Wednesday, February 18, 2009

Starbucks - rise and fall and rise again!


I do NOT like coffee. Period! Some reasons being 1)Its not good for health for it contains caffeine, a drug. 2)I like the smell but have always wondered if I can find out if something falls into my coffee(I know, stupid worry, but...) My family loves coffee. My grand dad, aunt and sis would love to drink coffee at all times of the day. Even others would love to have a cup of coffee than any other drink. Same with my friends. There are more coffee drinkers than non-coffee drinkers in my circle. So, I'm always on the lookout for special and gourmet coffee to gift my family and friends. This is a habit right from B days to now. But my stint in S led me to one of the holiest places of corporate coffee world, the Starbucks' first store. I didn't know how holy it was until I saw the look of pure joy on the face of one of my friends(an avid coffee drinker). He had the same look as any cricket fan would have for Lords or any tennis fan would have for Wimbledon. And all this in a market that was similar to the Koyambedu market of C in India. Among all that, he was looking as if angels descended from heaven and were showering him with coffee of the best kind. But I'm digressing....

When I started my finance class, I was also trying out to find more about a few companies in my daily life and their growth over the years. Starbucks was part of the list. It was interesting to see that their stock price increased till 2007. Since I wasn't in the US at that time, I'm only guessing that it was because it was more and more cool to drink coffee from Starbucks and they synonimized the word for coffee. It was classier yet ordinary enough for a normal man. I know of friends who took Starbucks coffee just 'coz it delivered some pizzazz in life and changed an otherwise boring day into something better. So, people went in for the experience of drinking coffee(not unlike the Annapoorna coffee or MTR coffee on a chilly morning) than the taste of it. Then, as the economy went into recession(hey! we officially started the recession in Dec 2007), more and more people started cutting costs. One of the firsts to get out of their lifestyles was Starbucks coffee. Every personal finance guru said "Cut that $3+ latte that you take in Starbucks every morning. You'll save ~$100 per month ~=$1200 a year." Now $1200 a year is really tempting and people were more keen on putting food on table and paying bills than getting some snazz into life. Since 2008, the stock price has steadily decreased and bottomed out in December 2008(Compare the Dec 2008 price of $9+ to max price of $38+ dollars). And, sales reports from Starbucks all over USA weren't really cheerful. Further, Starbucks announced layoffs to cut costs.

Now, there is something about seeing a corporation in trouble that reminds me of an elephant in pain. Its so big and powerful, yet in pain. Small steps can't help it to recover. Sweeping steps are needed. But its hard to think in terms of millions of dollars, affecting millions of lives with our action.(Frankly, I've not thought so so far and that keeps me interested in the companies and their stories). So, I started wondering if this was the end of Starbucks that weathered recessions since 1971. And, offers by competitors like Dunkin' Donuts reduced the sales further. I am interested to see the fight put up by Starbucks. I guess they've taken the first steps towards it. The instant coffee!!
Yeah, the makers of European style coffee for $3 a cup are now jumping on to instant coffee with their "Via Ready" brew. I personally don't know the difference between normal coffee and instant coffee. But I've heard family and friends say that normal coffee(or filter kaapi) is way way better than instant coffee. Now, Starbucks is promising instant coffee that is equivalent to normal coffee. The packing is snazzy enough for the modern consumer and looks appealing. Its also offering samples to entice customers to try the new brew. Will it succeed? Will it stop the descending stock price and start going up again? Or would the consumers shun this instant coffee and stick to the more established ones? Only time should tell if its a success or not. Sometimes, hindsight is the best sight possible. As of now, the dance in corporate world is at the same time, alluring and frightening. Lets see how it goes!

If you've tasted the new Via Ready Brew, do share your comments on it and if it gives the same taste as that of the original Starbucks coffee. I'd love to hear about it.

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