Starbucks: Coffee is Howard’s End

No doubt about it. Starbucks, and its founder, Howard Schultz, helped shape America’s taste for coffee. But the company has hit a wall of late. It’s facing rising wholesale prices for coffee and dairy products and a stagnant economy and the resultant flagging wages of potential (die-hard, occasional, or new) Starbucks customers. During the last year, the company’s stock has dropped some 40%, and during the first quarter of 2008, sales declined. Both are firsts for the company. Traffic is down at the stores and the company has recently lost a lawsuit and will be forced to pay its employees more than $100 million in back tips. And there’s the phenomenal growth. During the last two years, Starbucks has doubled its number of stores to an amazing 15,000 in 44 countries worldwide, often located so close to other Starbucks stores, that they cannibalized traffic from each other. And, it’s hard to train the numbers of staffmembers large enough to sustain what Schultz lovingly refers to as “the Starbucks experience.”

Then there are the complaints from customers (the coffee tastes bad – sometimes downright burnt; stores smell like Egg McMuffins rather than steamy, invigorating coffee), and speaking of the bastion of burgers, direct competition from McDonald’s, which has introduced a much less expensive gourmet coffee of its own (and which, some say, tastes way better than Starbucks pricey brew).

But maybe most importantly for the company and its future, is the dissatisfaction of Schultz himself. And if nothing else, Schultz is a man of action. After eight years as chairman, he re-took over the CEO position in January of this year, whereupon he closed 100 underperforming stores; cut back on new store openings in the US and enacted a moratorium on building new stores with drive-thrus; and jettisoned the dreaded breakfast sandwiches (often referred to by customers as hockey pucks).

At the company shareholders’ meeting in March, Schultz announced a series of further initiatives, all focused on – guess who? – the customer, us.

The changes include a new coffee brewing system; a new coffee blend, a new espresso system, a Starbucks reward card; the launch of a Web site where customers can make suggestions, and an expansion of its sustainable coffee sourcing and climate preservation efforts.

Apart from the fact that the reward card calls up visions of toodling down the aisles at Kroger, et al, hoping you remembered your garish plastic preferred-customer card and that the coffee sourcing and climate preservation bits seem like blatant efforts on the company’s part to portray itself as a warm and fuzzy, tree-hugging company, what’s going on with Starbucks?

What’s going on is, in Schultz’s words, his desire is to recapture the “romance and theater” of Starbucks. Let us ignore the big-time ego implications of this desire and address its business implications instead.

Like other American entrepreneurs – Steve Jobs of Apple and Dell‘s Michael Dell come to mind – Schultz wants to bring his baby back from the brink. All well and good. But consider Schultz’s words. In a staff memo, Schultz laments that his stores “no longer have the soul of the past and reflect a chain of stores vs. the warm feeling of a neighborhood store.” Sometimes founders don’t grow with their companies. They get mushy-headed about the past.

And while the “romance” may be gone in favor of profit (fewer comfy chairs, less carpeting, goodies crowding the counter, a line of CDs, teddy bears, mugs, ad nauseum) has Schultz, who insists his turn-around strategy is entirely customer focused, considered just what the customer wants?

Mostly, she just wants a good-tasting cup of coffee.

Barbara Murray began covering the food manufacturing industry for Hoover's in 2001 -- and she's been on a diet ever since. She suspects it's possible to gain weight by merely reading and writing about food. That's what she tells herself anyway.

Read more articles by Barbara Murray.

Comments

  1. How can you expect them to concentrate on making good coffee when they’re busy making up their marketing materials about how they’re saving the earth.

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