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Starbucks’ corporate growth strategy has been aggressive. For nearly the past two decades, the company has seemed hell-bent on putting a Starbucks coffee shop on every corner. In many cities, one Starbucks per corner just isn’t enough. Comedian Lewis Black joked, “”…and if you walk to the end of the block, there sits a Starbucks. And directly across the street — in the exact same building as that Starbucks — there is… another Starbucks. There is a Starbucks across the street from a Starbucks! And ladies and gentlemen, THAT is the end of the universe.”
In July, Starbucks announced that they’ll be closing 600 company-owned coffee shops nationwide that they say are ‘bleeding money’. What happened to the Evil Coffee Overlord?
Quite simply, they’ve overextended their reach and oversaturated the market with Starbucks. As a national pioneer, they awakened a taste for premium coffee products, and opened up the market to competitors. Starbucks is no longer the only kid on the block, not even in the coffee mega-chain world. Their aggressive marketing tactics smoothed the way for their competitors to follow – and their competitors have followed. McDonalds and Burger King now offer their own version of premium coffee drinks, and regional competitors are growing and offering the convenience of drive-thru windows and lower prices.
At the same time, they’ve expanded their product offerings by putting Starbucks on supermarket shelves so that consumers can brew their own coffee at home. When the typical home consumer can brew up their favorite Starbucks blend in their home machine, they’re far less likely to go out to the local coffee shop.
The slumping economy has made Starbucks coffee even less palatable to the typical consumer. One of the most commonly offered ‘how to save money’ tips in any financial column or women’s magazine is ‘cut out the coffee shop drinks’ – and when they talk about $5 coffee drinks, everyone knows who they mean. As more and more people divert their coffee money to their gas tank, Starbucks is feeling the pinch, perhaps more than other coffee chains and coffee shops.
In fact, some market analysts are predicting that just as Starbucks’ success was good for the coffee business in general, Starbucks’ slumping sales will be just as good, if it has any effect at all. Katharine Diaz, writing at the Milwaukee Journal-Sentinel interviewed local mom and pop coffee shop owners in the wake of the Starbucks announcement on July 2. She found that local shops have seen sales increases that range from .2% to 10% over last year’s January to June sales.
One financial analyst suggested that the reason may be that people are ‘trading down’ – substituting less expensive coffee shop coffee for their Starbucks fix. I personally like the reason given by one veteran who has been running a Milwaukee coffee shop for thirteen years:
“People have met (in her shop) and gotten married,” she said. “You can’t write that into a business model.”