Starbucks closures - global economy or other factors to blame?

Starbucks has announced a substantial store closure programme, on top of closures reported late in 2008. Is this the global economic downturn at play, or is it also a function of a saturated market in which Starbucks is finding it harder to maintain leadership?

The Guardian reports on Starbuck’s latest announcement. Starbucks is a truly global brand, with over 16,000 locations around the world. It is closing 300 stores (200 in the US) on top of 660 shutdowns in 2008. 6,700 jobs will go, 700 of which are at the corporate level. The number of British stores to be closed is likely to be in the double-digits, with each store employing an average of 20 people.

The news came as Starbucks reported a 69 per cent decline in profit in the last three months of 2008.

Redundancies and store closures will certainly reduce the fixed costs of operating the Starbucks empire. However Starbucks management have other ideas for cutting operating costs. For example, they have decided to stop offering decaf coffee after noon.

Starbucks said curbing brewed decaf would not affect customer service.

“For many of our stores, the demand for decaf is greatly reduced in the afternoon,” the business said in a statement. “With our current standard of continually brewing decaf after 12 p. m. regardless of demand, we have seen a high amount of waste.”

The Telegraph comments that Starbucks is…

“being hit in part by slowing consumer spending and also by years of over-expansion at the hands of former management.”

I wonder though whether there are other forces in play here. McDonalds, Pret A Manger and other accessible retailers now offer high quality coffee at a substantially cheaper price point. Starbucks is no longer able to differentiate its product using a high quality positioning alone. There is plenty of evidence that consumers are seeking better value for money from their spending. That doesn’t necessarily mean having to accept a lower product quality - but they are searching for the same quality they are used to at a better price.