Wednesday, April 29, 2009

Coffee, Community, and Consumers in Complicated Times

M Coffee at Half Moon Bay from Half Moon Bay Review April 2009

As predicted, with the uncertain economic conditions and drooping retail sales, more and more marketing and business articles are focusing on the possible shift in consumer attitudes – the new frugality (simple is good), the suddenly cautious luxury market, and the joys of hanging out together at home. All of these “modes” are probably a reflection of some real behaviors and attitudes among Americans, but let’s take a look at one segment and consider whether these shifts really amount to something that marketing and development needs to consider today.

So, today, let’s start with coffee: before we were using the “r” word at all, there were some red flags signaling that Starbucks expected world domination was hitting its Waterloo. Dunkin Donuts and McDonalds were taking advantage of oversaturation and pricing issues to promote their own coffee, packaged in that perfect slot between “cheap” and "cool.” After all, Starbucks’ success was based on the experience of the space, the coffee, the brand, as much as it was about a really good cup of coffee. As price becomes more of an issue, customers can see the writing on the billboard (for in fact, McDonald’s has seriously steeped up its outdoor advertising to focus on the McLattes and other drinks that compete directly with Starbucks: the price wars campaign in December has moved toward showing the coffee itself in attractive photos).

If, for Starbucks, the brand focus shifts from ambiance towards value, it becomes a dangerous game of seesaw for a chain that is as much about the overall package as the item being sold. This is less so for McDs, which can make it up in other ways if this gamble fails – after all, they are a hamburger shop, despite the coffee, salad, healthy meals, you-name-it advertising. Unfortunately, for a coffee chain, it’s all about the coffee. Interestingly, the Washington Post reports that Starbucks is betting on major revenue from international sales of Via – that’s right: instant coffee (the ultimate downscale coffee beverage to most Americans).

But let's compare: many areas report that local coffee shop sales are not down -- from State College PA to Pueblo NM, to Seattle (that’s right: Starbucks’ old home location!) local coffee shops seem to be doing okay (with the caveat that there are more stores closing or not doing well in areas that are generally hardest hit by unemployment and the housing slump). Part of the reason is that these shops do more than sell coffee – food accounts for a large percentage of their sales (something Starbucks is recently considering expanding) as well as ground or whole bean coffee to take home. Finally, the significance of social and communal interaction in a local place. Interestingly, the Seattle Times reports that people who’ve been downsized in corporate jobs are opening small businesses like coffee shops. Despite worries about regular sales (and that two year startup time where profits are nonexistent), the equipment and leasing costs are low right now, making it possible for some who might not have attempted this at another time to give it a go. Despite the ways in which Starbucks has become a McDonald’s-like symbol of the homogenization of culture, one thing that’s been well documented is the ways in which the coffee chain has actually spurred on the development of competing local businesses. Capitalism occasionally works the way it was intended.

What’s important to note here is that people’s spending habits are driven as much by social as economic needs. Consider how a coffee shop – whether it’s the Panera in the strip mall at the center of town, the Dunkin Donuts near campus, or the funky locally run place – actually does become Oldenburg’s “third place,” where those who have lost their jobs, are searching for new ones, or need a cheap place for a meeting for the price of a cup of coffee. These sites provide community, something that isn’t driven by budgetary considerations.

Consider this: one of the Starbucks slated for closure is in the Oak Park neighborhood in Sacramento. Locals (including a cinema owner whose site depends on the coffee shop traffic and celebrity mayor Kevin Johnson) are campaigning to keep the store open. Mayor Johnson said he personally called Starbucks CEO Howard Schultz and asked that the coffee chain keep its investment in the neighborhood's revitalization.

Ironically, in March, CEO Schultz announced that, rather than pulling back, they are expanding in Eastern Europe and China, along with 140 new stores in the US. This week, despite a community petition and phone calls from Oak Park activists, the corporate offices announced that it was closing the store (along with 400 others in the US) to “help its bottom line.”

Some would argue that it’s not good priorities to fight for a high-priced coffee shop in an area of town that boasts high rates of homelessness, unemployment, and few jobs: indeed, perhaps it’s not what the community and politicians should be doing with their time. But if Shultz is serious about making Starbucks an investment in local environments, the great good place rather than the only alternative, they might consider it a form of brand-building: a bit more consistency and goodwill in the overall policies would put the foam back in the latte.

1 comment:

Anonymous said...

Definitely it happens some times. agree with you. i love to eat variety of food ever. i always search for meals or deals with coffee or tea. through peapod promotional code i save too much on my meals.