There are probably more than a few stunned managers at McDonald’s and Dunkin’ Donuts corporate headquarters who simply cannot believe their good luck. Just as McDonald’s was investing considerable resources to introduce espresso-based drinks and Dunkin’ Donuts was continuing to invest in their anti-Starbucks positioning of “coffee for the rest of us”, Starbucks did the inexplicable and introduced Via, an instant coffee. And while Via, which comes in a single serving packet that costs about $1 per cup, might drive top line growth over the short-term, it will, arguably, cheapen the Starbucks brand over the long-term.
Starbucks holds a special place in the American imagination, an everyday luxury (at least until recently) and a so-called “third place” between work and home. They’ve worked hard to build a premium brand. When Starbucks leadership thought that they had let the brand slip off course they attempted to right the way through the introduction of the Pike’s Place blend, an initiative that was, again, supported by everything customers see (touchpoints) and everything customers feel (operations). The result of these efforts has been to turn Starbucks the brand into a $3.9 billion corporate asset, according to global brand consultancy Interbrand. Their book value increased almost 50% in just three years. Because of this uniqueness, critics have lodged ferocious attacks at the Seattle company when they’ve thought that a given initiative was at odds with maintaining and expanding a premium brand. Critics, for example, contended that the expansion into supermarkets would dilute the brand by over-exposing it. Whether this criticism was founded or not – it seemed reasonable given how other premium brands jealously guard their channel exposure – the fact is that expanding distribution was an acceptable business risk. According to Starbucks 2008 Annual Report, net revenue derived from company-owned stores was 84% of the total and net revenue derived from packaged coffee and licensed items was 4% of the total. Any potential damage, therefore, would be relatively small. Expanding distribution channels, however, is a calculated risk compared to shaking up your core business, a move that Via represents.
Before discussing why Via represents such a threat to the Starbucks brand it is worth noting the two reasons why the company probably brought the item to market. First, CNN noted that instant coffee accounts for 40% of global coffee sales so Via represents an opportunity to drive global revenue without having to open more stores around the world. Second, assuming that the product represents an incremental in-store sale rather than a substitute for brewed coffee, Via also represents an opportunity to grab a larger share of the nearly 50 billion cups of coffee Americans drink at home every year.
So Via might end up being a big money maker. But it will hurt the Starbucks brand for three reasons.
First, Via will hurt the quality attribute of the Starbucks brand because the quality of Via will be less consistent than the quality of most other Starbucks products. The core of the Starbucks brand has been consistency: the look and feel is consistent across touchpoints; training and other operations support the brand’s positioning as a different type of place; and, with the exception of whole beans ground at home and a few non-Starbucks products available in the stores, the Company controls the entire value chain from bean to cup. The Via experience, by contrast, will be subject to the availability of clean coffee mugs, sweeteners, and dairy / non-dairy products. This last item is an essential component to why the Via quality will be relatively lower. We’re a nation of dairy users. According to The University of Wisconsin, per capita half and half consumption in the United States has steadily increased over the last decade. The explosion of milk-based drinks made with either coffee or espresso further illustrates the point that we like our joe with a little milk or cream. It’s not for nothing that while Starbucks offers ½ and ½, whole milk, skim milk, and soy milk at their stores, they don’t offer non-dairy creamers. Drinking Via – a “bold delicious Starbucks coffee” - with Coffee Mate will, over the long-term, hurt the brand.
Second, Via will not perform the classic role of a sub-brand, expanding the meaning of the master brand, and might even hurt the master brand when it comes to building the convenience brand attribute. The Via positioning is at odds with the Via experience. It’s just not ready-to-go. You need water, something to drink from, sweetener, and a dairy / non-dairy product. Double Shots in cans, Frappuccinos in bottles, and the uber convenience of not having to leave your car to get your coffee are all convenient. Via, on the other hand, is not and no amount of well-produced point-of-sales materials showing young people on the go is going to change this fact.
Third, Via confuses the Starbucks portfolio of products, making decision-making more difficult at a time when time-pressed and over-messaged consumers are crying out to make things easier. The myriad of in-store drinks are for one channel. The bottled and canned drinks are for alternative channels and (oddly) available in the stores as well. Ground beans are for home and for some offices. Where exactly does Via live in this ecosystem? If it’s for home it competes with ground beans. If it’s for on-the-run it competes with bottled and canned drinks. And it’s not positioned for the office even if it might be used there. Moreover, the in-store attention being given to the product can’t be helping their other products.
The fourth source of damage to the Starbucks brand is, perhaps, the most damaging. Via gives McDonald’s, which is trying to stretch its brand upward, and Dunkin’ Donuts, which is trying to maintain the middle market positioning they’ve worked so hard at, a rare opening to grab share. If Starbucks isn’t special then what is it?
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