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‘Planet Starbucks’ -the possibility of impossible: price increase during a recession.

Webster Graduate SchoolLondon

UK

‘Planet Starbucks’1:One World, One Language, One Coffee Shop

A headline in The Onion, (1998) a satirical publication,

announced: "A New Starbucks Opens in Rest-room of Existing

Starbucks."

On a more serious note, wherever I went, whether it was Seattle,

New York, Paris or London I was able to step into exactly the

same prototype of a living room that used the same Italian-

English vernacular-“Tall, Venti, Grande, Soy Caramel Late, etc”.

It has been noted (Falk, 1999; Klein, 1999) that Starbucks“… has

become a cultural icon for all the rapacious excesses, predatory

intentions, and cultural homogenization that social critics

attribute to globalizing corporate capitalism”.

Last August The New York Times reported (Miller, 2009) that

without any prior announcement, “Starbucks stores in several [US]

cities started charging up to 30 cents more( 8%) for some

specialty beverages.”

1 This term was made famous by the movie ‘Fight club’. The main protagonist despises concept of ‘pseudo-individuation’.( Lyons, 2005)

The logic behind such a bold move in the midst of a severe

recession is hard to grasp without a deeper understanding of the

elasticity of demand for the Starbucks product.

Starbucks has only one product

The Seattle Corporation is a market leader in speciality coffee

retailing with its 15,700 coffee shops in 43 countries, opening

three to four new stores a day (Tice,2003).

Starbucks serves 40 million loyal

customers that frequent the store

five to eighteen times per month.

(Theodore, 2002)

Despite these astonishing figures

Clark (2007) writes that “Starbucks’

worldwide explosion wasn't fueled by

coffee; it was the way they sold

it.”

Success of a western society model

comes at a price to its members. They are in a constant movement

“In the fragmented and

individuated age of

postmodern consumer

culture, a nostalgic view

of community has become a

highly commercialized

trope through which

consumers are able to

forge an ephemerals sense

of interpersonal

connection via common

consumption interests”

(Thompson, and Arsel, 2004)

between stressful and politically correct work place and home

which although connected to Facebook is incredibly lonely. Our

ancestors had more social interaction when they sat in pubs,

taverns, churches and Masonic lodges. For them these were “ non-

threatening gathering spot [s] [. . .] outside of work and home”

according to Ray Oldenburg (1989) .

Starbucks with its host of stores on every corner of every city

has clearly become ‘‘the third realm of satisfaction and social

cohesion beyond the portals of home and work … an essential

element of the good life.’’ (Oldenburg, 1989)

Therefore it would be rather erroneous to think that Starbucks’

cafes are attracting customers by coffee alone. Perhaps coffee is

just an excuse to come to Starbucks that is ‘becom[ing] America's

version of the British pub.” (Clark, 2007). Clark calls coffee a

social glue.

In his book ‘Pour Your Heart Into It’ (1997) Starbucks’ visionary

Howard Schultz writes that Starbucks is ‘‘an oasis . . . a small

escape during a day when many other things are beating you

down.’’

A person defines a place or a place defines a person?

The Person

Building its global brand Starbucks did not want to attract jut

anybody.

It wanted to attract customers who could afford to pay whatever

it charged for this experience- “ an upscale third-place ambiance

on a global scale.” (Schmitt ,1999)

Starbucks started opening its stores in busy financial areas thus

clearly demonstrating who its customers were - “the urban

professional middle classes, working in financial service

industries and related fields.” (Updike, 1987) These people had

education, culture, needed a place for meetings and required

makeshift offices. But most of all they had the disposable

income.

Being drawn to the Starbucks culture, these customers at the same

time helped to define and refine it- when others saw them

through stores’ large windows, holding white cups bearing the

green logo. Starbucks customers were intended to become its

biggest advertising vehicle. A study by Pendergrast (1999)

revealed that ‘the company spent less than $10 million on

advertising in its first twenty-five years.’’ Obviously some

other mode of advertising has been working, and working well.

The Place

Schultz and Yang (1997) explain: “Every Starbucks store is

carefully designed to enhance the quality of everything the

customers see, touch, hear, smell or taste. All sensory signals

have to appeal to the same high standards. The artwork, the

music, the aromas, the surfaces all have to send the same

subliminal message as the flavor of the coffee: Everything here

is best of class.”

While designed as a place of tranquility and ‘epitome of

opulence’ Starbucks stores are ‘landscapes of leisure’ (Smith,

1993) where intellectuals can engage in what intellectuals are

best at: conversations, contemplation and reading. If you forgot

to bring your own reading material the New York Times is

conveniently located just next to you. Internet connection is

just a payment away.

Sherry (1995) argues that historically coffee shops have been

linked to intellectual engagement and cultural enrichment. Lyons

(2005) indicates that first trading on New York’s Wall Street

took place in coffee shops, and that French revolution fermented

in Parisian cafes.

Schultz and Yang (1997) claim that Starbucks sees itself as the

inheritor of the European coffeehouse tradition, with all of its

connotations of art, literature and progressive ideals.

“Coffee and coffeehouses have been a meaningful part of community

life for centuries, in Europe as well as in America. They have

been associated with political upheaval, writers’ movements and

intellectual debate in Venice, Vienna, Paris and Berlin.”

The ‘How’

In its plight to be exactly what people yearned for in a cafe,

Starbucks relied on focus groups that in a near dream state were

describing that “they craved a sense of relaxation, warmth, and

luxury. The coffee wasn't the point—the feel of the place was.”

(Clark, 2007)

Bearing this in mind, words of

Howard Behar, one of Schultz’s

senior management team, obtain a new

meaning. “We’re not filling bellies,

we’re filling souls” ( Rippin,

2007).

This understanding of deep human

needs led to the creation of the

Starbucks cafes the way we know

them- “meticulously conceptualized,

carefully controlled consumption

environments”. (Lyons, 2005) that are easily distinguishable from

the independent coffeehouses.

Not only did Starbucks gather the prodigal human family in its

‘parishes’ for the partaking of the communion of a ‘the narcotic,

coffee’, it has also gave overworked people a sense of mystique,

wonder and love.

“We would take something

old and tired and common –

coffee – and weave a sense

of romance and community

around it. We would

rediscover the mystique

and charm that had swirled

around coffee throughout

the centuries. We would

enchant customers with an

atmosphere of

sophistication and style

and knowledge”

(Schultz and Yang, 1997).

Ruzich( 2008) rightfully observes that “Starbucks may have become

America’s living room, but capitalism, with its attendant

handmaidens of advertising and consumerism, have clearly

decorated the space.” But I would like to retort: Well, what

about Disneyland then?

On a grandiose scale Starbucks has revived ritual and

connoisseurship in a society that is slowly killing rituals and

is marginalizing all that is not mundane.

As the prodigy behind the Starbucks success, Schultz describes

(1997) : “What we had to do was unlock the romance and mystery of

coffee, firsthand, in coffee bars. The Italians understood the

personal relationship that people could have to coffee, its

social aspect.”

Lingua franca

‘We had a vision, to create an atmosphere in our stores that drew

people in and gave them a sense of wonder and romance in the

midst of their harried lives (Schultz and Yang, 1997).

Greenblatt (1991) claims that an inward response to an amazing

experience cannot be marginalized or denied.

Any enterprise, that is aiming at giving people a sense of

surreal, be it a church, a tarot reading parlor or Disneyland, is

using a special vernacular to emphasize that sense of mystique

and the crowd’s uniqueness. If you carefully study the language

used at Starbucks you will understand that “Starbucks aims to

seduce us with comfort, romance us with relationships.”(Ruzich,

2008)

Asking its customers to ‘to find their favorite cup’ by color,

ingredients and the name, Starbucks encourages its customers to

view their drinks as extensions of their personalities, as ways

of communicating their uniqueness. (Schultz and Yang, 1997).

Speaking about coffee Schultz and Yang (1997) indicate that

Starbucks turns this routine drink into something very

interesting, by using the same lingo one would use describing a

wine.

Starbucks recounts the story of the coffee harvest, roasting and

brewing, thus engaging customers on the emotional level. Can

customers discuss ‘harvests, origins, and tasting notes’ ordering

a McDonalds brew?

Schultz (1997) recounts, ‘‘we realized that our

stores had a deeper resonance and were offering

benefits as seductive as the coffee

itself . . . . Just having the chance to order a

drink as exotic as an espresso macchiato adds a

spark of romance to an otherwise unremarkable

day.’’

In the world of fast food and cynicism Starbucks

capitalized on three manifestations of love:

self-love, romantic or relational love, and

philanthropic love.

‘‘The Code of Financial Correctness’’2

Middle and upper middle class enjoying Starbucks are doing so

with ease, for they are given an indulgence3 for being rich and

self indulgent’.

2 David Brooks ‘Bobos in Paradise’ (2000)3 Merriam –Webster: remission of part or all of the temporal and especially purgatorial punishment that according to Roman Catholicism is due for sins whose eternal punishment has been remitted and whose guilt has been pardoned (as through the sacrament of reconciliation)

“Every time

you purchase

Starbucks

Fair Trade

Blend, you’re

also making a

difference,

helping to

improve the

lives of the

farmers who

grow it’’ (‘‘Starbucks

and Fair

Trade,’’ 2002).

David Brooks, author of ‘Bobos in Paradise’ (2000) writes: ‘‘the

educated elites are expected to practice one-downmanship’’.

Bobos4 ‘‘guiltily acknowledge our privileges but surround

ourselves with artifacts from the less privileged. It’s not that

we’re hypocrites. It’s just that we’re seeking balance. Affluent,

we’re trying not to become materialists’’.

On many other levels Starbucks acts as a company that is very

concerned what image it is projecting through its product.

Every time you order your coffee to go, it is served in a cup

made of 10 percent post-consumer recycled fiber. Napkins are

Earth friendly as well. Thus the guilt of polluting the

environment is eliminated from the mind that should rather

concentrate on “a sense of warmth coupled with a distinctive

aesthetic flair.”

Additionally Starbucks is on the forefronts of diversity and

disability programs when it comes to customers and employees. By

the way, its employees or ‘partners’ who “work more than 20 hours4 America’s new educated elite, or ‘‘bobos,’’ a term mixing bohemians with bourgeois

per week [are eligible for ]stock options and health-care

benefits, and all employees, [are eligible for ] tuition

reimbursement, partner benefits and the like.” (Marques, 2007)

Once again ‘bobos’ are feeling that by their patronage of

Starbucks they are not propagating a fast-food sweatshop.

Financial Wire reported (2007): “Starbucks Corp. has dropped

dairy products containing an artificial growth hormone at

coffeehouses in the West and New England. The company is

investigating a similar change at stores nationwide.”

Jim Donald, Starbucks’ president and chief executive officer

concludes: “Customers tend to patronize a business that is like

them.” ( Corkery, 2005)

Conclusion

As reported by Reuters (2009) Starbucks spokeswoman said: “As far

as we understand, our customers do have some price sensitivity.

But this is not their only deciding factor. They think the

service we provide and the values that Starbucks represents are

more important”

According Kenneth Davids, editor of Coffee Review (Miller, 2009)

a company with legions of loyal customers and an unmistakable

brand, Starbucks, is safe raising the prices of specialty drinks

because they are where the company best differentiates itself.

“Given that McDonald’s is capturing some of the consumers less

interested in the premium that Starbucks offers, then the

consumers left out for Starbucks are the consumers willing to pay

more…’ ”. (Miller, 2009)

In his private memo, published by the Wall Street Journal Schultz

(2007) wrote to the company management “ … competitors of all

kinds, small and large coffee companies, fast food operators, and

mom and pops, to position themselves in a way that creates

awareness, trial and loyalty of people who previously have been

Starbucks customers. This must be eradicated. ”

At the same time do not be naïve that Starbucks will let anybody

to snatch its market share. Last year’s increase in specialty

drinks was coupled with a decrease in regular coffee.

Last month Starbucks reported (Farrell,

2010) its 2009 revenue growth, attributing

it to 4% increase in sales in the same

stores during a comparable period last

year.

Obviously those who prophesied that the

new prices would bring the apocalypse for

Goliath Starbucks, failed to recognize the

extent of

inelasticity of

demand not only for

the specialty drinks no

one can replicate,

but above all - for

the Starbucks 3rd place experience that is irreplaceable thus

far. People are charged for coffee, but are paying for the

experience.

“Starbucks’ song of

love, however, is

set to the tune of

power: the power of

capitalism, the

power of caffeine

addiction, the

powerful lure of the

third place, and the

power of persuasive

appeals.”

( Ruzich 2008)

Our culture shapes our inner needs into wants, that we are ever

looking to satisfy. As Starbucks sells comfort in the

uncomfortable world, under the pretext of the ‘‘last socially

acceptable addiction’’ (Schwartz and Yang, 1997), it has clearly

identified what many have overlooked, and is filling the niche

‘one cup at a time’.

In the near foreseen future a demand for products of those who

can correctly indentify human needs and satisfy consumer wants

will continue to be inelastic, and voted for by the customer

dollars.

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