Thursday, March 27, 2008

wondering: why did starbucks buy clover



Coffee hipsters have been worshipping at the altar of the $11,000 Clover coffee machine for quite a while now. So when Howard D. Schultz, chief executive of Starbucks, announced at last week's annual shareholders meeting that the company had acquired the Clover Equipment Company, these coffee hipsters were understandably surprised.

Even non-hipsters were surprised.

Mr. Schultz described the acquisition as part of the company's effort to "make better coffee".

It's a mistake.

The "overwhelming majority" of Starbucks customers buy what the New York Times described as "drinks that sound like punch lines: a tall honey latte with whipped cream, a venti caramel macchiato". These are high-margin, high-velocity products that can be made quickly and whose dominant flavor is sweet. Devotees of these products don't want better coffee, they just want whatever peculiar coffee-flavored confection they're addicted to. It doesn't take a highly-skilled person to make one, just a consistent one.

And remember that a cup of coffee prepared by a Clover machine is the product of a slow process, and the final flavor depends on the quality of the bean and even more strongly on the quality of the roast, flavors that will vanish when subjected to the sort of sugar- and cream-abuse most customers exercise on their coffee.

Mr. Schultz said the Clovers, when they appear in stores, will be the centerpieces of what he called a shrine.

OK, I have a few questions:

  • Where are the "I drink my coffee black" supplicants who will worship at these shrines?
  • What will be displaced by these shrines? I don't know if you've looked, but most Starbucks stores aren't actually swimming in excess space.
  • Who will staff these machines?
  • What is the impact on throughput while the on-staff barista works the Clover from start to finish? Put another way, how many cups of drip coffee or traditional espresso-based drinks could a store turn over in the time it will take to make one cup of Clover coffee?
  • How much more will they charge for the privilege of enjoying a single cup of Clover coffee above the already high cost of regular Starbucks drip coffee?
  • How many other related products will Starbucks have to sell you along with your Clover coffee to make up for the cost associated with operating it?
  • Will the presence of a Clover bring new customers in and keep them coming back?
  • Will the inevitable slow-downs caused by the presence of a Clover drive customers away? In case you didn't watch the video above, the cycle time to create a single cup of Clover coffee is around 90 seconds, which doesn't include the time to portion the beans and grind them.
  • Was the buy simply an effort to bring some of the cachet of a clearly prestigious brand to a brand that is struggling to raise same-store sales in the face of an economic downturn?
  • Will Clover enthusiasts trust Starbucks to carry the sort of correctly-roasted beans required to make each cup of Clover coffee "all it can be" and not just a high-priced cup of drip coffee you have to wait for?

Evidence that Starbucks isn't sure of the answers to these questions can be seen in their roll out - they are putting only six machines in the field, three machines in Seattle and three in Boston. And these are two coffee-mad cities already full of coffee-hipster shops that survive because they've created a loyal customer base that won't abandon ship overnight. I seriously doubt they will find the same sense of community and artisanal focus at Starbucks where they have to wait for the barista to finish crafting a "venti caramel macchiato" before he fires up the Clover.

Starbucks is experiencing a down-turn in same store sales because Starbucks is a luxury item, not because their coffee is bad. And there are not enough Clover aficionados who could be convinced to leave their neighborhood shops to go to Starbucks to reverse the trend. Besides, Clover's brand was built on a specialist consumer experience that does not translate to the mass-market.

"Better coffee" isn't the fix. Most consumers wouldn't know a superior cup of coffee if Juan Valdez served it to them.

The cautionary tale here is to protect your brand, because once it becomes unmoored from the reality of your business, your authenticity is lost and all the consumer is left with is a memory of an experience that they used to enjoy. Starbucks can't get back to its roots of "better coffee" because that alone won't pay the bills the same way that the tidal wave of "venti caramel macchiatos" does.

9 comments:

swag said...

Howard Schultz is still having delusional fantasies in dreamland, believing that he grew his baby to insane proportions by the sheer quality of its coffee. But in reality, Starbucks marketing mastery was in convincing people who don't like coffee that they actually did -- even if it's coffee-tinged milkshakes.

As long as Mr. Schultz denies this reality, the corporation will suffer from a knowledge gap between what is and what he wishes will be.

WhaleDog said...

Why do car manufacturers participate in Formula One racing (like say Honda) when they don't mass produce these cars? The answer is to establish themselves and their brand as the being the leaders, the best at what they do. Consumers feel better buying Accords when Honda wins a Formula One race. That is what Starbucks is doing (and has done successfully in the past). They are further establishing themselves as the ultimate authority on coffee in the U.S. That is why consumers are willing to pay $4 for a Cafe Latte - it is from the people who know about coffee.

bob said...

Consumers are willing to pay $4 for a latte for the following reasons:

1. They have an extra $4 that they can spend on a luxury product
2. There is a Starbucks on every corner willing to take their $4 in exchange for said latte.

Starbucks is the mass-market authority on a luxury version of a commodity product. Consumers feel better buying a coffee from Starbucks for the simple reason that they are clean, convenient and consistent. Take that $4 away from the consumer and those who need/want coffee will either make it at home or go to a lower-priced option.

Ron said...

Two points:

1.) McDonald's success at cutting into the Starbucks coffee market seems to confirm your belief that the coffee doesn't matter. Even free, I didn't like the McD's stuff; more a coffee-flavored confection than a Eurocoffee or even just a good cuppa joe!

2.) Slate had a piece awhile back which goes against your thesis, in that introducing a Starbucks where there are existing mom-and-pop coffeehouses seems to have a 'negative Wal-Mart effect.' Sales at the non-Starbucks stores go up 20-25% after they come in, which implies that Starbucks introduces people to the coffeehouse experience, but once they've tried it, they prefer a local outfit.

Thoughts?

Evan said...

* Where are the "I drink my coffee black" supplicants who will worship at these shrines?

Right here! I've never enjoyed more than a drop or two of cream, and I can't stand sugar anywhere near my coffee.


* What will be displaced by these shrines? I don't know if you've looked, but most Starbucks stores aren't actually swimming in excess space.

Hopefully some of the pictureframe bullshit.

* Who will staff these machines?

About two weeks ago (before I got my dream job) I was seriously considering working at starbucks. If it proves profitable they'll be able to promote lamers to the clover machines and provide some new jobs to recent college grads.

* What is the impact on throughput while the on-staff barista works the Clover from start to finish? Put another way, how many cups of drip coffee or traditional espresso-based drinks could a store turn over in the time it will take to make one cup of Clover coffee?

The starbucks housed in the bottom of the CNA insurance building had separate lines for coffee and bar drinks not even two years ago. I expect something like a separate counter.

* How much more will they charge for the privilege of enjoying a single cup of Clover coffee above the already high cost of regular Starbucks drip coffee?

Lots.

* How many other related products will Starbucks have to sell you along with your Clover coffee to make up for the cost associated with operating it?

Lots.

* Will the presence of a Clover bring new customers in and keep them coming back?

Absolutely. There are social groups that exist entirely around the individual baristas and their early morning fans.

* Will the inevitable slow-downs caused by the presence of a Clover drive customers away? In case you didn't watch the video above, the cycle time to create a single cup of Clover coffee is around 90 seconds, which doesn't include the time to portion the beans and grind them.

I'm not sure.

* Was the buy simply an effort to bring some of the cachet of a clearly prestigious brand to a brand that is struggling to raise same-store sales in the face of an economic downturn?

Yes!

* Will Clover enthusiasts trust Starbucks to carry the sort of correctly-roasted beans required to make each cup of Clover coffee "all it can be" and not just a high-priced cup of drip coffee you have to wait for?

No! They're hoping to be able to create a buzz out of turning a cult phenomenon into a corporate cash cow so they can get people back in their stores. I can tell you that I will be visiting more than one local starbucks that has a clover once the buzz dies down.

It's what they've been doing for the past ten years, except that this time it seems like they've admited to the sleaze.

bob said...

ron: agreed that starbucks has the anti-WalMart effect. It's happening in our town - a "real" coffee shop opened up down the street from Starbucks that does coffee "right", and they've cut dramatically into the "sip and linger" crowd that used to hang out (poorly) at Starbucks. The new joint has more traditional coffee shop decor, entertainment, music, etc. That said, while I think that Starbucks has the anti-WalMart effect, when the poop hits the fan and people have to cut back, the inelasticity of demand that coffee products enjoy will drive consumers to the local (and cheaper) joint.

Evan: Come on, you're a coffee hipster like me (and Ron). There aren't enough Evans or Rons or Bobs in the world who will want to put up with the candy coffee crowd that populates Starbucks to make it a regular destination. Besides, the physics of separating flavor from coffee grounds are hardly rocket science - even if Starbucks makes the Clover a proprietary machine, some other bright lad or lass will figure out how to make a killer machine or process that will take the coffee-hipster community by storm. There's always "the next big thing".

But we're missing the point - Starbucks is trying to breathe life into their brand and drive new sales. They won't make their number selling black coffee to the small population of consumers who know what a great cup of coffee tastes like.

Ron said...

you're a coffee hipster like me (and Ron)

Moi? just cause I lust after a Pasquini Livia 90?

The world became much more productive when the stimulants shifted from beer and auto-de-fe's to coffee and chocolate... I'm just sayin'!

coffeefan@home said...

Does anyone know where I can buy a used clover ?

bob said...

Sorry, no. If you want to "simulate" the Clover, there is a great interview with an award-winning barista I found on Boing Boing - the d/l is here: http://video.boingboing.net/video/15170/bbtv_2008-06-20-000050.mp4