Starbucks – Instant Brand Degradation

Most major near-luxury goods retailers, from Abercrombie and Fitch (ANF) to Coach (COH), tried to avoid the type of discounting that would cheapen their brands. But, they all eventually capitulated in one form or another. Some designers have created lower cost accessories to supplement their lineups. Macy’s (M) and Kohl’s (KSS) at the lower end have populated their stores with so many 50% off junk racks that they are competing with Wal-Mart (WMT) for ambience.

Starbucks (SBUX) is now taking the opposite approach. They are taking one of the lowest brow products and raising its prestige. Their baby is the $1 cup of instant coffee. That’s just what I need to go along with my Tang to stir a little aspiration into my breakfast. Thinking back to my childhood days in the 1960’s, I’m wondering if the astronauts can take Starbucks instant coffee into space. Starbucks founder and CEO Howard Schultz said on CNBC today that it could be prepared hot or cold.

The Starbucks experience is about as relevant today as the Gap (GPS) preppy look of the 1980’s. Schultz is struggling for a value proposition when aspirational branding is losing out to the austerity image people are now trying to project, regardless of their actual wealth. Since when is $1 for one cup of instant coffee a value?

Schultz has to create an exciting new Starbucks atmosphere and a value beverage menu with more energy. Most of the coffee drinks have so little espresso that they taste like water. The brewed coffee sits in containers for up to two hours. That’s right, the containers have little high tech egg timers attached to them and the baristas won’t brew fresh if the time hasn’t expired. Ask before you order.

Schultz told CNBC that panels could not taste the difference between the instant and freshly brewed coffee. I don’t know what that tells us about the freshly brewed. If the instant is so good, maybe it should replace the not so freshly brewed coffee in the stores.

Most specialty retailers have trouble reinventing themselves after they peak and their fads have passed. Abercrombie could follow the Gap or even Gloria Vanderbilt jeans into irrelevance, as they think the clubby formula is invulnerable. So too, I believe the Schulz thinks that his affordable luxury formula is not lost.

Note: The actual price is 24 servings for $19.

No disclosures.

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