business news in context, analysis with attitude

Starbucks, which for the first time in its history saw customer traffic drop during the most recent fiscal quarter, will begin using television advertising to try to generate new traffic for the thousands of stores that dot the American retail landscape. The company said yesterday that its fourth quarter average transactions were down one percent, even as same-store sales were up four percent – a trend that can be attributed to increased prices because of higher commodity costs. Total revenue rose 22% to $2.44 billion in the quarter.

CEO Jim Donald tells the Wall Street Journal that the campaign will be "a very culturally sensitive, product-driven" effort, and that the goal is to “reach out to this broader audience that maybe [has] not had a chance to experience Starbucks.”

In addition, the ads are expected to work to differentiate the company from its growing list of rivals, which includes the likes of Dunkin’ Donuts, McDonald’s, and Caribou Coffee.

The tagline for the new campaign: “Pass The Cheer,” which is a slogan being used for in-store promotions for the upcoming holiday season.

Donald tells the Journal that concerns about market saturation are “overblown,” but that the company will be more deliberate about store openings next year – opening just 1,600 units next year, 100 fewer than originally projected.

KC's View:
First of all, it is hard to get too worried about a company where quarterly sales are up 22 percent and same-store sales are up four percent. But as was mentioned here on MNB earlier in the week about a different company, knowing when to slow down is one of the hardest things to do…and it strikes me that maybe being “more deliberate” s a smart move for Starbucks. The company also says it will reduce the number of items it sells, and will have top managers spend more time in the stores – both very smart moves.

I’ll also say this. I’ve gotten to know Jim Donald a little bit over the years, and there is no smarter, more committed executive working in retail today. So I wouldn’t be even a little worried about whether Starbucks will make it through what some people obviously think is a rough patch.

Now, to be clear, I have a bias here. I’m a big fan of the company’s culture. My son is an employee of the company, and he loves it. And I write MNB virtually every day while consuming 3-4 cups of Starbucks Verona coffee, black.