Corporate Governance

Starbucks and Social Responsibility: Free Flavors Aren't Working

By J. Robert Brown

The news at Starbucks keeps getting worse. Starbucks has been suffering, with declining sales and anticipated competition from the likes of McDonalds.  How has the company been doing?  Not well. As the WSJ has noted: 

• New figures released by the company show that, instead of the bottoming out Starbucks predicted in October, the company's same-store sales have gotten worse. Though its overall revenues have grown, sales at U.S. stores open at least a year fell 9% in October and November from a year earlier.

What is the plan to fight back?

• Starbucks, a brand that encouraged consumers to trade up, is changing tack after discovering that its most faithful customers are saving money in part by making fewer visits to the chain. It recently launched a loyalty card and other promotions that offer customers cheaper drinks and allow it to target the chain's most-frequent visitors, who come to Starbucks an average 16 times a month.

In addition, there is apparently an aggressive cost cutting program underway. 

In the end, as we have noted, this is what happens to a high end luxury that is largely indistinguishable from its competitors.  For Starbucks to buck the trend, it needs a different strategy.  Social Responsibility is this company's ticket to profit maximization.  It has taken small steps in that direction (a nickle to the Global Fund for certain drinks and free coffee on election day) but clearly views the strategy in a tepid fashion.  The benefits of the strategy will take time to sink in.  The longer the delay, the longer the bad news will likely last.

Full post as published by The Race to the Bottom on December 12, 2008 (boomark / email).