The coffee wars...

Dunkin Donuts is launching a new "taste test" ad that targets Starbucks. This is brilliantly timed campaign showing the results of an independent taste test (well, paid for by Dunkin Donuts, but conducted by an independent 3rd party research company) that shows that Dunkin Donuts won in a blind test of taste.

I say this is brilliantly timed because as the economy continues to slip into "recession" as consumers continue to tighten their belts, pricey luxuries (such as $4 coffee) is likely to be one of the items trimmed back by consumers. If Dunkin Donuts can convince consumers that their coffee is just as good, but cheaper and not an expensive luxury, then they could definitely positioned to see some nice customer conquests.

However, as a guy who roasts his own coffee, I see a huge opportunity to make gains on the financial incentive of brewing at home. There are some other "convenience" costs (cleaning, brewing, etc.), but with some clever positioning and promotion of some of the easy to use automatic machines that make having your coffee ready in the morning (or whenever) easier and tastier than ever.

This is where the value proposition for smaller roasters will really stand out. A cup of coffee brewed at home, even accounting for cream and sugar costs about 20-25 cents. So, the accountants will be satisfied (the "bean counters!" - sorry couldn't resist). The next hurdle will be trying to get over the extra work that is involved, particularly the cleaning process. For marketers convincing people to make the switch to home-brewed coffee will have to be demonstrate how this step is easier than most may expect. There are some larger trends that are also pointing to the success of this move, particularly an increase in homebased businesses (losing access to office coffee, definitely increased my home consumption of coffee).

With that, I'm headed back to the coffee shop (aka kitchen counter) for another cup of perfectly brewed coffee.

Walking away from Starbucks...

I read the (supposed) real reason that Starbucks ad agency walked away from the Starbucks account on Advertising Age this morning. There has been substantial upheaval at Starbucks recently, starting with a return of the original CEO, job losses, and store closures. This is all a result of poor financial performance starting last year. All of this has resulted in Weider & Kennedy (Starbucks ad agency of record) has decided to quit the business... not something typical of agencies.

The reason that the Ad Age article gives is that:

...Starbucks was simply a very frustrating client for Wieden, an agency that other marketers have described as unusually honest in its communication with clients. Other agencies that have worked with Starbucks have felt frustration with the marketer too. Rich Silverstein, co-founder of Omnicom Group's Goodby, Silverstein & Partners, which did two stints representing Starbucks, said much of the fault lies with the mercurial Mr. Schultz. "He does not appreciate advertising," he said. "Any agency that comes in has one foot out the door already."

The thing is, this may be the reason that Wieden & Kennedy quit working for Starbucks, but its not the reason Starbucks is having problems. The problem is that the "brand promise" of Starbucks is not being fulfilled and that's not an advertising problem... its a coffee problem. Or rather it's an experience problem.

Starbucks growth has been its own worst enemy. As the commoditization of the atomosphere has been spread across the U.S., the folks who first supported Starbucks are now turned off of it. How to fix this? Localization - not advertising. Coffee Shops are one of those businesses that has to fit very specifically with the local market demands. In many ways, Starbucks in Malibu looks and feels the same as a Starbucks in Buffalo, but what do you think? Are people in those two cities the same? If so, put someone from Malibu on a plane to Buffalo in January!

The other part of the problem is the coffee. I have argued that Starbucks roasts are all too similar to each other. A mild coffee gets the same (or at least very similar) roast as a robust coffee giving it a burned flavor. I have also argued that this reduces the quality of the Starbucks coffee itself.

So, Starbucks has found itself becoming a commodity with (arguably) mediocre quality beverages in a tough economic time when "luxuries" like $3 lattes are getting trimmed back. This is not advertising problem - Wieder & Kennedy likely recognized this, and gave up the fight rather than be doomed to failure in Starbucks marketing department's opinion. That would be my guess for the REAL reason they walked away.

Fortunately for Starbucks, Howard Schwartz (returning CEO) knows his stuff, and has taken some steps to try and fix this already. Perhaps he will fully recognize this in time to save your favorite Starbucks store.

The death of Fair Trade Certified marketing?

I read in Brandweek this week that marketers at Walmart, Target, and Starbucks (among other large retailers) "eye Fair Trade Certified as the new 'green'" marketing tool.

As someone who ran/runs a independent coffee roasting company, trying to compete with big chains is always a challenge. The juggernaut Starbucks not only sells many of the same products, but also has more locations and lots of marketing bucks behind that star. However, its not impossible, despite everything Starbucks does well. And, it helps that Starbucks is closing/has closed eight of its stores in the Detroit area, including three in the city itself. One of the ways that I was able to get a favorable comparison to Starbucks (and other big chains or big roasters) has been to capitalize on selling Fair Trade Certified (F/T) products.

Overall, though this article is good news. This will help the farmers (and that is really the point to the F/T certs). "Every small coffee roaster in Bareto or Santa Cruz is important to us, but the reality is a big retailer is like a faucet," said Anthony Marek, spokesman at TransFair USA. "And if you're a drip, that faucet can help tens of thousands of farmers across the world."

As F/T gets pushed out into Target and Walmart (and hotel chains?!?), independent coffee roasters and retailers are going to be put under even more pressure to find creative ways to differentiate their products and to increase their visibility, particularly in the current economy. Lynn Dornblaser, director-CPG trend insight at Mintel asserts that with the downturn in the economy, Americans are likely to be much more focused on their wallets, rather than third world countries. Savvy marketers for smaller shops can use this along with the things that make independent shops great in the first place: location, atmosphere, quality product, customer service.... to capitalize on the downturn.

Just don't rely on F/T as a differentiator.