Business Turnaround Strategy – February 15, 2009

Will a ‘transformational product’ help Starbucks turnaround?

Starbucks will begin selling a new product, called Via. Via is an instant coffee product wherein coffee loving consumers can brew the coffee by emptying the granules into hot water (which will replicate the taste of Starbucks coffee).

Starbucks CEO Howard Schultz had already cited this announcement as a game changer which would deliver innovation, competition, and value in
Starbucks’ turnaround strategy. Starbucks’ top management is confident that Via is a ‘transformational product’ in the $17 billion instant coffee market and the new product had significant potential for Starbucks.

Starbucks’ falling profits and consistent Innovation

In recent years, Starbucks’ profits had started to decline. This was due to over-expansion and ever increasing competition from competitors like McDonald’s and Dunkin Donuts. With consumers spending less Starbucks had to close its stores.

The company’s efforts to attract customers with new products such as breakfast foods, Vivanno smoothies, Pike Place Roast have not taken off in a manner that it had expected. (Also read: Starbucks for a dollar, Storm in a coffee cup?)
This recent attempt with instant coffee may take the same path with soluble coffee being deemed as poor quality. Starbucks however claims that Via tastes just as good as brewed coffee. Analysts feel that the attempt will generate only short term revenues for the company.

The new product will be put to test soon. If it also fails then Schultz will have to rethink re-franchising, or selling existing stores to employees which till now he and other Starbucks management feel will result in brand dilution and losing control over the brand.

Case Studies in Coffee Retailing (PDF files)