What can Apple learn from Starbucks?
Published January 23, 2008
On January 11th, Starbucks–the ubiquitous coffee giant–announced a restructuring plan. The initiative includes recalling former executive Harry Roberts back to the company as senior VP and replacing Chief Executive Jim Donald with Chairman Howard Schultz in an effort to save flagging sales. Starbucks will also close some of its 15,000 stores and slow further plans for expansion. The obvious question to the casual observer is ‘why?’ It seems as though Starbucks is everywhere: in movies, on TV and even in small town malls and grocery stores. How could a company this omnipresent be hurting for a foothold? The clearest reason is that it is everywhere, and that consumers are finally Starbucked out. There was a time when the chain had only a handful of stores compared to the staggering number it has now, and that glut has made the company’s offering of a fancy cup of coffee seem less like something special and more like ho hum.
Another reason for the downturn is the feeling among many consumers that four dollars spent on a latte may be better spent on a gallon of gas, or that enough of those lattes could add up to a chunk of a mortgage payment in these tough economic times. Still others say Starbucks has lost the “coffeehouse” charm it once had, and feels more like McDonalds (who, along with Dunkin Donuts has launched its own line of fancy coffee drinks). The simplest answer to Starbucks’ woes is that they have glutted the market: their product is no longer different and their ability to respond to customer needs has been compromised.
Apple, on the other hand, just posted its best quarter ever. Buried in the good news is the fact that Apple is showing just 5% growth in iPod sales year-over-year, despite a 17% revenue jump. In other words, lots of people are buying a second or third iPod, but not as many people are buying their first. The iPod Touch–while unique–is pricey, and hasn’t compelled many first time users to jump on board. The “gateway” iPods like the Shuffle are in need of a serious refresh in order to speed up sales.
But more than anything, Apple needs to find a way to avoid the glut that Starbucks is facing. If we use the growth of Starbucks as a yardstick, plotted on an eight year trend with 2007 being the final year, it would be fair to say that Apple is in the middle of a huge growth spurt. Part of what it needs to do now is find some sustainability for itself. The iPhone, MacBook and MacBook Pro are all excellent products whose lifecycles will see Apple well into the next decade; the iPod Touch and MacBook Air, however, are not the stuff that futures are built on. They are the “drinkable chocolate” and “blended creme frappé” in Apple’s lineup, the sorts of things meant to glow in the window and attract passersby who may never return, no matter how cool they are. Updates to the iPod line will help, including a revamping of the higher capacity iPod Classic. But prices of solid state drives may make them impractical for use in the product.
Over the last two years Apple has been essentially unchallenged in its (re)rise to prominence. A small slow down in one segment is not the end of the world, and it may just be the chance Apple needs to set the world on its ear again. Sales of iPhones and iMacs are brisk, and more and more people discover life on the Mac side every day. Whatever the second quarter may bring, everyone is excited to see what’s next from the house of Steve.
