Starbucks (SBUX) Chairman and now CEO did an interview with Business Week and a read of it shows a stunning lack of grasp of reality.
The “A” are Schultz answers
Q: So people have been spending less on $4 lattes?
A:No question about it. Our research suggests they’re not going anywhere else; they’re just coming to us less frequently. So we have to do everything we can to demonstrate to our customers that Starbucks is an affordable luxury.
OK. So, if they are not going anywhere else and just not coming to you Howard, how can we explain the increasing traffic counts at McDonalds for breakfast and coffee each quarter? Is McDonalds cloning existing customers? I can give you the names of a few dozen who have made the switch.
Are former Starbucks customers just not drinking coffee anymore?
Q:Earlier you said to me, the media has made such a huge deal about all of Starbucks’ competition. So tell us straight out what the story is here. Have you been hurt by the premium coffee sold at McDonald’s (MCD) or by Dunkin’ Donuts getting more aggressive?
A:First off, I don’t think there’s premium coffee being sold at those fast-food places. Second, this is not about the competition. Our customers are not buying a hamburger and fries and then going to get espresso. That’s not the case. What is the case is that there’s a downturn in the economy. As a result, people are coming in less often than they did a year ago. But we control our own destiny. And what we strongly believe is if we take care of our customers, produce the kind of product that is distinctive, and exceed their expectations, we’re going to be in great shape. But we’re going to couple that with relentless innovation that you’ll begin to see in the marketplace in the months ahead.
Wow…. “It’s not about the competition”…….That is stunningly reminiscent to a quote from former CEO Jim Donald just over a year ago when the stock was trading near all-time highs.
Sorry Howard but despite what you think, you do not exist in a consumer category of one.
While your customers are not “getting burgers and fries” with their coffee as you so condescendingly pontificate, they are going there for COFFEE. Based on results for the past year, they are doing so in droves.
When you started Starbucks you were a pioneer in the industry. Now, it is crowded with competition. It just cannot be denied.
I am sure there is a small segment of the population that can tell the difference between coffee roasts just like there is one that can do so with wine. If we admit that we also have to admit the overwhelming majority of the population cannot. This is ok if you have 1,000 restaurants nationally that cater to an elite crowd but when you have 14,000, it is the tastes and preferences of the majority that control your destiny. Schultz has not realized this or refuses to admit it.
Let’s be honest here. If I buy a vente caramel macchiado or a hazelnut latte, by the time the milk, syrup and caramel are poured over the espresso, if there really anyone who can tell if it is “super premium”, “premium” or just “really good” espresso beans? I doubt it and would really question anyone who said they could. Again, there may be a select few who can, but they will not support a 14,000 store chain.
That being true, then we now have a generic aspect to the product. If the product becomes generic, then price rules.
Schultz’s refusal to admit he has competition is very bad news for shareholders. It means that there won’t be any moves from the company to address to the apparent non-existing competition anytime soon. Too bad….
Here is the whole interview.
Disclosure (“none” means no position):Long MCD, none
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2 replies on “Howard Schultz is Delusional”
“Let’s be honest here. If I buy a vente caramel macchiado or a hazelnut latte, by the time the milk, syrup and caramel are poured over the espresso, if there really anyone who can tell if it is “super premium”, “premium” or just “really good” espresso beans? I doubt it and would really question anyone who said they could. Again, there may be a select few who can, but they will not support a 14,000 store chain.”
This statement is just as delusional as Howard Schultz’s. You’re missing the forest for the trees. Sure, the majority of people won’t be able to tell the difference of the espresso beans. But – last I checked – McDonalds doesn’t make a vente caramel macchiado or a hazelnut latte. While quality may be hard to discern, flavor is not. The type of person that buys a coffee at SBUX is nothing like the McDonald’s customer. The number of “regular” coffee drinkers at SBUX is insignificant which is why McDonalds really isn’t a competitor. I go to SBUX to to sit and read a book and socialize and have multiple coffees. If I just go to get a coffee – I get something memorable, not just a regular old bland cup of coffee that I could just make at home.
That’s the difference. SBUX has their hands full, because their is competition – but it’s certainly not from McDonalds.
– JD
P.S. How’s your theory that we’re not in a recession coming along?
anon,
if you are promising 18% plus eps growth at 4,000 location, there are not enough seats to read books for the number of people you need to serve.
that is the core and that has got them to where they are…..
they need to masses to get to the next level