Starbucks is moving towards its announcement of closing 600 stores. The company disclosed the list of stores to be closed by early next year. The brand is so powerful that the commercial real-estate developers relied on the Starbucks to attract other tenants. Starbucks not only built the loyalist customers but established itself as a brand that businesses and people in stores’ proximity are proud of. Recent protest against closure of stores is a proof of such pride.
The company is right there at the productivity frontier with no other competitor nearby. Though McDonald's announcement of aggressive investment in cafes may have some impact on the Starbucks strategic approach, still company is too far ahead in this game. I feel the problem started from company’s last fiscal year rapid expansion. Company opened about 2,500 cafes, almost seven outlets per day, across the globe during last fiscal year. There were lot of reasons for such rapid expansion and I almost agreed with all of them except one. Apparently company research showed that the people sometimes weren’t willing to cross the street to buy a cup of coffee. Though research is correct from a normal café’s standpoint, but applying this research to Starbucks is an incorrect generalization of the research findings. I believe that Starbucks is vertically differentiated from its competitors and the company has achieved vertical differentiation by establishing a strong brand and loyalist customers. By applying research findings, Starbucks started thinking more of horizontal differentiation than vertical differentiation. By mixing two different strategies, the company not only impacted its financials but also end up disturbing its strategic fit. Being a loyalist Starbucks customer myself, it is hard to believe that a customer won’t even cross the street to buy a cup of coffee from Starbucks. I used to have Starbucks café almost 3 miles from my home. Now I have 3 Starbucks cafes within 2 miles radius. Some research must have indicated to open new stores and attract more customers but I don’t see increase in number of customers by having more density of stores.
The decision to close more than 5% of its store should be a step in right direction. I hope the right stores are being closed.
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