Start on the Starbucks front: holiday foot traffic (i.e. people out-and-about in stores) was 1/2 in 2013 what it was in 2010; phrased another way, more people are shopping online — and that’s hurting adjacent stores in malls (i.e. Starbucks or places like a Cheesecake Factory), where shoppers will often go for breaks in the shopping experience. To quote Starbucks CEO Howard Schultz:
“Holiday 2013 was the first in which many traditional brick and mortar retailers experienced in-store foot traffic give way to online shopping in a major way.”
As a result, while Starbucks did post $4.2 billion in global sales from October to December 2013 (which was a 12 percent increase over last year at the same time), they still fell short of analysts’ predictions. As a result, the strategy has to shift: there are more digital marketing efforts (like Tweet-A-Coffee) and gift cards (people really like Starbucks gift cards), and they need to aggressively get their products into supermarkets. Basically, they need to ensure that the mall-linked coffee shops are a smaller portion of their overall business.
Meanwhile, McDonald’s had a self-admitted ‘challenging’ 2013 with comparable sales declining 1.4 percent (analysts had predicted it would be 0.2 percent). They’ve now had five straight disappointing quarters and their overall stock price is only up seven percent since their latest CEO took over in 2012 (if they operated like the Cleveland Browns, dude would be canned already). The problem with the whole McDonald’s issue is that they’re trying to rebrand by making the menu more diverse in certain markets, but the over-complexity of the menu could be the problem in the first place. The Mighty Wings experiment wasn’t great either; they have a ton of surplus from that. The CEO is admitting a “customer relevance problem.” The potential new strategy is to emphasize coffee (like Starbucks!) and breakfast, meaning that McDonald’s could turn into a pseudo Cracker Barrel in some places. Odd.
A couple of things here:
1. The adherence to the quarterly results system in business, while understandable, is also a gigantic mess. When you have to worry every three months and re-adjust therein, nothing consistent can ever take hold. How many times have you talked to someone about their job and they say, “Well, we just did a little shuffling/re-organization?” I’ve heard that type of sentence over 100 times. It shouldn’t be like that, because that affect morale, responsibility, and other things.
2. I always find business strategy really interesting. McDonald’s and Starbucks are hallmarks, and yet, both are facing challenges that — if not dealt with — they could fade away. I mean, Sears used to be a giant company. It’s still a big deal in some ways, but not what it once was. Same with Montgomery Ward. How do you stay relevant in the face of changing conditions? It’s interesting to look at moves people (and orgs) make.
3. If you take the fact that McDonald’s and Starbucks are having challenges at the same time and look at it, it’s kind of broadly representative of the idea that the American Saturday is shifting. If you had kids and had to do errands, in a lot of communities these were two major stops along the route of activities and shopping. Both are on the decline, and that could reflect (a) the shift to online as well as (b) the middle class getting squeezed. For all the policy speeches we hear that talk about reclaiming the middle class, the real notion that it even needs to be reclaimed might be within these stats on these two companies not meeting expectations.
4. Ah, the ol’ typical Saturday…
5. I’d like to think that McDonald’s dropping for five straight quarters has something to do with the world trying to be healthier, and it probably does a little bit — but not a lot.
6. Honestly, if I was in a mall with McDonald’s and Cheesecake, Chili’s, Applebee’s, some local chain, etc — McDonald’s would rank last on the list, even if I didn’t have time to actually sit down. I’d make time. And if I was in the same mall and Starbucks was in my block but Caribou or DD or some local, organic-y thing were on the other side, I’d walk to the other side. I like Starbucks more than McDonald’s, and I do drink it, but sometimes it feels like shoving hot dirt down your throat for the sake of getting a little more energy. Both, thus, might have a branding issue with unaccomplished 30-somethings raised middle-class.