Struggling Starbucks

Let's face it, Starbucks will need to adjust to the current economic conditions just like everyone else. Here's the latest from Advertising Age:

Starbucks Offers More Samples, Discounts

Tactics Hint at Deeper Troubles for Upscale Chain

By Emily Bryson York

CHICAGO (AdAge.com) -- Starbucks said it is offering prolonged and far-flung sampling of summer beverages to assuage consumers and boost traffic through the season. The promotions, which vary by region, are focused in major cities. They're also targeted at faithful customers who have Starbucks cards or visit the stores more than once a day.

The promotion seems to confirm speculation that summer beverage sales have not been up to scratch.

Photo Credit: AP

The coffee giant, in the midst of an attempted turnaround, has in recent months undertaken sampling efforts primarily linked to its Pike Place Roast and its iced-coffee blend and mostly driven by newspaper advertising. The new round of promotions not only represents an expansion of the company's regional sampling efforts but also answers a flood of consumer requests on the company's "idea" website asking for a price break while they're feeling pinched.

Public wants low prices
"What we hear consistently is that you want Starbucks to find new ways to bring you everyday value, especially when money is tight," Brad Stevens, VP-customer relationship management, wrote in a posting at MyStarbucksIdea.com. "So we've been working to respond in a ways that are relevant to all of our customers."

Sampling events have been in progress for several weeks. Consumers in Atlanta, Boston, Detroit, Indianapolis, New York, Philadelphia and Washington are getting free small iced coffees on specific days with certain restrictions. Another promotion involves a cold grande beverage for $2 in the afternoon if you have a receipt from that morning. Different variations of that offer are available in Chicago, Milwaukee, Nashville, Oklahoma City, Phoenix, Seattle, Miami, Jacksonville, Fla., and Spokane, Wash. The St. Louis market has a discounted Frappuccino promotion.

Not everyone is buying.

"It's a difficult thing for a premium brand to price-promote," said Robert Passikoff, founder of Brand Keys. "With those kinds of tactics, what generally happens is you end up with a short-term bump, but after the promotion is over, you lose the customer base."

Sales apparently lagging
The promotion additionally seems to confirm speculation that summer beverage sales have not been up to scratch.

"We believe Frappuccino sales have been sluggish again this summer, and believe this will lead to higher total food costs and some degree of labor deleverage in [the third quarter]," UBS analyst David Palmer wrote in a research note last month. "Finally, we believe [same-store sales] growth at new units has been significantly lagging past new store results -- suggesting a more material brand decline than we anticipated."

Starbucks has recently tried to boost sales with a number of sampling events, a strategy previously unheard-of at the upscale establishment. Yet the chain continues to struggle with sluggish sales. Last week, the coffee giant announced it would close 600 underperforming stores, most of which had been opened since early 2006.

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