Thursday, January 17, 2008

Schultz's First Move A Clunker

"We are going to bring back the Starbucks experience", Starbucks CEO, Howard Schultz. Really?

I thought they were going to emphasize the "superior ingredients" that go into their brew? I thought they were going for the "premium market" for coffee? I thought the mantra was that people would be willing to pay higher prices for all of the above?

Why, then is Starbucks removing organic milks from its stores? According to the Wall St. Journal, "Drinks with organic milk account for less than 1% of Starbucks' beverage sales, said Michelle Gass, the company's senior vice president of global strategy. "Far and away, the No. 1 reason people are purchasing organic milk is because [it lacks] the growth hormone," she said.

In 2006, sales of organic dairy products in the U.S. grew 25% to $2.67 billion, making it the second fastest-growing organic food category behind meat, according to the Organic Trade Association."

Here is why this move is just wrong. If they really only sell 1% of their drinks that way, the move is not going to save much cash. It will, however, really piss off those folks who will only drink the stuff.

Starbucks claims the move is in part to "simplify" the menu of drinks. With about 1,000 options, there had to be a far less potentially confrontational way to do it. With every retailer in the food spectrum rushing into the "organic" field, to pull out of it and gain very little financially just seems misguided.

Schultz could have used this consumer option to differentiate Starbucks from McDonald's (MCD), now it simply appears he is desperately cutting costs to try to compete with them.

Disclosure: Long McDonalds

Todd Sullivan's- ValuePlays

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