Tuesday, October 14, 2008

Customers cutting back on going to Starbucks


Starbucks Corp. has spent the past year attempting to revive traffic with new products and a renewed emphasis on coffee, but lapsed customers would be more likely to come back for lower prices, according to a survey of 2,500 coffee drinkers.


The research, conducted by Morgan Stanley & Co. Inc. and released Tuesday, found that nearly one-third of Starbucks’ customers have cut back on visits in the past three months. Just 17 percent of McDonald’s guests and 18 percent of Dunkin Donuts’ patrons say they’ve similarly tempered their traffic at those brands, Morgan Stanley said.


Of the Starbucks customers who are decreasing their visits, 84 percent blamed economic pressures. When asked what would increase their visits to Starbucks, 65 percent cited lower prices.


The conclusions run contrary to the view by Starbucks management that declining sales could be reversed with the introduction of new, more healthful menu options, as well as better brewing equipment and barista training. All have figured into what the coffee giant describes as a year of transformation that began in January.


According to the survey, 31 percent of the existing Starbucks customers who participated said a more aggressive customer rewards program would boost the number of their visits. Starbucks launched a reward program earlier this year that offered repeat visitors free flavor shots, refills on brewed coffee and free WiFi service.


The survey also found that Starbuck’s offer of $2 drinks after 2 p.m. did not bring in many new customers and was favored only by heavy users. Most customers want to stop at Starbucks only once per day, the survey found.


While new beverages like the Sorbetto drink in Southern California and the Vivanno smoothies were well-received, they are consumed infrequently and could prove seasonal, according to the report.


The surveyed customers gave a tepid assessment of Starbucks’ recent menu additions. Fewer than 10 percent said they were interested in the chain’s new oatmeal, which officials have touted as a strong seller. Other new products include whole-grain pastries and a protein plate. The survey was conducted before Starbucks introduced its new baked breakfast sandwich, called the Piadini, last week.


The introduction of new gourmet coffees by McDonald’s does not appear to be tempting customers away from Starbucks, according to the survey.


When asked what would cause them to switch to McDonald’s for their coffee, 48 percent of Starbucks customers said they had no interest in switching. However, more than half the respondents who said they are visiting McDonald’s more often reported trying and liking the burger chain’s new specialty coffees.


Both Starbucks and McDonald’s coffee drinkers believe their respective brands are more convenient, but Starbucks customers agreed that McDonald’s offered better value. The report concluded that Starbucks needs to improve the perception of its value to recapture lapsed guests.


Half of the customer-respondents, however, said they would go to another Starbucks if their local store was closed, indicating the company could see a comparable-store sales bump of two percentage points in fiscal 2009 from the previously announced closure of 600 units, according to the report.

No comments: