Iced

I’m sure that you’ve all heard by now that Starbucks is closing 600 stores in the U.S., which amounts to a total of 12,000 jobs that will be lost as a result (although that really remains to be seen, as most are expected to simply transfer to a nearby store that won’t be getting the axe).

To some, this reeks of recession repercussions.  Starbucks themselves have even blamed the weak economy on its decision to close these stores.  But I have to play devil’s advocate (one of my favorite hobbies): isn’t it possible that they simply expanded too quickly and aggressively?  It’s not just that there’s a Starbucks on every corner anymore.  There are two, sometimes three Starbucks to an interserction!

Houston herself has the ignominious distinction of being the first city to host dueling Starbucks sitting resolutely across the street from each other in River Oaks (at West Gray and Shepherd).  In the shopping center across the street from where I live, there are three Starbucks.  THREE.  It’s overkill.  Of the three, only one is ever busy.  The other two languish in their oversaturated locations, their employees idle and their epsresso machines dormant.

The overhead to maintain these stores and the cost to not only pay the employees, but also provide health insurance to them, must be astronomical.  Health insurance in particular is an enormous part of a company’s SG&A, often being the second or third most costly expense on their books.  Trust me on this one.

So couldn’t it be Starbucks’ recent, unmitigated growth that’s more to blame for their need to close down underperforming stores?  Couldn’t it be all the stores that aren’t serving customers and simply costing too much money to operate, because they were opened in a location that was already served by a nearby Starbucks?  Haven’t they ever heard of self-cannibalization?

Moreover, what about competition from other coffee-selling establishments?  Bubble tea and tapioca houses — particularly in Houston — seem to have no shortage of customers, nor do locally-owned and operated places like The Coffee Bean.  I know it’s hard to imagine Starbucks budging even one iota on their market share, but as more people become conscious of the environmental impacts of buying fair trade goods, staying local and supporting smaller stores, I’m sure that even a giant like Starbucks could feel the prick of lost customers over time.

I think blaming the economy for this is a particularly weak move on the part of Starbucks, and one that the general public unfortunately won’t see as a convenient excuse for bad strategic planning.  They’ll simply eat it up as yet more proof that we’re approaching the next Great Depression and the self-fulfilling prophecy will continue miserably on its path.

But that’s just my two cents.  What do you think?

9 responses to “Iced

  1. There are 8 Starbucks within walking distance of my home – I agree with you and in fact I was going to write a post about it but don’t have to now since you have. They weren’t happy with having more than one on every corner then they had to go put them inside grocery stores as well. No wonder they are having to shut some of them down – plus their coffee is expensive to begin with.

  2. I have a couple of thoughts:

    1. My (19 y/o) sister and a few friends work for Starbucks. Now whatever you say about their business practices, they *do* take care of their employees. I believe anyone who works 25+ hours a week gets full-time benefits including insurance. But you bring up a point I didn’t think of, and that is the cost of this, with probably most of their employees falling into the “full-time” category.

    2. The story I read said they were going to close 600 stores and they modified their business plan for 2009 to open 200 stores instead of 400? Am I the only one confused by this? Why not just keep 200 of the already-existing stores open?

    3. The saddest day of my life was discovering that Starbucks was opening in the tiny island village where I lived in Korea. I went to Korea to experience Asian culture, not mass-pollinated consumerist American culture. Damn.

  3. Oh well! I totally agree about Houston having a Starbucks overload. I have always preferred my version of chai to the Starbucks one and I am not a coffee drinker. So my visits to Starbucks are few!

  4. “I think blaming the economy for this is a particularly weak move on the part of Starbucks, and one that the general public unfortunately won’t see as a convenient excuse for bad strategic planning. “

    What? You want that they should, I don’t know…take responsibility for their faulty business plan?

    “they *do* take care of their employees.

    I don’t think that’s in contention here. What’s being said is that they expanded too far, too fast.

    I’m willing to bet its possible to travel the country now and never see the bottom of a Starbucks cup, if you purchased the Venti and purchased a cup at every store you passed.

    Of course, then you’d be so full of caffiene you could swim over to England so you might want to try this during months when the Atlantic is relatively calm.

  5. Hi,
    I have been a lurker for a few months. I just needed to respond to the comment from Cory Crow. It is possible to see the bottom, even with a Venti purchase. 🙂 Just drive the I-10 from Phoenix to Houston. I saw not one Starbucks between Tucson and Las Cruces, and none between El Paso and San Antonio.
    In terms of expansion, they probably did expand faster than could be sustained. I think blame poor analysis. I believe their issues are less about free trade and business practices and more a matter of customer convenience.
    I rarely had Starbucks until I moved to Phoenix. Then when it was 4 miles north and out of my way I still didn’t have it. When they opened a drive though within 2 miles I only went if it happened to mesh with my route home from work. I did however see two located directly across the street from each other their, and they were constantly packed with lines out the door just because they were at the right intersection and caught traffic both ways. Since I moved to Houston, I haven’t been there once, it isn’t convenient as I go to work or come home.

  6. Maybe the problem is their crap coffee?

  7. a reference to “SG&A” woven into a food blog. wow, I’m impressed.
    Of course, i’m always impresssed.

  8. I have to agree…too many too fast. Reminds me of one of my favorite scenes in Best In Show.

    We met at Starbucks.

  9. “It is possible to see the bottom, even with a Venti purchase. Just drive the I-10 from Phoenix to Houston. ”

    Well, sure. That’s IF you choose to count Phoenix…..

    🙂

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