Starbucks and Fruit Smoothies

Ad Age reported this week that Starbucks' profit droped by 28% in Q2. While the news is unfortunate for the company I suppose it's not entirely surprising... when you have a company whose loyal customers visit a reported average of 18 times per month (for a higher price-point product), and then the economy dips, you're going to take a hit.

But what really got my attention in the article was the fact that Starbucks would soon be offering fruit smoothies nationwide. The quote from Howard Schultz on this was: "In our research, more than 60% of customers surveyed said they would come to Starbucks to buy healthy, nutritious beverages, and we are confident we have found the perfect answer to their needs."

I worked with Baskin-Robbins when they introduced fruit smoothies nationwide nearly 10 years ago... So now we have ice cream chains with smoothies and coffee chains with smoothies. For consumers, it just gets a little harder to tell brands apart, which ends up affecting margins.

I'm a big fan of Starbucks. Loved Mr. Schultz's book. And although smoothies and Starbucks seems like an odd pairing to me (weird in-store smells, noisy blenders, what about the current logo?), I'm confident they've thought it through. This post is not about whether offering fruit smoothies at Starbucks is a good idea or not. It's about staying relevant.

It's true that brands need to refine themselves to stay relevant. But successful refinement doesn't just come from massive product shifts. It's also how you communicate, what you sponsor, who you join up with, what you avoid and what your policies are.

Starbucks is a major brand and adding smoothies does put the core brand at risk of being diluted (e.g. lower margins). Yet many major brands do things like this--enter new product categories based on what consumers report to want in order to be competitive and relevant. History is full of successful and unsuccessful examples.

But entering new categories isn't the only way to remain relevant for the long haul. Consider:

In music:  Madonna, U2 and the Beatles all made major changes in their music product in order to remain relevant over time. But Bruce Springsteen, Prince and George Strait really have not. All six are successful today.

In beverages:  Budweiser, Miller and Robert Mondavi constantly change their products in order to remain relevant. But Corona, Guinness and Veuve Clicquot really do not. All six are successful.

In fast food: McDonalds and Jack In The Box regularly introduce new product categories while In-N-Out and Chipotle do not. All four are successful.

The point is, while offering drastic shifts in product can be good business, it's not the only way to go.

 

How do the brands who have stayed focused on their core offerings remain relevant today without entering new product categories? I believe they've refined other parts of their brand to stay relevant. They offer "underground" products (In-N-Out), continually refine quality (Chipotle), shift their brand campaigns (Absolut Vodka), create unique event promotions (Corona), add web 2.0 engagement tools (Southwest Airlines), get creative with their locations/distribution (Red Bull). There are many ways to stay relevant.

So I just hope that Starbucks hasn't been talked in to this decision by Wall Street as THE solution to remaining relevant. If they were convinced to do it, I'm sure there was lots of supportive data. But there's also lots of support out there that says sticking to your core products, and looking to refine other parts of the brand experience, is a good business decision too. 

Comments

[jamie]

I think that Starbucks strategy of rapid expansion has caught up with them. (Wal Mart is battling the same thing.) They have grown in number of locations so quickly and have also quickly become ubiquitous and "corporate" -in our country anyway - when they used to be hard to find and unique. I am not sure the smoothly idea will work, but they have been successful at cross merchandising all kinds of things, particularly music. At the core though coffee is the draw - not other beverages... Who knows, but I think Parker Posie's line in "Best of Show" nails it: "We met at Starbucks. Not at the same Starbucks but we saw each other at different Starbucks across the street from each other." Sooner or later you run out of corners...

[John Drake]

that's a perfect quote for the situation! i once had a meeting in san francisco at a starbucks and there were 3 in the same few blocks, unbeknown to both of us. i went to location A, she went to location B and we were supposed to have our meeting at location C. took a few cell phone calls and walking outside to see exactly where both of us were to get it right.