Don’t get too excited about Starbucks’s new $1 coffees
Posted by: in Products and ServicesFiled under: Products and services, Starbucks (SBUX), Marketing and advertising, McDonald’s (MCD)
As Tom Taulli recently reported on BloggingStocks, Starbucks Corporation (NASDAQ: SBUX) is experimenting with new pricing strategies, including $1 cups of coffee and free refills.
This is pretty cool if you’re a consumer — assuming you don’t mind watching lines at the coffee shops grow exponentially in length.
Even as concerns about Starbucks’s growth have emerged, traffic at the shops have stayed strong. Cup of coffee for $1 will bring in more customers, but will also likely cannibalize sales on the more pricey brews. And free refills should encourage people to linger in Starbucks for hours — while still only spending $1.
Starbucks has been a premium brand for its entire existence, and now appears to be gearing up for what amounts to a price war with the likes of Dunkin’ Donuts and McDonald’s Corporation (NYSE: MCD). Given McDonald’s size and scale, I doubt that that’s a battle Starbucks can win.
In addition, I don’t think it’s a battle it should be fighting. Going from a premium brand to a commodity offering is not a good way to keep returns strong. It might not be a good way to grow sales, but Starbucks’s best bet might be to tell McDonald’s, “You can have the budget-conscious consumers — we’re gonna stay high-end and take advantage of our strong brand to charge premium prices.”
As Tom Taulli stated, it may be that Starbucks doesn’t really have a choice given the in-roads McDonald’s is making, but if offering $1 coffees is Starbucks’s new strategy, I’m not impressed.
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