Tuesday, February 03, 2009

Starbucks and Decaf

Starbucks announced recently that they will not automatically brew decaf in the afternoons at many locations where it does not appear to be economical. Starbucks is concerned about the waste, because they have committed to having freshly brewed coffee in their stores, and if insufficient demand for decaf exists, then they end up throwing out a great deal of decaf coffee over the course of the day. Of course, if someone does want decaf, they will end up waiting roughly four minutes for it to be brewed for them. There's no question that cost savings will occur by eliminating the brewing of decaf in lower volume locations, but one wonders how customers will react. I'm sure Starbucks has conducted a careful cost/benefit analysis, but I would sure be curious to see the assumptions behind that analysis. This is a great example of a company grappling with how to reduce costs in a way that has the least impact on the customer experience. The key question is how customers react. Will a number of people become disenchanted, even if they only occasionally drink decaf. It may only take a time or two when they are told to wait for that decaf before they turn to other coffee shops. In the end, so many of these cost/benefit analyses come down to the validity of the assumptions made by management. In the end, most cost/benefit analyses are highly sensitive to a few key assumptions; with some small changes, one can make the conclusions be whatever one wants them to be. The key to any good cost/benefit analysis is a highly vigorous debate about those assumptions, so that each is challenged, and if possible, validated.