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Wednesday, August 26, 2009

15th Ave. Coffee and Tea: What's a Brand Worth?

Last month Starbucks opened a new store. For a company that opens almost two stores a day, this usually doesn’t make the news. The location that Starbucks opened last July, however, wasn’t just another store, it was a coffee house called 15th Ave. Coffee and Tea. The new coffee house offers coffee tasting sessions each morning, serves beer and wine, and prides itself on its involvement in the local community. The interior d├ęcor features a swarthy mercantile theme and is constructed of almost entirely recycled materials.
What is Starbucks doing? Are they giving up their brand to pursue the indie market? Are they finally capitulating to the Starbucks-haters? What does this mean for the value we place on brands and their power to sell products? Isn’t brand supposed to be a differentiator?
Starbucks boldly states in its annual report, “The Company’s objective is to establish Starbucks as one of the most recognized and respected brands in the world." They’re on their way to accomplishing this goal as the two-tailed mermaid is one of the planet’s most recognizable icons. Why is the company giving up its brand to grow its business? Starbucks has successfully leveraged its branding power into adjacent markets like ice cream, coffee hardware, and music and film publishing. Much of the value in Starbucks emanates from the strong and recognizable brand the company has created. Logical revenue growth opportunities lie in cross selling additional products and services to their massive base of foot traffic and expanding into adjacent spaces where the brand can be made relevant. The 15th Ave. store makes you wonder what management is thinking, because rest assured, they won’t make a dent in the indie coffee market.
Starbucks 15th Ave. store is part of a larger identity crisis and turn-around story that encompasses the dilution of the Starbucks experience, slowing top line growth at what Wall Street wanted to call a “growth company,” and founder Howard Schultz’s retaking of the CEO helm. During the 2000s, Starbucks’ comparable store sales peaked at over 11% in 2004, a stunning growth rate fueled by seemingly insatiable consumer demand, higher drink prices, and successful cross-sell efforts in the food category. These tactics proved to be lucrative but came at a cost: the repulsive smell of melted cheese from grilled paninis permeating the entire store. Comparable store sales growth, a good measure of retail health, has since dropped to a meager 4% in 2007 and to a negative 5% in 2008. In short, Starbucks went from being a high-end specialty coffee shop in the late 1990s to being a direct competitor of McDonald’s.
So why 15th Ave. Coffee and Tea? How does this replenish the Starbucks experience and ultimately grow sales? The re-branded store is a desperate experiment aimed to demonstrate that the company hasn’t lost its innovative core. According to management, the 15th Ave. store is part of a “global redesign strategy” aimed at reviving the coffee heritage, focusing on local communities, and practicing sustainable business. Management explains that “by introducing fresh design ideas that celebrate local materials and incorporate reused and recycled elements, we’re bringing a new layer of creativity and design innovation to our business.”
These qualities, specifically the local and sustainable rhetoric, have been a part of the Starbucks message for years. The design qualities aren’t new either—many of the company’s stores conform nicely to local architecture and micro-cultures. In short, Starbucks is wasting their time creating off-brand coffee shops. The design innovation and management attention that these stores are getting could be put to better use by reinvigorating the flagship Starbucks stores. Masquerading as an independent coffee shop is deceptive and unproductive—instead the company should act on their commitments to sustainability, non-market trade practices, and great employee relations. Following through with these commitments will silence many of the company’s detractors and provide scalable value for the brand that has lasting impact.