Starbucks Via: How to Blow a Turnaround

Today Howard Schultz took Starbucks in a new direction - launching the Via instant coffee brand and ad campaign nationwide. Schultz's strategy is clear. He's going after the $20 billion market for instant coffee to reignite the company's revenue growth. But will it work? Let's see.

Once upon a time, this coffee innovator's growth appeared unstoppable. But it grew too fast, diluted its brand, and ran into heavy competition from the likes of McDonald's and Dunkin' Donuts. Profits declined and growth flatlined. Now the company's in a multiyear turnaround courtesy of returning CEO and founder, Mr. Schultz.

Store closures and cost cutting have brought profits back, and that's half the problem. Now Schultz is attempting to spark revenues with the Via launch. Make no mistake - Schultz is betting the farm on this product line. If it fails, he'll be out.

And that's exactly what I think will happen. Here's what's wrong with Schultz's new strategy:
Starbucks is positioning Via against its own fresh brewed coffee, challenging people to see if they can taste the difference. So, why should customers pay a premium for Starbucks fresh brewed coffee when they can get Via for a buck a cup? If the campaign is successful, won't Via potentially cannibalize fresh brewed coffee sales?

And how does Via stop the market share erosion to McDonald's and Dunkin' Donuts? How does it bring customers back to Starbucks? Why didn't the marketing geniuses at Starbucks compare Via to competitors' fresh brewed coffee? At least that might have made some sense.

Furthermore, won't Via further erode the Starbucks brand? According to its own ads, its vaulted product tastes no better than instant. What does that say about the Starbucks brand? Starbucks = instant coffee. Am I missing something here?

Frankly, the only strategy that seems to make sense at all is to position Via against Folgers and Maxwell House, but Via won't even be available at grocery stores until the second half of 2010. For now, it's only available at Starbucks retailers and specialty stores, so that's out.

Back in February, in Howard Schultz Just Doesn't Get Starbucks, I wrote:

Starbucks can't be all things and it certainly can't be what it once was. McDonald's and Dunkin' Donuts are eroding its market share and profits while Peet's and other boutique cafés have staked out the high ground. Incremental solutions like instant coffee and deleting a thousand stores aren't going to cut it. The company needs new direction and leadership that actually grasps the reality of the situation it faces. And that doesn't appear to include Howard Schultz.