How to Save Starbucks

Starbucks announced yesterday they will be closing 600 stores in the US in order to boost profits. This is up from the projected 100 closings announced in January of this year. Many (including company officials) are citing the slowing US economy and relatively high prices for Starbucks’ recent troubles. However these people are all overlooking the real problem – internet access.

Currently Starbucks offers T-Mobile and AT&T paid wireless services (plans ranging from approximately $10/day – $35/month*) which is ridiculous. Although there have been reports of Starbucks changing this policy (possibly offering the first 2 hours free) they still fall short of what needs to be done.

Starbucks should offer free WiFi internet for customers at all locations.

With slightly over 15,000 stores world wide, even at an additional cost of $250/month/store (which is a very high number) the service only adds 3.75 million dollars to Starbucks’ operating cost, about .038% of their 2007 Revenue.

Obviously this isn’t the way to determine whether a program such as I have suggested would be profitable (presumably you’d take the profit margins on all products and multiply that by the anticipated increase in their respective sales).

My point is simply that internet access is one of the most, if not the most, important points of competition for coffee stores today. That said, with offering free internet access being such a small financial risk (relatively speaking), why the hell does Starbucks charge their customers absurdly high prices to use the internet and then wonder why business is slowing?

*Commenter Fazk notes Starbucks in certain countries do offer free WiFi so this doesn’t apply to all 15,000 stores.  You can follow our discussion in the comments section

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10 Responses to How to Save Starbucks

  1. Brad Beaman says:

    Good point, right now I know a traveler whoplans all his lunch stops around Panera Bread bakery because of free internet. The less who offer it the more it will attract cutomers.

  2. Joe Cure says:

    Right, I had a similar experience when I was in college. There is only a limited amount of time before free internet access becomes a standard feature of all coffee shops/restaurants and Starbucks should use their market share and deep pockets to get ahead of the curve

  3. fazk says:

    How ignorant I have been – I thought it’s free WiFi in all Starbucks worldwide. I hang out in Starbucks all the time here in Kuala Lumpur – the main reason has always been the free WiFi. Many other cafes are offering free wireless internet; almost a standard feature.

    This reminds me of the founders’ original business philosophy (Simmons, My Sister’s A Barista, Cyan, 2004)

    a. Every company must stand for something
    b. Do not just give customers what they ask for, what they think they want
    c. Assume that your customers are intelligent and seekers of knowledge.

    Maybe someone important in Starbucks forgot about them? I hope not.

  4. Joe Cure says:

    Thanks for the info Fazk. The fact that Starbucks offers free WiFi in certain markets and not in others almost makes it worse… like they have blindly stubled upon a solution but don’t realize its potential.

    Interesting thoughts on business philosophy. Unfortunately the third point is hardly necessary to be successful in the United States today, and can actually have an adverse effect to business (I can provide a number of examples if anyone cares to continue this conversation). Although to be fair to the United States I find people all over the world more often prefer to be spoon-fed knowledge rather than actively seek it 😦

  5. Starbucks is a joke and beyond repair. Even the brain-dead consumerist American sheep are refusing to buy the SB hoopla. With the crash of the stock market, the credit crunch, and the mortgage implosion, who is gonna by $5 fraps when you can get your caffeine fix elsewhere for 1/4th the price. $18 cds and $10 Wifi. What is this, the Gilded Age?

  6. Joe Cure says:

    Yeah, I definitely disagree that Starbucks is beyond repair. Suffering from a bit of an identity crisis, yes, but certainly salvagable.

    What made Starbucks great initially was that it gave the nouveaux-chic/young professional crowd a place to meet and work. Not to overstate its effect but Starbucks did have a noticable social impact (in America at least) during the 90’s and that was because it created a community.

    Instead of fostering this community (e.g. by providing free internet) Starbucks now focuses more energy on creating and marketing new “$5 fraps” and food items which I do agree Johnny is insane

  7. Quito says:

    It does seem like Starbucks is focusing their energy into things that can bring immediate monetary revenue. What they should be doing is making every coffee shop more like a coffee house. Try to build a community around the actual store.

    I mean I stopped going to Starbucks because it’s lack of culture. Selling CDs from artists that are all over the place does not give them culture points. Not in my eyes at least. Maybe if they started to intergrate themeselves a bit more into the neighborhood they’ll have more traffic.

    I try my hardest to not drink there because of the whole faux-coffee house enviroment.

  8. Chris says:

    @johnnypeepers: When Starbucks began to make a name for themselves we (America) were indeed in a Gilded Age redux. Everyone was a paper millionaire and good times were finally here to stay. At that point the notion of a $5 cup of coffee went from ridiculous to acceptable and I don’t see it going back.

    You’re right that people can get their caffeine fix for 1/4 of the price, but they won’t. It’s become part of their lifestyle and most people don’t see it as a significant expenditure. All they see is “it’s only $5!”. Of course this comes out to $100+ each month for coffee. They’re much more likely to stop dropping their $.25 into the tip jar because “times are tight” than to spend the $4.75 on their frap. Truly penny wise and pound foolish.

    Obviously Starbucks is in trouble though. Otherwise they wouldn’t have closed 600 stores. Joe is spot on by saying that wireless will be ubiquitous in coffee shops etc… within a few years. It’s a classic case of strategic parallelism and Starbucks had better be at least on par with everyone else, or the recent downsizing will be a fond memory.

  9. Joe Cure says:

    @Quito – Exactly right, and what better way to attract a quality group of “cultured” people than to offer free internet and have us web geeks flock in droves!

    Hey Chris if you’d stop by more often there might actually be some quality content on this blog

  10. Anty M. says:

    Since I’m not a regular at Starbucks, I didn’t feel “qualified” to express an opion. However, after a couple recent visits to Starbucks, I now know why their sales are way down: their lids tend to gather fluid in the canal outside the opening. One big swig (and I’m a big swig coffee drinker) and then dribble…dribble….dribble…I have coffee dribbles down my shirt. So, where would I go if my ulitmate goal is coffee before work: Burger King where lids work, or Starbucks where they don’t?

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