Sunday, June 14, 2009

War in an Instant - Nestle vs Starbucks

After spending two idyllic weeks on vacation, I'm back home in Seattle. I am proud to say that I actually unplugged - no iPhone, no email, no Facebook, no blogging, no newspapers except for The Picton Gazette (circulation 5000 if that), not even the radio. My entertainment was birdsong, the lapping of waves on a pristine lake and a stack of mystery novels.

So I'm slowly easing myself back into city life and world news. Putting the tensions in North Korea aside, the biggest "war" that I am reading about is Nestle vs Starbucks. Perhaps this is old news (my apologies) but oh so fascinating! How often is it that you get to see the #1 uncontested category leader (Nestle) hurl their fists in such fury at the new kid on the block? And what a fight it is with Nestle kicking sand in Starbucks face, using Starbucks advertising voice against them to hurl "insults", positioning Starbucks as an opportunist in their online and billboard campaign.

The gauntlet is thrown, and knowing Starbucks, they will turn the other cheek. Nestle is sending Starbucks a strong message - we will fight you at every turn with our global deep pockets. Nescafe is, after all, their flagship brand. They feel threatened (and they should) but it seems to me that this corporate posturing does little except help Starbucks build awareness for Via. The average consumer is likely not paying attention or if they do, will be interested in trying Via to see what the fuss is about.

Why did Nestle try this particular strategy? You can bet Starbucks entry into instant coffee was identified in their strategic planning as a big brand risk for some time. Most category leaders would have come up with a new premium line-up or line-extension to fight a newcomer, perhaps introducing some new technology, and advertise the heck out it. In traditional competitive strategy, you would seek to "jump the S-curve", reinvigorate the brand and as category leader, take advantage or define the competitive dynamics. Heritage and price advantage aren't necessarily the most compelling competitive dimensions - taste is what's important in this category.

Perhaps Nestle saw the inroads that McDonald's was having by attacking Starbucks directly on price and elitism and thought they'd follow suit. Nestle has even gone so far as to buy the same billboard located near Starbucks headquarters in Seattle to broadcast their assault missiles.

Big difference however was that McDonald's introduced product news - lattes and other coffee beverages as "credible alternatives" to Starbucks.

Starbucks is being attacked from all sides. First the independents, then Dunkin, then global corporations McDonalds, and now Nestle.

Wow - Starbucks in beginning to feel like the underdog. Go figure.


  1. By all accounts Starbuck is having early success with VIA...but long-term success is depenedent on selling a lot of it everywhere. Lots of people are willing to try it in Seattle and Chicago and London...but everyone I've talked to who has spent real money for it sees it as back-up coffee, camping coffee, emergency coffee when traveling, etc.

    Seems like we're a long way from Nestle really needing to worry, so I suspect some of this may be practice for them in the event Starbucks is actually able to make inroads if/when VIA is fully launched.

  2. Nestlé must be really, really desperate for work to do in their marketing department to launch an advertising arsenal against Starbucks that amounts to nothing more than bullying.


    Instant coffee [to me] is synonymous with Bingo Halls, Tire Dealerships, the plethora of Waiting Rooms located around this great country and packets of coagulated cream. Up until now, what instant coffee is not synonymous with is world-leading great taste.

    Starbucks has an opportunity here to re-invent the instant brand, which at the risk of broad-stroke painting a picture, by many accounts has been the staple of the above aforementioned. Instant "anything" is a convenience feature which in light of today's consumer trends, lends itself to being cultured away from the demographics solidly rooted in brand established years-gone-by.

    Can Starbucks pull it off? Whether Starbucks is found in a backpack around a serene wilderness lake or in a field pack in Fallujah, if Via stays on as an alternative to the bean, the having of a "Starbucks experience" will certainly be changed from this point forward. Instant Starbucks umbrellas will be popping-up all over the place, and subscripted (my word) WiFi would be made available atop the highest peaks. But perhaps what Nestlé may be most fearful of is that Bingo callers could be made the new model for elitist, and what would this world come to.

    Starbucks may want to let the dust settle in this ring of contention before pulling the gloves off, for to get into an early fight with Nestlé may prove that while Schultz is someone not to be bullied, he is nonetheless not able to strategize. This should be seen as nothing more than a flash-in-the-pan reaction by Nestlé as their world of George Jetson breaks from confinement.

  3. I am standing beside with Mr. Schultz so NO WORRIES guys... STARBUCKS will keep its BRAND as it is and will expand into instant coffee!!!

    Down the road, within 3 to 5 years, it will having good market share in instant coffee...

    They will grow their customer base through their BRAND and Ease of use.. :)