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Why Starbucks lost its mojo

It became too common to be trendy – and lost its appeal.

By Bryant Simon / July 30, 2008


Bad news has been pouring down on Starbucks for a year.

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The price of the company's stock has been cut in half – and then some. Fewer people come through store doors and those who do buy less.

Still when Starbucks, that longtime engine of growth, announced that it planned to close 600 US stores – 50 of them by the end of July – and lay off 12,000 employees, company watchers reacted with surprise. One journalist called it the "sudden shocking end to the long and gilded age of Starbucks."

As the shock wore off, the explanations came. Pundits and analysts blamed stock prices, the mortgage crisis, competition from McDonald's and Dunkin Donuts, along with real estate blunders, like putting stores on opposite corners of the same intersection. But they had it mostly wrong. This economic logic was too narrow and not culturally informed enough to explain Starbucks' fall.

The company thrived throughout the past 15 years by giving middle-class Americans exactly what they thought they wanted – and this wasn't really about coffee. It was about creating a product that allowed doctors and lawyers, IT specialists and travel writers, and then their imitators, to portray themselves as they wanted to be seen. That's how products work in the world we live in. We buy things to announce something about ourselves.

For the most part, the products that sell the best are the ones that communicate most effectively. That's what Starbucks did with their coffee.

Really, then, they sold not coffee but elevated status. Just by buying the coffee and speaking the company's made-up lingua franca, you became a cup-carrying member of the upper class. And that made Starbucks, overpriced as it was, an affordable form of statusmaking.

It was, after all, cheaper than a BMW, a Kate Spade bag, an Armani suit, or a Colorado ski vacation, but it projected "upscale" in the same way. That's why it was valuable, maybe even a bargain at $4 a cup.

I once asked a woman who graduated from community college and worked as a dental hygienist why she went to Starbucks several times a week; she answered, "I don't really like the coffee, but I go because successful people go there and I hope it rubs off on me."

This was not a phenomenon unique to the United States. I once talked with a 30-something man who was sipping a grande iced coffee in Singapore. Why do you like Starbucks, I asked him. Why don't you go to a local cafe where the coffee costs a quarter as much? "It is cool," he responded; "I'm cool when I'm drinking it."