Starbucks: Version 2013

IMG_0353

Seeking Alpha, a website dealing with stock market news & financial analysis, reports that 2013 – without a doubt – is going to be the year of Starbucks. According to them, the financial ratios measuring financial success the previous year were among the highest in the coffee industry and is expected to keep increasing the upcoming year. This increase is based on various reasons: a decline in the price of coffee beans around the world, creating less expenses and greater profits; a new entry of Starbucks into the highly anticipated Vietnamese market; an estimated amount of 250 new branches are planned to be opened in China; and the VERSIMO, Starbuck’s new module of a home-used coffee machine – voted as one of the top investments of the year – will come out as well.

I would like to elaborate on the last reason mentioned for Starbuck’s expected success – the VERSIMO machine. Julian Baggini, a writer for the Aeon Magazine, has recently wrote a fascinating article explaining a change the restaurant industry is currently going through, changing the traditional, hand-crafted coffee served faithfully by the Barista to be produced by state of the art coffee machines. He describes a visit to one of the most famous restaurants in the UK, a gourmet Michelin-starred restaurant serving the coffee to his associates and him only by a press of a button using the Nespresso’s machine. In times when Michelin-starred restaurants feel comfortable serving machine prepared coffee, it’s just a matter of time until the whole industry will follow them through emphasizing the value of entering into the coffee machine market.

On the other hand, as reported on Starbucksgossip blog, the spinning success associated with Starbucks’s has not yet caught up with the VERSIMO. So far revenues are not high as expected to be. “Verismo’s launch borders on being too little too late to enter the single-cup market”, is how SeekingAlpha described the new machine. Lack of holiday promotions demonstrating how the machine operates, limited amount of coffee pods, an additional amount which is needed to be spent on the Starbuck’s special syrups all and an overall pricey purchase contribute to a general feeling among customers to go towards the main competitors: Nespresso and Vertigo.

However, as they continue and explain, the addiction to the Starbucks experience, customer loyalty and its strong brand together with the new App Starbucks launched several months ago, will make up for the recent slow sales of the Versimo. Perhaps with the right marketing tools, which Starbucks is so famous for together with the recent decrease in selling price will bring the Versimo to be an equal competitor in the home-used coffee machines.

123

Advertisements

Ho Ho Ho, Merry Purchase

christmas-coffee-cute-drink-food-Favim.com-127500_large

Holliday seasons have always been a great motivation to spend a bit more than we usually tend to: for family, friends and most importantly, some would say, for ourselves. As if we actually needed extra motivation to fill in our holiday carts, companies like Tasimo makes extra efforts to remind us, with a fresh and Christmassy new commercial presenting their new coffee machine.
The the5marketeers, a strategic brand management blog for coffee lovers,reports that as a response to Tasmio, Philips and Nescaffe offers cashbacks up to €100 on purchasing the Senseo or the Lattisima machines.

visual

On the other side of the coffee retail map, stands Starbucks and Nespresso which surprise with their brand new Christmas coffee flavors. Starbucks with the Geisha, a hard-to-grow premium bean, for no less than $7 per cup and $40 for half a pound bag. The Time reports, that this decision is the next step in Starbuck’s marketing strategy – convincing the costumer that a cup of coffee, which used to be sold for less than $1 is actually worth much more.

Moreover, they report this strategy is not just unique to Starbucks, but rather a process in the fast food industry today, offering

premium products to compete with the casual restaurants. Jack Russo, an expert in the industry, claims these premium product are aimed to a specific cut of the population, rather than, who has no problems to spend more money on high quality products. This previous post elaborates more about trends of premium product. If you belong to the group of people who believe this is an outrageous move of Starbucks, perhaps you should watch Jimmy Kimmel, host of ABC’s Jimmy Kimmel Live, more often: “Although while it’s ridiculous to spend $7 on a cup of coffee, it’s not that much more ridiculous than spending $4 on a cup of coffee.”

In order to keep with the competition, the5marketeers posted Nespresso pulled out of their sleeves 3 new tastes especially for the Christmas holidays: Coconut, Hazelnut and Macadamia Nut. Hazelnut, which can also be tried in one of the Nespresso boutique stores around your area.

noel-8
As Starbucks wished us recently: The holiday drinks are here, so have fun!

Strategic Decision Making

In May 1998 Vanessa Kullmann, the owner of Balzac Coffee, decided, after living 2 years in the USA, that the German coffee consumer is ready for an American coffee module and established the very first branch of Balzac Coffee in Hamburg. 14 years later, Kullmann is employing more than 800 workers with yearly revenues of €23 million.

Logo_Balzac_Coffee

A Cup of Coffee in Berlin

Last week I was invited for a friendly cup of coffee, which included a short espresso tasting course, in the bourgeois neighborhood of Prenzlauerberg in Berlin by Marlone, a manager in one of the 53 branches of the Balzac Coffee spread around Germany. Marlone explains that Balzac Coffee recently purchased one of the leading competitors in Germany World Coffee, becoming the leading coffee chain in the country. When asking the manager what is the secret of success, the business strategy of Balzac Coffee, Marlone sits comfortably on one of the many sofas around the café and explains the German consumer has a different taste than the American.

“This old looking sofa that we’re sitting on, the graffiti picture behind me, that is how it looks like in each and every branch of Balzac – it’s comfortable!” Marlon says with a smile. He continues and explains that the quality of the Balzac products is the number one reason for its success: unlike the leading American competitor Starbucks, foamed milk is produced by hand and not by machine, espresso is served within several seconds since it left the machine and coffee related products are made from fresh ingredients only, and not from different kinds of syrups. He adds, that the location is one of the most important aspects that higher management considers when opening a new branch, trying to pick neighborhoods with an age average above 30 and with a high density of tourists.

Business Strategy

Around the World

Evan Carlmichael, the owner of the world-known entrepreneur blog, reports that when Starbucks began to expand, it used a different and rather controversial location-based strategy than its competitors. Starbucks decided ‘blanketing’ an area, open many branches in a specific neighborhood rather than opening them in different locations around the city. This created a short delivery and management times and shortened the waiting lines for customers in every individual store. Moreover, Carlmichael reports that providing the costumer with an intimate and welcoming environment, accompanied with a great cup of coffee as well as new innovations as pre-orders via the internet, new fresh can drinks, these will all create a good reputation on its own. As a result, Starbucks spends less money on normal advertising.

200px-Caribou1.svg

 Another example can be seen looking at Caribou Coffee, the second largest company-owned coffeehouse in the world, which has quite a different business strategy than Starbucks. AdAge.com, an international world-known business blog, , quotes Alfredo Martel, VP marketing and project marketing:

“we don’t have interest in being the biggest… we’d rather be great at what we do”.

This symbolizes the business world-view of Caribou – a smaller but a higher-quality chain with little pretense. Caribou began offering exclusive oatmeal breakfasts, ‘grown-up’ sandwiches combined with permanent and limited-time new avant-garde drinks, that haven’t been seen in the market so far.

Moreover, in order to keep improving, logisticsit.com reportsCaribou is using the services of SuccessFactors, a global leader in on-demand performance and talent management solutions. With their assistance, Caribou is identifying successful young employees more professionally and eventually promoting them to higher positions in the firm, creating a long term successful management.

How To Make Money?

Logo_NespressoNestlé, currently the largest food company in the world, is located in Vevey, Switzerland. Nestlé produces baby food, bottled water, breakfast cereal,
ice-cream, dairy products and of course – coffee.

In order to understand how to make money from selling coffee, a wise way to start would be by taking a quick view into the daughter company of Nestlé, a $3 billion revenue creator per year, with a current record of 10 million customers – Nespresso.

Nespresso offers the consumer the experience of making fresh home-made espresso without the need to leave for Café. Perfect for any sort of house gathering or just to satisfy the desire for an immediate high quality cup of coffee.  The secret of Nespresso is the machine as well as its special capsules, which are both officially patented, causing limited competition so far.

Marketing, Marketing, Marketing

Is a high quality machine and special patented capsules enough to be a money making success? FastCompany reports that Nespresso started creating additional value to their brand name, increasing their prestige and reputation by serving their coffee to first-class airline passengers only.
Already by 2000 Nespresso coffee was served in 1100 planes, in 20 different airline companies, exposing 3.5 million travelers a year to the brand.

More than that, celebrities George Cloony and Penelope Cruz were selected specifically to represent Nespresso in prime-time TV commercials. Franz Niedermair, VP-Marketing at Nespresso USA, claims that Cloony and Cruz give the viewers a feeling of European heritage, elegancy and sophistication, all which the American consumer is craving for when drinking his cup of coffee.

Coffee marketing blog the5marketeers, reports Nespresso’s business strategy is to represent life style – a quality product costumers will pay more for. Nespresso uses a unique targeted marketing which allows gathering specific information about the consumer – his age, frequency of his purchases, habits – all which is recorded for future projects. Moreover, One to One marketing strategy is used in the Nespresso stores – individual care for each and every client: referring to the costumer by his family name and not as part of the mass market; the customer is part of the “Nespresso Club” – giving the card owner a dedicated lounge space in the Nespresso stores. There he has the possibilities to try out new tastes, new smartphone applications, access to a quality hotline and much more.

2012-11-29_1722

Should We Invest?

Perhaps the most important question of them all. With a growth percentage of 20% a year and billions of dollars of revenues, the answer seems to be a definite yes. However, BuildingStrongBrands reports Starbucks, a stronger brand name than Nespresso in today’s  market, is about to launch in the next couple of months its own home-used coffee machine which will most likely decrease Nespresso’s revenues. Another thing to keep in mind is, that at the end of 2012 the capsule patent of Nespresso will expire, opening
competition between new and already existing companies to duplicate
the success of Nespresso.

STARBUCKS_430x242