Corporate Governance

Starbucks, Store Closings and Social Responsibility

By J. Robert Brown

We write regularly about Starbucks on this Blog. The latest news from the mandrake of the three dollar (or more) cup of coffee is that it will close 500 more stores, apparently in recognition that some stores are cannibalizing the sales of others. We have no opinion on this, lacking any expertise into, or insight about, the management of 11,000 outlets. But we offer this observation. When McDonalds rolls out the plan to insert baristas in its 20,000 franchises, Starbucks will incur unparalleled competition. To the extent the product of McDonalds and Starbucks is considered a commodity, convenience and price will control the choice of many latte consumers. By closing stores and slowing expansion, Starbucks increases the convenience of the McDonalds franchise.

We have taken the position often here that Starbucks needs to use its huge corporate presence to promote socially responsible causes as a means of differentiating its product, whether economic, in the case of employees and coffee producers, environmental, whether in the coffee growing process or in the process of coffee consumption, or health, whether by using organic or locally grown products. This is what the burrito maker, Chipotle, does. But if Starbucks insists on treating its product like a commodity, it must have in place a strong commodity strategy. By closing stores, purchase of the commodity becomes a bit more difficult and threatens to lose customers to an outlet that is more convenient and not necessarily a Starbucks.

Full post as published by The Race to the Bottom on July 07, 2008 (boomark / email).