Flash in the Pan

Yesterday, Starbucks announced that it would be closing "600 underperforming company-operated stores in the U.S. market, which includes our previously announced plans to close 100 stores," according to A Message from Howard. He started with all the wonderful things that happened since becoming CEO again, and mentioned such upcoming things as the introduction of "healthy, good-for-you beverages" starting July 15. (Healthy? Good-for-you? Is this still a coffee spot?)

In addition, in Southern California, we will introduce a refreshing, indulgent cold iced beverage. Steeped in Italian heritage, it will be an exclusive product that our customers can only find at Starbucks.

Sure, other companies will probably call it something else once they lift the concept. But then came the bad news - under performing stores would close, full- and part-time employees would lose their jobs. At least they say they'll be offering employees either a position at a nearby store (though once you're out of major cities, heaven knows what "nearby" will mean) or some severance. And given how they have benefits even for many part-time workers, I can't fault them. The chain simply expanded faster than its audience.

I even have some sympathy for CEO Schultz. Clearly he's been torn between the business becoming enormous and wanting the atmosphere of a cafe with comfortable seats for deliberate loitering over a cup of coffee and the smell of freshly ground beans in the air. But you can't be big and neighborhood at the same time, which shows that even success doesn't mean that you'll be happy and free of conflict.

Now, if only they'd stop over-roasting their beans.

Labels: business, coffee, Starbucks

Starbucks has faced increasing competition as it increasingly has turned itself into a giant coffee machine. Where once baristas applied skill to get espresso shots to turn out the right way (or at least as right as you can get when your beans are overly roasted), now it's a push button land. And when coffee is the result of pushing buttons, of course a McDonald's or Dunkin Donuts can enter the market. Hell, it only requires buying the equipment. So CEO Howard Schultz has announced a series of steps to improve "the coffee experience," as reported by the Financial Times:

• Install lower-height automatic espresso machines so you can see the bored look in the barista's eyes.
• Add yet another coffee blend that is different from all the other ones the chain has sold.
• Buy a company that makes single-cup grinding and brewing machines for filter coffee and put them into select stores because, as you know, more things to look at or buy means better coffee.
• Provide extra ingredients and toppings to people who use the Starbucks purchase cards because that way your coffee becomes even more of a commodity.
• Start a social networking site to let people suggest ideas and vote on them, which doesn't sound all that tasty, but what do I know?
• Get into health and wellness food and drink, which probably means cutting the caffeine and, therefore, the coffee that they want to promote.

I wasn't impressed with the "training session" they did last month, bringing all their employees in on a night for three hours of training. (Wonder how you train people to push buttons better.) Maybe Starbucks hasn't jumped the shark, but it sure sounds like there may be a fin circling at the top of you next cup of java - extra shot, soy milk, extra hot, hold the foam.

Labels: business, coffee, humor

The other day I caught a commercial for one of the flavored water brands - Propel, I think. It started with indicating all the exercise that various characters would have to do to burn off the calories in their "water" drinks. Then it proudly announced that the advertised brand had only 25 calories per bottle. "Twenty-five calories?" asked an impressed and impossibly fit person.

Twenty-five calories in a bottle of water? And that's supposed to be impressive? There are no calories in water, so if the bottle from which you drink puts something into your body that needs working off, you're not drinking water. You're drinking a sweetened concoction, probably a variation on soda, except with some collection of vitamins or minerals replacing the carbonation.

Clearly, regular water isn't enough for people. If we as a society are so far gone as to need to find low-cal water, then the barbarians can't be far away.

Labels: business, water

I've been hearing stories of late about rising food prices, driven by higher fuel prices, increased use of corn for ethanol production, and a low exchange rate on the dollar, making it cheaper for foreign consumers to buy grain. On a local NPR station this morning, the estimates being tossed about were around 5%. But then the same report was talking to a local grocery chain, where a representative was talking about 5-pound bags of flour starting at $4.

But it seems to me that the price even six months ago was maybe $3.60. Add 5%, and you get a bit under $3.80. I'd figure that if wholesale prices were going up a set percentage, then you could expect retail prices to go up by the same percentage. But clearly the percentage is being doubled. So, are the experts deliberately making their estimates too low to try and stave off political heat? Or is someone jacking up the price even higher to skim extra profit? Or is my memory of pricing going wrong? Maybe it's me, but something seems odd. I will note the following about Archer Daniels Midland Company (or ADM, as they've tried to rebrand themselves) - one of the world's largest grain processors:

Fiscal Year	Revenue	Gross Profit	Percentage Profit
2007	44,018.0	3,237.0	4.9%
2006	36,596.1	2,965.8	3.6%
2005	35,943.8	2,431.3	2.9%

In other words, the company's revenue has jumped 22.5% from 2005 to 2007, but gross profits are up 33%. Maybe it's not me.

Labels: ADM, Archer Daniels MIdland, business

This is hardly the news you want to hear going into any prime period for entertaining and cooking. As the New York Times reports, both Canadian and US authorities are investigating pricing practices among large chocolate companies. The Canadian investigation started last month, including the Canadian divisions of Hershey, Cadbury Schweppes, Mars, and Nestle. Now those south of the border are starting investigations. Both Mars and Nestle have admitted being contacted by the US Department of Justice; Hershey declined to comment, as did the DOJ. If true, this could be a serious situation:<

American consumers buy about $13 billion worth of chocolate a year, said Susan S. Smith, spokeswoman for the National Confectioners Association.

The Wall Street Journal's report suggests that chocolate makers might have been trying to offset higher dairy prices. (Sorry, but I think the link needs a subscription.):

On a conference call with analysts on Oct. 10, Cadbury CEO Todd Stitzer said the company expected ingredients to cost 5% to 6% more in 2008 because of rising commodity prices, particularly for milk. "We are in the process of implementing price increases in most of our markets to offset these increases," he said.

The Journal also underscores the potential seriousness of any charge:

It isn't clear precisely what the Justice Department is looking into or whether the preliminary inquiry will become a formal criminal investigation. Price fixing can be a serious offense, leading to heavy fines and, in some cases, jail terms for executives. While antitrust enforcement has eased generally in recent years, the Bush administration has aggressively prosecuted price fixing in many industries and global markets, from airline cargo to semiconductors.

In other chocolate news, Campbell is selling Godiva Chocolatier to Yildiz Holding of Turkey for $850 million. Not that I have any fodness for Godiva - given the prices they charge, I think their chocolates are at best second rate. But it does leave me wondering whether Campbell is just disappointed that no one stormed their doors, demanding a chocolate soup. I was surprised to learn that Campbell had owned the chocolate company since the late 1960s.

Labels: business, chocolate