Starbucks (SBUX) Defiles Itself With Instant

It the race to give shareholders good returns and keep profits high, companies are often faced with whether or not to change the marketing and pricing of valuable brands. It creates a risk.

Mercedes started to make fairly inexpensive cars after its merger with Chrysler two decades ago. The quality of the luxury auto brand suffered and it took Mercedes years to recover from the decision.

Starbucks (SBUX) is having trouble getting people into its stores. Its expensive coffee is not well-suited to the tastes of the middle class during a recession. The company has had to fire thousands of people and cut hundreds of stores to make even a modest profit.

In an attempt to do more,  Starbucks is on its way down market. In the process, it may turn itself into the nothing better than Maxwell House with retail outlets. It is putting itself into the position where getting the value of its brand back will become almost impossible.

Starbucks will start to sell its own instant coffee at its stores.  Bloomberg reports that the coffee chain claims it has spent 20 years developing the product. The fact that the company would feel compelled to say that shows the extent to which it is concerned that selling swill will undermine the public perception of Starbucks as the high end of the coffee food chain.

Starbucks is  compounding mistakes it started when it decided it needed to expand rapidly to have 40,000 stores around the world.  Its planned to serve only the high end of the market.  Now, that the economy is taking that opportunity away.  Starbucks is countering with a $3.95 breakfast menu and instant coffee which is the bargain basement of the business.

The Seattle-based firm might as well sell itself to Burger King.

Douglas A. McIntyre