Update 2-9-09 from the Wall Street Journal:
Starbucks Corp., which built a coffee empire on its premium image, wants to convince customers that its drinks aren’t that expensive.
The company said Monday that it’s selling discounted pairings of coffee and breakfast food for $3.95, a type of promotion long used at fast-food chains. It’s the first move in an aggressive campaign to counter the widespread perception that Starbucks is the home of the $4 cup of coffee.
The Seattle-based company is training its baristas to tell customers that the average price of a Starbucks beverage is less than $3, and that 90% of Starbucks drinks cost under $4.
The move shows how premium brands are trying to reposition themselves for a prolonged economic downturn.
“I strongly believe we are going to be in this environment for years,” Howard Schultz, chief executive of Starbucks, said in an interview. “It is a reset of both economic and social behavior.”
For Starbucks, the effort is also an attempt to fend off McDonald’s Corp., which has been taking thinly veiled jabs at Starbucks’ prices as it rolls out its own line of lattes, cappuccinos and mochas. So far, McDonald’s local advertising for the drinks has included a billboard in Seattle with the message, “Four bucks is dumb.”
Original Post 1-30-09:
Karen and I continue to be loyal patrons of Starbucks. It’s our one luxury these days, although we’ve cut back on the frequency of our visits. Now it looks like it will be harder to find a Starbucks store when we move back to Michigan this summer, according to the New York Times:
The coffee store chain announced on Wednesday that it would close 300 more stores, affecting 6,000 employees, and would lay off 700 employees who don’t work in stores. Starbucks also reduced the number of new company-owned stores it plans to open this year to 310, from 470.
Mr. Schultz first announced a slowdown in store openings a year ago, before most companies had begun to feel the effects of a recession. At the time, sales growth at stores open at least a year was positive. Then in July, Starbucks said it would close 600 stores. In December, he outlined new cost-cutting plans.
Now, Mr. Schultz is preparing for a deeper recession.
“These decisions have been made to ensure the company is leaner and prepared to endure a worsening economic climate,” Mr. Schultz said Wednesday in a letter to employees.
As part of the cuts, Mr. Schultz will reduce his salary to less than $10,000 a year, from $1.2 million.
“The decisions we make are about preserving the future of Starbucks,” he wrote in the letter to employees.
The company will take other cost-cutting measures, including renegotiating prices with landlords and suppliers, trimming vacation and personal days for hourly store employees and adjusting the way individual stores operate. For example, the company announced on Tuesday that stores where few customers order decaffeinated coffee after noon will no longer brew the coffee ahead of time and will instead make it on demand.
We’re doing our part to keep our local Durham Starbucks open, but in this recession, nothing’s guaranteed.