Another major Fast Food sector player has reported troubling financial figures. Starbuck’s sales were down 6 percent last quarter in the home, US market. It’s seen as confirmation that consumers have reached a breaking point with high Fast Food prices…
Starbucks needs to get back to its origins – simplifying its vast menu and spotlighting its barristas…
Just last week, we reported McDonald’s sales were not just flat, but – for the fist time in ages – actually down. In his incisive analysis for CNN, business writer went as far as saying, “Americans have turned their backs on McDonald’s.” Now, CNN’s Nathaniel Mayersohn reports, ‘Consumers have reached their breaking point with $6 iced coffees and lemonades at Starbucks.”
Shocking turn of events
Starbuck’s sales dropped 3 percent across the chain last year. And last fiscal quarter alone, they dropped another 6 percent in the ‘home’ (US) market. It’s an unprecedented situation. And observers agree it’s all because folks are leaving the premium coffee brand for cheaper caffeine fixes.
This comes at the same time as Starbucks is making major changes in it’s decor – some say it’s very identity – by removing its signature comfy chairs. The idea is to discourage folks from lingering. The chain wants to shift the emphasis from its original ‘place to meet and mingle’ concept to a straight ‘takeout’ model.
The underlying goal is to streamline service and make it possible to handle more customers faster. That, they say, does two things. It gets folks on the go in and out faster, and it potentially increases revenues.
But it doesn’t address the price fatigue its fans are showing.
Enter the ‘Value Menu’
Starbuck’s says as much as 70 percent of its business these days comes via app and drive-thru orders. That’s its rationale for the wholesale change in identity.
But the chain also borrowing a tactic from the burger-and-chicken segment, offering a new value-oriented ‘Pairings menu’. The overall concept involves pairing a drink and a breakfast food item at a discount. The price is $5 or $6, depending on where you live. You could look at it as getting a whole breakfast for the regular price of a beverage…
Will it be enough?
Everybody is asking, “Will those moves be enough to ‘turn Starbuck’s around’?”
I think the real question is, will alienated Starbuck’s customers come back? Fan loyalty is worth much more than the temporary boost a fast food resto or coffee shop can generate via a limited-time promo.
And if the business model change and menu update don’t reverse the unprecedented drop in sales, what will Starbuck’s try next?
My take
Starbuck’s was the original ‘chain’ premium coffee brand. Its immediate success and meteoric growth set the bar exceptionally high for would-be competitors.
Competition in the coffee niche has come mainly from med-range brands such as Dunkin, Tim Horton’s and even McDonald’s McCafé concept. And they’re doing just fine, for the most part. I wonder if the bell is tolling for premium fast food brands in general? Or at least, pricey fast food menu items?
I well remember when McDonald’s first came to the town where I grew up and went to school. The resto was located as close as possible to the high school. And it was crawling with high school kids all day. They were attracted to McD’s mainly by the low prices for the things they wanted: burgers, fries, shakes and fizzy drinks. That was the original McD’s franchise concept – simple and foolproof. It worked like a charm. And it revolutionized the industry.
Now, every Fast Food joint is trying to offer everything every perceived competitor offers, to keep the ‘other guys’ from siphoning off their fans. And it’s backfiring on them.
Chipoltle went through a very tough period a few years back. But new leadership made tough decisions, axing a huge swathe of the menu and refocusing on the chain’s original Tex-Mex / Burrito theme. That move cut back on the expensive food inventory operators had to maintain and sped up service. And Chipotle has enjoyed a miraculous comeback.
Starbuck’s might benefit greatly from simplifying their menu – as well as their decor…
~ Maggie J.