Living in Seattle, it’s hard to escape two things – rain and Starbucks. Experiencing both in abundance and spending quite a good sum–money and time–at my neighborhood Starbucks on frappuccino, it came as a surprise when Starbucks lowered its forecast for 2008. One of the reasons for lowering of forecast is increased competition from McDonald’s and Dunkin’ Donuts. This raises the question – what is the best way for Starbucks to take on these two giants moving forward? I believe the best way is by sticking strong to their roots and concentrate on filling the soul. In the process if the belly is filled, that’s an added bonus.
I recently completed reading Howard Schultz’s Pour Your Heart into It : How Starbucks Built a Company One Cup at a Time. Schultz’s very well defined the foundation of Starbucks i.e. making the local Starbucks as the third place for the people in the community after their work and home. Starbucks should make sure they do not loose their coffee bar atmosphere while tackling any competitor. That atmosphere is as integral to their brand as is the high quality coffee. Another important thing to note is that people do not come to Starbucks just for a cup of coffee, they come to get satisfaction of buying coffee in a store, where there is the perfect atmosphere to buy that perfect cup of coffee prepared by the cheerful (mostly) barista, or as Schultz put it, people come to Starbucks to fill their souls.
Now let’s talk about the specific competition from McDonald’s and Dunkin’ Donuts. Starbucks cannot take on either of these two on price equation. McDonald’s is known for its economical offerings and has an edge over all its competitors in this field, Starbucks being no exception. In fact, we all know that Starbucks charges a premium, and that has become an integral part of the brand. As far as the rising cost is concerned, it is experienced equally by all the competitors, so I won’t bring that in this equation.
McDonald’s and Dunkin’ Donut are primarily known for their “not so healthy” food. Fat rich offerings at both these places are not the first choice for the health conscious customers. That creates a perfect opportunity for Starbucks to play the health card! Starbucks has always created that perfect third place atmosphere for its customers. By offering healthy food for breakfast with the cup of coffee will provide Starbucks the opportunity to make it the one stop shop for customers in the morning, rather than hopping to different places for coffee and breakfast. Selling point – they are having the best coffee with a healthy meal.
The basic point to understand here is that people do not come to Starbucks to buy the panini sandwich, they come there for the cup of coffee, but while getting that cup of coffee, if they can get something healthy to eat, they would appreciate that as compared to eating that thousand calories breakfast with a not as good cup of coffee.