from religious groups.

In addition to a sluggish economy brought about by a miserable housing market, a severe credit crunch, and massive job losses Starbucks also finds itself battling it out for customers with an opponent almost 3 times its size in McDonald's. It was a few years ago when both companies decided to muscle in on each other's turf, Starbucks getting into the breakfast business, and McDonald's upgrading its coffee offering to steal consumers away from Starbucks. There doesn't appear to be a clear-cut winner in a coffee wars, but in less than a year Starbucks has retreated its lofty breakfast ambitions citing a desire to get back to the its roots. One of the things Mr. Schultz pointed out during his return as CEO is the retail locations have lost a bit of their soul and a lot of their smell, and he wants to make sure the company focuses on what he feels they do best, and that's make coffee.

Starbucks has always been known as a meeting place for business people, students, moms with kids, or just a place to get away at relax for a while. This atmosphere was created intentionally by what Mr. Schultz terms "the third place", or a place one could go between work and home. Of all the things that Starbucks corporate can focus on at the store level, it's making the customer feel welcome again.

One of the initiatives Starbucks is undertaking to achieve that goal is the rollout of free Wi-Fi in all of its locations. Starbucks has partnered in the past with T-Mobile but has opted out of that contract and has chosen at&t as its new partner. Starbucks is also scaling back its music offerings by giving up day-to-day control of its music division to another company, all in the hopes of being able to focus on its core business and get back some more of the 44 million people a week that used to pass through its doors. Mr. Schultz recently commented that that this is the worst economic environment the company has ever operated in and that the people who used to splurge on four dollar lattes are seriously feeling the pinch of four dollar a gallon gasoline.

But all is not lost, with over 16,000 stores worldwide Starbucks still commands a presence in any marketplace, and throws off significant cash from its operations. Don't be surprised if Mr. Schultz keeps one eye open to acquire weaker chains at home and abroad as buying earnings and revenue may be the only way to achieve the numbers Wall Street has come to expect from the company. There is no reason to believe that Starbucks and Mr. Schultz will pull themselves out of the current nosedive to once again reign supreme over the coffee world, one triple pump, non-fat, extra whip, latte at a time.
About the Author
Eric is the head blogger at http://thedripp.blogspot.com and has been a sales and marketing consultant for 20 years. He blogs about Starbucks as a way to share ideas and stimulate conversation about the worlds largest coffee retailer .
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