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December 2004



I agree with pretty much everything that has been said. I think that expansion is good but smart expansion. I did not mind the bottled frappucino and the ice cream. That makes sense. Bacon and egg sandwiches sniff of trying to outdo Dunkin Donuts at the breakfast game. I thought that the whole point of Starbucks is that coffee drinking is an experience and one that is not always a "gone in 60 seconds one"?

Linas Simonis

In the long run it will generate less profit. So, why shareholders of Starbuck don't put Shultz to trial?

Another thing is, if it is shareholder's pressure to grow. In this case it is like slow suicide. And after such suicide American motors died. General Motors is still in agony. It seems, that it is much harder to kill old, established dinosaur. How many time it takes to Starbuck?


Nice post. I love starbuck and everything, but what with they do to increase business doesn't reallt effect me, but anyway like you said why mess with success?

Jakub Petrina

To Stephen's point:

My take is you need to broaden the portfolio somewhat and that McDonald's have gone too far and in a bit unfocused way. Did they have to go into salads? Number of ice-creams?

But maybe McDonalds's positioning is no longer a fast food hamburger chain, but "No 1 fastfood", period. They have the name, they have the distribution.

But once you start serving everything, you become generalist. Once you become generalist, you are no longer an expert and if you are not the expert, you CAN'T CHARGE PREMIUM!

I suspect they have more customers than years ago (?) but relatively lower prices. More customers also mean higher costs - together with lower prices shrinking the profit margin.

This is very likely to happen to Starbucks if they go down the same route.

58% margins will soon be history.


For Starbucks: I believe that the food move may facilitate more drink sales. If people stay to eat, they may have longer meetings/studying time (because they can now eat there) and/or consume more drinks while eating at the location.

For McDonalds: They also had almost no competition in the marketplace when they entered it. The concept of the fast food restaurant was pretty much pioneered by McDondalds. As competitors entered the market they decided to diversify the menu. If I remember the SuperSize movie correctly, McDonalds has a couple of times as many locations as all the other fast food restaurants combined. Not a bad path to follow...

Don The Idea Guy

Some related info from the Starbucks Gossip Blog:


johnmoore (from Brand Autopsy)

To be 100% accurate …

Howard Schultz is Starbucks chairman and chief global strategist
Orin Smith is Starbucks outgoing chief executive officer (retiring in March 2005)
Jim Donald is Starbucks incoming chief executive officer


Howard Schultz is Starbucks' chairman, not CEO. The CEO is Orin Smith.

Jim Brown


You may be interested in reading this article by Joel on software pricing:



Another great article on the dangers and seduction of stretching the brand! When considering this topic, I always ask myself the following question though: "What should a focussed firm (and a highly focussed brand) do when what it stands for starts to lose its relevancy?

Thanks Laura!

PS. The book "Focus" was a big inspiration for me in many ways -- loved it, and it still makes a lot of sense!


Brand arrogance: It's a killer, and it happens when CEOs believe their marketers, who believe their ad agencies, who believe, rightly, that they'll get paid regardless of the outcome...!

Stephen Macklin

Of course the flip side of the McDonald's question is would they have been able to maintain the essentially flat numbers you cite if they had not expanded the menu?

As for Starbucks, they are probably faced with the reality that there is a limit to the segment of the market that will pay $3.00 for a cup of coffee. They are not likely to win over they guy or gal who is perfectly happy with a large coffee for $1.50 from the quickstop where they buy their gas. Thus their only avenue for growth is to coax a few more dollars from their existing customer base.

johnmoore (from Brand Autopsy)

Yeah … I’m not too keen on Starbucks going into areas outside their comfortable home of coffee. But Wall Street seems to demand it. Ain’t nothing sexy to Wall Street on basing a growth strategy around selling coffee. Wall Street demands more ‘transformational’ growth strategies and not ‘incremental’ growth strategies.

As you mentioned, Starbucks has ventured outside of their core many times before … Joe Magazine, internet portal venture, Circadia [trendy nightclub-like espresso bar serving alcoholic drinks], Starbucks Café, selling fancy office supplies/accessories, and now they seem all over the CD-burning opportunity.

Yet no matter where they wander outside of their comfortable coffee home, Starbucks always seems to scurry back to their comfort zone and renew its focus on coffee to drive sales.

As a former long-time Starbucks marketer, I recall one senior Starbucks executive summing past failed forays into lifestyle brand extensions by saying, “Sometimes you have to leave home to realize how sweet home really is.”

BTW … Starbucks has been trying for years, at least since 1997, to build a lunch business. It didn’t work in 1997 and it ain’t gonna work in 2004/2005.

Don The Idea Guy

Excellent, excellent points Laura!
You are right on the money -- how could they do this?

Mark the date and time folks, if Starbucks doesn't revert to their core brand focus, Laura is going to be proved right within the next year or two.


Thanks Michael! Al is still fuming about American Motors. "If they had just thrown out the Eagle cars and focused on Jeep, they could have owned the SUV category." Oh well.

Like Jeep, long term Starbucks could face a more focued competitor in the coffee market. The way McDonald's has been broadsided by In-and-Out Burger in hamburgers. Taking your eye off the ball and your core strengh is always dangerous.

I appreciate that you have been reading our stuff over the years and will send your best wishes to Al as well. Thanks!


Laura, I really enjoy reading stuff from you and Al. This one on Starbucks reminds me of what Al once said about Chrysler - that they should have changed the name to American Motors Corp and focused on Jeeps only. If they'd done that, they would've been sunk by the brutal competition in that category today. With Starbucks, I just don't know but I suspect you're right in this case... the smells would be total chaos!

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