In a post yesterday, BloggingStocks' Zac Bissonnette blogged about the announcement that Starbucks (NASDAQ: SBUX) will be launching a national TV advertising campaign for the first time. Bissonnette makes a good case why this could be a bad sign for Starbucks, the paradigm and case study for word-of-mouth marketing.
From one Zack to another, I'd like to take the other side of the argument. I actually think this could be good for Starbucks and good for investors. I think this is a clear case of a corporation reaching a new stage of growth and using age-accepted tools to continue growing its business. Far from being negative, I think this is a good thing.
Rather than being a smear on the brand, I think customers will see this as the maturation of the brand. After lowering guidance and reporting negative traffic numbers in its stores, Starbucks has seemingly exhausted effective use of word-of-mouth marketing and now needs to turn elsewhere for growth. In essence, the "cool factor" is no longer driving huge growth for the company (keep in mind, even 20% long-term growth is still impressive).
Advertising and effective use of media has been an effective tool for companies like Apple (NASDAQ: AAPL) and McDonald's (NYSE: MCD). As part of the announcement, Starbucks also said that it is planning fewer "limited-time offers" and making sure the lead-ins contain "more impactful" products. All this marketing and execution strategy should help Starbucks regain the cool-factor, given from a more traditional straight-ahead marketing focus.
International sales continue nicely. While the U.S. tanked, international showed 6% same-store growth with a 5% rise in traffic.
Combined with a great customer experience and an under-appreciated effort underway to penetrate the Chinese market, investors shouldn't forget Starbucks on their list of holiday shopping.
Zack Miller is the Managing Editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund. Disclosure: Author doesn't own any stocks mentioned in this article.
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Reader Comments (Page 1 of 1)
11-18-2007 @ 5:20PM
R F PHELAN said...
IT AMAZES ME THAT FOLKS KEEP GOING TO STARBUCKS. THE PRICE BEING CHARGED FOR THEIR BEVERAGES IS OUTRAGEOUSLY HIGH. THE AMOUNT OF CAFFEINE CONSUMED BY AMERICANS IS DANGEROUSLY HIGH--AND MUCH OF IT COMES WITH WAY TOO MUCH SUGAR. DROP THAT BAD HABIT; IT IS VERY MUCH LIKE SMOKING; IT IS HARMFUL TO COSUME SO MUCH CHOCOLATE AND COFFEE. DO YOU REALLY KNOW HOW THAT COFFEE IS PREPARED? I KNOW; I HAVE LIVED ON TWO COFFEE PLANTATIONS. UGH!
11-19-2007 @ 12:04AM
Doug said...
Never saw it getting this big.I'll drink Folgers or whatever.
11-19-2007 @ 12:03AM
Neuticles said...
I stopped buying Starbucks for my home as it is stale and over priced. Years ago it was fresh and each variety had its own distingusihed flavor.
They've gotten too big and have lost its' quality. Peets Coffee is a little better but they actually put oil on their beans to give the appearance of roaster-fresh. Can't win for losing.
11-19-2007 @ 5:59AM
mediapusher said...
Get your facts straight. Their coffee isn't expensive ($1.85 or less per cup), it's their espresso coffee drinks that are expensive.
People are willing to pay that at Starbucks, because of the yuppie atmosphere which is a refreshing change to the annoying romper room and clown atmosphere of Mcdonalds. If Mcdonald's really wanted to compete they would incorporate the same fresh ingredient method of making coffee that Starbucks does, as opposed to the gas station quality of their specialty coffee drinks that they have now, but more importantly they would change their damn annoying romper room decor.
12-27-2007 @ 3:19PM
peter said...
absolutely right. The Paul Newman's blend used at McDonald's was rated by Consumer Report as one of the worst tasting coffees. If you want to save a nickel go drink it!
11-19-2007 @ 11:06AM
ljhaberkorn said...
Their business model really is not about selling coffee, it's about about the experiance of "kicking back" and relaxing in their stores. That was the "value add" and it's gone!! A small inviting place to go and read the paper or just people watch. Here is a classic example of senior management losing touch with their foundation customer base and needs. Their employess are the glue that is holding it together.. for $7.00+hr. Personally I am tired of drinking "hot milk" with a few expresso shots from a machine that is filty--the taste is gone and soon so will be their loyal customer base.
Sell now!
In a year you'll be drinking coffee from the emerging leader "Dunkin Donuts. Hey it's just coffee. Stay at home and enjoy life in front of your "new flat screen TV while you stuff your face with donuts---The American consumer---want a be's thinking their from Europe! Now hop in that BMW you can't afford and go get a latte. Then go back into your lonely hole somewhere. Wake up and do something better with your money---like help our hero's fighting a war. Boy, would it be nice if we all got off our fat asses and sent care packages to the guys and gals that would love a pot of good old fashion coffee. Happy Holidays to all you self centered, lonely, selfish "want a be's."