Coming Soon: Starbucks TV Commercials To Address Falling Traffic

For the first time ever—and spurred largely by two price increases in a year—customer traffic at Starbucks dropped last quarter. The coffee chain still reported earnings based largely on higher prices and new stores, but it’s worried enough about the falling traffic to launch a national television ad campaign this season, something it’s never done before.

Starbucks’ Chief Executive said that the chain’s 2008 earnings forecast does not factor in a price increase, although we’re not sure how to take that. (Maybe he’s just hinting that they can beat their forecast with $9 cups of coffee!)

Although the falling traffic proves even Starbucks is vulnerable to the economic downturn, it doesn’t mean they’ve shelved their scheme to take over the world: the CEO announced that they’re moving ahead with plans to open 10,000 new stores over the next four years, although they’re reducing the number opening in the U.S.

“Starbucks reports 1st traffic drop as shares fall” [Reuters]
(Photo: Steve Webel)

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  1. PatrickIs2Smart says:

    Come to think of it… I don’t think I’ve ever seen a Starbucks ad…

  2. Falconfire says:

    @PatrickIs2Smart: you havent Starbucks never did TV ads before… it was actually something of pride in the company and this does not reflect well for them.

  3. Parting says:

    Falling traffic… Probably due to high number of imitations… Lots of coffee shops, with similar products at ”every” street corner.

  4. TWinter says:

    I don’t think the small price increases really made that much of a difference in cutting sales.

    The fact that they are planning to open fewer stores in the US points to market saturation as a factor Рthere are now so many Starbucks and other caf̩s out there, esp. in the major cities, that the new ones just suck sales from old ones.

    Belt tightening on the part of consumers is probably also an issue. Let’s face it, cutting back your Starbucks is going to be one of the first things many people do when money gets a bit tight.

  5. saltmine says:

    @Falconfire: They have had TV ads, just not for their shops. They had ads for the frappuccino/espresso shots that you can buy in stores. Haven’t seen them in a while, but if I remember correctly they were actually fairly funny.

  6. timmus says:

    Ironically, sales at the Starbucks stores inside the Starbucks bathrooms are increasing. Go figure.

  7. timmus says:

    Oh – I live in a city of 40,000 and there’s no Starbucks within 40 miles. They’re concentrating WAY too hard on the big cities. Not that I really care, but still.

  8. synergy says:

    Stop the insanity! No more Starbucks stories!!!

    I remember when cups of coffee were a quarter or fifty cents. Crazy.

  9. mrosedal says:

    Starbucks is hitting the small towns as well. The town I grew up in isn’t much lager than 40,000 and there is now a starbucks there. Champaign-Urbana isn’t that large either, and there are at least 4 of course it helps that it is a college town.

  10. dustboo says:

    looking for a starbucks? stop by my town. we call ourselves the “sub-urb without the urb”. i live in the tri-cities, washington. i’m telling you… there are starbucks EVERYWHERE here! i’m not even kidding when i say you can be sitting in one and see a starbucks across the street… [lewis black style].

  11. BigNutty says:

    Starbucks may taste good but my gosh, you don’t feel cheated by the price? Marketing geniuses me thinks.

  12. dirtymoney says:

    sure doesnt stop them from continually opening new stores does it? One just opened up down the street from me.

  13. quail says:

    I’ve never understood the business thought that sales must always increase. At some point saturation occurs and as in nature an equilibrium is created. That said, Starbucks is far from reaching saturation. In the past 5 years they’ve done a great job of putting a Starbucks at strategic spots along heavily traveled interstate routes. A few towns with only 8,000 residents have a Starbucks because they’re at a strategic location along an interstate. And the shop is packed with family’s on the weekends and truckers during the week.

  14. pinkbunnyslippers says:

    @TWinter: You’re absolutely right. Corporate cannibalism at it’s greatest! :)

  15. bohemian says:

    Starbucks has done some expansion in smaller towns and along interstate routes. Since I live in the arsecrack of nowhere traveling is really miserable. On our trip across the Midwest last summer I found quite a few starbucks along the interstate. Made me really happy since regular brewed coffee makes me seriously ill.

    I still thing Starbucks lagging sales is due to people cutting back on spending. Optional things go first so people can pay for gas, groceries and house payments.

  16. jamar0303 says:

    Here in China the Starbucks I go to are all very well-populated. There’s a Starbucks practically everywhere that’s accessible- they even put one in my little suburb and 3 at the nearby subway station (2 of them are in a shopping mall- one on floor B2 and another on ground floor).

    Of course, China’s not the one experiencing the economic downturn.

  17. fluiddruid says:

    Personally, I bet the falling traffic is lack of consumer confidence. I know a former heavy Starbucks user (1-2 purchases a day!) and they’ve bought an espresso machine to save money because of the changes in the economy. It’s hard for most people to justify spending $30 a week at Starbucks.

  18. DashTheHand says:

    The sooner people realize that $5 to $8 coffee with added crap is still just a rented beverage that can be made at home for a fraction of the cost or a similar item bought at another store for under half the cost, the land won’t be so completely covered by idiots.

  19. LionelEHutz says:

    Gas at over $3 a gallon can’t be helping them, but maybe better coffee would help them too.

  20. Cogito Ergo Bibo says:

    Maybe they should save the money from their ad campaign and put it toward more reasonable pricing for a sluggish economy. After all, if nothing else is changing other than their running ads, what exactly are the ads going to tell us that we don’t already know?

  21. Snarkysnake says:

    Okay, let me get this straight…

    Americans are up to their asscracks in debt.

    The savings rate (according to the government) is negative.

    40 Million (or a similarly unrealistic number) have no health insurance.

    The only growth in the economy right now is in mortgage foreclosure specialists.

    And there are people in the above categories burning $3 gas in their leased Tahoe to buy $7 coffee that they could make at home for the cost of beans and water ?

    Makes perfect sense.

  22. speedwell (propagandist and secular snarkist) says:

    @fluiddruid: Five minutes after I read your post, I’m still laughing at the idea of someone buying an espresso machine for the express purpose of economizing. I guess things aren’t so bad yet, eh?

    Wake me up when the poor darling is in such dire straits that they have to use one of those little aluminum stovetop jobbies like they do in Europe.

  23. MonkeySwitch says:

    Dude, if they offered free wireless I’m sure traffic would double. Seriously. I’ve worked in a few coffee shops, and the one with FREE wireless was always the busiest.

  24. davere says:

    I have 3 coworkers addicted to Starbucks…. a minimum of 2 trips a day, 5 times a week.

    They raised the prices, they swore it off. Sure, i’t lasted it a week, but now they only go about 3 times a week, so that’s something. Baby steps.

  25. SVreader says:

    Darn you, Congo Coffee!

  26. Amy Alkon says:

    I suspect it may have something to do with the spread of mobile broadband and free Wifi. Also, for me, sitting in Starbucks has become very unpleasant with all the people shouting into their cell phones there. I stopped going to Starbucks and now go to a cafe that has a “no cell phones” policy. Anybody else doing the same because of the cell phones?

  27. jydesign says:

    @MONKEYSWITCH – I totally agree with you, small cafe’s have been “stealing” Starbucks customers with free wifi. Their growing menu of candy drinks, and for-fee wifi has sucked the life out of their ‘gourmet’ image.

    They should skip the ad campaign, and instead invest that same money in offering free, long-range wireless access at all of their stores – there are so many stores in some areas, it could wind up being a de-facto wifi blanket for some ‘hoods. Now that would be some kick ass PR.

    Either that, or Apple should just outright acquire them and they can start selling white colored coffee that can only be consumed via proprietary aluminum cups.

  28. spryte says:

    Living in San Francisco makes it hard to imagine living somewhere without a Starbucks. There are four within a 1-2 block radius of my office, and no matter which one I go to in the morning, it’s always crowded.

    When people get snarky about the prices, you have to remember that the super-pricey stuff is rare..it’s not like every drink is $7. I get a grande drip coffee which is…umm…$1.75? Sure that’s more than plain coffee used to be, but almost EVERYTHING is more than it used to be. Go into a grocery store with an old person and ask them which products are NOT more expensive than they were 50 years ago.

    The main thing I like about Starbucks is that I have never once had a rude, bored, unfriendly, etc, employee encounter there…which I have had at many smaller independent shops. You get these apathetic whiny Gen-Yers working in “Too Cool To Show Emotion” indie coffee house, and they act like you are personally responsible for whatever might be bothering them. Or even if they’re not out and out rude, they sure aren’t ever friendly like the Starbucks Super Smiley Sparkle Squad. I know it must suck to get up at 5 in the morning and spend hours serving people but…OMGZ…that’s the effing job you chose.

  29. spryte says:

    @jydesign: “Either that, or Apple should just outright acquire them and they can start selling white colored coffee that can only be consumed via proprietary aluminum cups.”

    BAHAHAHAHAHHAHAHAHAHA….genius.

  30. Akamaru says:

    I love Starbucks hot chocolate. I’m not a coffee drinker, but I enjoy their frappachinos as well.

    However I did the math and I can’t bring myself to make it into a habit of going there every day like some of my coworkers. I’ll go every 2 months for a drink. I don’t understand how people can spend $30 a week on coffee.

  31. Landru says:

    Eventually, they will need to continue increase profits, and the market will have been saturated. The will start cutting costs, because they can’t open more stores or get people to drink more coffee. They will cut sizes, quality of ingredients, salaries. Cleanliness will suffer and then nobody will go anymore. Then bankruptcy.
    The end.

  32. etinterrapax says:

    I love how every company seems to be pretending this is all for some other reason than that people just don’t have the money to spend on luxuries that they did two or five years ago. It’s got to be about foot traffic or market saturation or menu variety or something. It’s a once-a-year treat for me, and that’s about as much as I could possibly justify for what is, after all, a mere beverage.

  33. Nemesis_Enforcer says:

    I don’t drink coffee but the wife does. She likes the fuu-fuu drinks at bucks, I always feel wierd ordering a carmel macchiato(sp?) for her. but the only bucks I see really crowded is the one with a drive thru. Oh and the one in Target, and the one about 300 ft from my house and the one 1/2 mile past that one…damn there are a ton of them near me.

  34. quail says:

    The $7 cost being batted around is the average cost of one of their labor intensive drinks. When I go getting a grande (still hate their sizing names)regular coffee I spend about $2. That all depends on the store’s location of course. Yea. I can make it cheaper at home but when I’m traveling that’s impossible. Plus the coffee offered in the restaurants and hotels has turned crappy once again. (You’d think it was the 1980’s again.)

  35. drjayphd says:

    @dustboo: Nothing quite as bad as Vancouver… I forget the intersection, but they had two of ‘em on the same corner. Of course, one was smoking, the other non, so they weren’t cannibalizing off each other…

  36. FromThisSoil says:

    I don’t like their coffee, but I love their espresso (or at least loved it). After a few months of buying a double-espresso 5 times a week, I began getting tired of giving them my money ($2.50 a pop).

    I gave up espresso and other high caffeine drinks for good, and after a week of feeling like crap, I have more energy in the morning than I did when I drank the stuff.

    At the rate I was going I would have spent $600 annually in Starbucks, which frightens me.

    I actually went there today for a hot chocolate – $3.77 for a medium hot chocolate! Unbelievable. I’m totally gone with Starbucks.

  37. korith says:

    Never understood what makes a person shell out that much for a cup of coffee. I always just start calculating the costs in my head X amount of coffee today * 30 days = a hell of a lot that could be used better elsewhere.