I’m sitting on a wooden chair at my local Starbucks next to a kiosk of snacks I’ve never seen anybody buy. I’m sipping an iced latte. It’s decent, but I didn’t come here for the coffee. I just needed a table with some energy in the room that would make it easier for the words to flow for this blog. The latte is my space rental price, and I think it is well worth $4.53 to me for the two-hour lease with a reasonably clean bathroom and affable staff.
I think Starbucks founder Howard Schultz has always known what he was selling at Starbucks. In his early biography the poor Jewish boy from New York City, whose Dad was a $20,000 a year city truck driver, describes how he ended up in Seattle after dropping out of Northern Michigan University when the football coach realized he was never going to quarterback the varsity. Schultz was hardly a coffee maven then, but he traveled to Sweden in an early job and saw how the Scandinavians used to hang out and schmooze while sipping coffee, and he had a vision of what an American coffee chain could be.
His brilliant insight was that all over the modern world people hungered for a “third place”—not home, not work—where they could hang out and talk. There were bars, of course, but they had all kinds of stigma and only satisfied an older, nighttime clientele. The coffee shop, if it was correctly located, with the proper selections of coffee and food, comfortable seating, welcoming baristas (coffee makers) who were friendly and intelligent, could fill an enormous gap in food presentation.
What Howard Schultz understood intuitively in the late 1980s was that coffee was the hook to pull in his audience but he did not have to sell the best gourmet coffee in the world. The key to his real success was obtaining the best store locations and then subletting the space to coffee drinkers like me who couldn’t tell Brazilian from Sumatran beans in a million years. Who knew what a latte was before Schultz? And the Frappuccino, the masterpiece of Mr. Starbucks, was a billion-dollar invention that a true coffeeist would sneer at.
In business you have to know what you are selling. I think Gene Haas has been enormously successful in the brutally competitive machine tool game because he sold moderately priced machines and Haas service. The local repair technician with spare parts in his truck is Gene’s Haas’s great innovation. In many cases I think Haas sells service with a machine thrown in.
I believe machining companies sell absolute reliability more than anything else. Customers say they buy primarily on price, but in many cases after a few years with the same supplier they check price infrequently. They want to know that the product arrives on time, that the quality can be counted on and that the supplier listens to them. They may say it’s all about price, but usually it isn’t. And if it is only about price, who needs them?
I’m finishing my latte now. The coffee grinder is humming but I barely notice it. My car is right outside the door. Very convenient. Parking is one of the nice plusses with this Starbucks. Schultz coming through again.
At Starbucks, it’s not the coffee. It’s the location. They know what they are selling.
Question: Starbucks, Dunkin Donuts or Maxwell House?