While Starbucks last week announced another round of job cuts, a bigger surprise to many was that the upscale coffee chain was entering the breakfast value-meal race. Using uniform national pricing, Starbucks in March will begin offering "several breakfast pairings" at "attractive price points."
The move represents an about-face for Starbucks. Last July, chief executive Howard Schultz said the company was "not going to go down the fast-food lane" in offering combo-meal discounts. He argued that Starbucks' customers were willing to pay a premium for the Starbucks "experience."
But last Wednesday, Mr. Schultz indicated that more of a value-proposition would be added to its breakfast offerings starting in March "to correct misperceptions and drive stronger offers into the market."
A shift to national pricing from a market-to-market approach in particular represented a "significant strategic shift," said Mr. Schultz. But he said consumers are looking for more value.
Said Mr. Schultz, "This is an attempt that we think is a very strong sign of the things that we need to do around value and the research that we've done strongly indicates that the appetite from our customers to respond positively is there."
Mr. Schultz lamented, "The question of value often gets tied to the competition. How are we competing with traditional QSRs who are offering cheap coffee in dollar menus? How can a premium brand like Starbucks be competitive when customers are trading down on everything from houses and travel to clothing and lunches out?"
But he said that Starbucks has a number of "differentiating factors" outside price. These include its long positioning as an "experienced (sic) oriented brand and retailer," its Starbucks Shared Planet initiative, and the ways it connects with customers at a local level.
"What all of these efforts have in common is their relevancy to the values and lives of our customers and that is what we believe will help us remain resilient both during challenging times and long into the future," said Mr. Schultz.
News of breakfast-value offerings came on the same day Starbucks announced it would layoff 6,700 employees, close 300 more doors, and scale back store openings for 2009 on the heels of weak earnings in its quarter ended Dec. 28. Same-store sales were down 9 percent in the period.
Discussion Questions: What do you think of Starbucks' plans to offer value breakfast deals? How can Starbucks offer a better value-proposition without affecting its premium positioning?