A New Message From Starbucks

Think Maxwell House and you have the coffee culture that preceded Starbucks. Made with low quality beans, sold in cans, pre-ground, sitting for months and maybe years, the coffee was terrible. So, when Starbucks came to town, it was transformational. Paying more than at the local luncheonette, the first Starbucks customers in the 1990s felt special. Perhaps because the idea was somewhat European, the concept of the coffeehouse had status. In a world of coffee that had been dominated by cans of Maxwell House, Starbucks was elite.

No more.

Now with a Starbucks (or two) on every block, Starbucks has become rather ordinary. Those of us looking for an aspirational coffee experience with a better bean from a small far-off farm have been flocking to places like Blue Bottle and Philz.

In last week’s investor call, Starbucks’s CEO and founder Howard Schultz seemed quite aware that he had to recapture the gourmet coffee consumer. Describing Starbucks’s new Roastery coffeehouses, he used the words “ultra-premium, small batch, limited availability.” No longer called a barista, Coffee Masters assist us at Roasteries. And, at $20 a pound and more, prices also convey an elite message.

Our Bottom Line: Competitive Strategies

An economist might say that Schultz understands how to compete in a monopolistically competitive market structure. Because you just need an espresso maker and some beans, market entry is easy. But to be successful, you need something unique–the monopolistic part. Starbucks, through its beans, its barista training and its store design initially competed successfully.

To regain that special image, the action is taking place at the margin. While Starbucks’s everyday coffee experience remains the same, its Roasteries are supposed to elevate its image. By retaining the masses and entering the ultra-premium coffee market, will Starbucks have its cake and eat it too?

Moving closer to monopoly along a market structure continuum, firms become larger and more powerful.

And finally, for a laugh and a reminder of the Starbucks culture, below, Ellen sends Dennis Quaid to Starbucks.