Starbucks Coffee Company has experienced a business earthquake. What we are reading in the headlines now – store closures and layoffs – represent the aftermath and clean-up efforts.
Starbucks has been grinding smoothy for the past 35 years. Aside from the intermittent article complaining about ’stores on every corner’ or questioning whether their coffee buying practices are ‘fair,’ all in all, Starbucks had been doing pretty well. For years, Starbucks stood strong reporting double-digit sales, while other US retailers crumbled.
Starbucks’ quake came in the form of lower store traffic and store sales.
Never hit this hard before, the company had been unprepared.
Now, in the aftermath, company leadership is surveying the damage to see what has survived the trembling.
To date, lost in the rubble include: a CEO, an international president, 1000 jobs, and over 600 stores shuttered.
Starbucks hadn’t been following their brand building-codes. They built stores too quickly, and the stress of the economy and poor sales crumbled those locations. Starbucks put speed ahead of hand-crafted quality causing the brand to sway.
While the damage is serious, and the loss of locations and jobs is upsetting, this coffee calamity is one of the best things to happen to the company.
The quake shocked the company and is forcing them to re-think how they do business. While Chief Executive Howard Schultz has always said ’success is not an entitlement,’ success has come so easy, no one has known how to deal with true struggle. They’ve never had a disaster plan.
Now Starbucks is learning to manage in a “what doesn’t kill you makes you stronger” situation. They just need to remember in their after-disaster scrambling to remain calm and not panic.
What lessons can you apply to your business – big or small? Does your business have a disaster plan if business goes awry?
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Great post Paul.
I think this statement really sums it up: “Starbucks hadn’t been following their brand building-codes.”
I, for example, used to frequent SBUX on a daily basis; now, I go there at best once every 2 weeks. The unique SBUX experience, their “magic”, has all but vanished (to me at least). You can most visibly sense it in their employees. Whereas before SBUX employees were enthusiastic, they now seem somewhat disinterested. It’s unfortunate because SBUX employees, and the great service they provided, were pivotal in the company’s rise. When I see a once happy employee change so drastically, it really makes me think about all the different things that are going on behind the scenes that could lead someone to alter their attitude so much.
As most of us know, an unhappy workforce leads to bad service. In the case of SBUX, this problem is exponentially magnified because so much of their brand centers on customer experience (if the service at McDonalds wasn’t top-notch, I don’t think too many customers would be overly concerned with it as long as they basically get their order right as most people go to MCD for the fast/cheap/”tasty” food rather than the overall experience).
Regarding their expansion: the town i live in has a population of approx. 200,000, and in 2001 there was 1 SBUX about 5 KM from my house. Now there is 4 (2 within 1KM). Initially, driving those 5KM to go to SBUX added to the overall experience of SBUX, now it feels like going to any other fast food joint on the corner).
Paul as a SBUX veteran, I appreciate your insights–thanks for this post.
At times it almost seemed like two different divisions within Starbucks were responsible for store locations, both with different P&Ls. Many times I would shake my head, not comprehending how a new SBUX location would open down the street (literally just blocks from another).
Getting back to basics, losing duplicate real estate costs, improving operational efficiencies and carving out a point of differentiation again, will get SBUX on the right track.
good stuff!
Paul … love the earthquake analogy, first for the “not building to code.” And second for the 6.9 quake that hit SBUX HQ back in 2001. (I still remember us talking in the nook between the category team and the finance dept. when everything shook. Whoa!)
Adding context to Paul Barsch’s comments … SBUX Real Estate was/is responsible for delivering a set amount of sales weeks per year and per quarter. It was their responsibility to get enough new stores in the pipeline in order for the Store Development team and Operations folks to build out and staff them so that new stores could add more new sales weeks. More sales weeks from more new stores meant higher sales for the quarter and then higher comp sales the following year.
Stores were clustered together because sales merited opening a new store very close to an existing store. This all backfires when sales no longer merit opening clusters of stores. And that is where SBUX got caught. Yes, the company was greedy to open up so many stores, so fast, and so close together. Hindsight is always perfect. If SBUX were to do it over again, I’m sure they would grow a little slower and not set sales week quotas so high that it forces the company to open up more stores faster and closer.
Starbucks is simply a fast food giant that expanded too quickly to appease the greedy shareholders and instead of properly nurturing the brand for the long term. This tussle of power happens often in rapidly growing organization. When you properly nurture a brand the brand will grow up to be strong and not to say Starbucks is not strong, but it certainly did peak early. Boutique coffee that roasts on location just eclipses Starbucks right out of the picture. The Starbucks brand just has no appeal after major dilution. Exclusivity is no longer an attribute of the Starbuck brand.
We don’t have a SBUX in Bozeman where I live or within 100+ miles. It always seemed odd. We DO have about 10 coffee boutiques that do quite well in a market draw of ~30,000. Is it too late for SBUX and Bozeman? I appreciated the “codes” nuance as well. We forget just how good simple can be.
I think they over reached a bit and a correction is necessary.
I have always thought it a bit strange that I have two Starbucks within very easy walking distance and that compete with each other.
In Starbuck’s defense, their staff are always friendly and cheerful despite opening at an ungodly early hour. It must require a transformative act of cheerful self pep talk to be that cheerful at THAT hour.
I am a fan of the local coffee house but I have to say, if I am up very early (I am a morning person) or traveling, I have thanked god more than once for an open Starbucks.
Also, there is no worse feeling than opening the kitchen cabinet at 5:00 and being out of coffee. No need to panic, cheerful, reliable Starbucks is a quick walk away. And I have two choices.
Truth be told, though, they could probably stand to close one of those. Very sad for the employees caught in this mess.
Paul, you are spot on. The lesson is that Starbucks did not follow their brand, they followed their stock price. The irony is that it eventually damaged their stock price.
The disheartening thing is that the recent changes were not made to strengthen the brand, but to firm up the stock price for the long term. These moves forebode more problems.
In Pour Your Heart Into It, Schultz wrote that Starbucks was founded for one reason: the love of coffee and tea and the desire for everyone to have access to the best. It’s a shame to see that love disappear.
On another note, I was at the airport yesterday, and I couldn’t help but think of how bad an airport location is for a brand like SBUX. While I see the obvious economic benefits to it, the airport environment is diametrically opposite to what the SBUX brand was/is/should be about.
To have experienced the earthquake that is scary and frightening. Do you believe someone who predicts earthquake? Fortunately, I know YunFeng who can do that in a class by oneself. Below is some consult site.
http://www.512-china.org
http://guantianzd.blog.sohu.com/ (YunFeng’s Blog)
http://iknowfuture.blogspot.com/ (My blog)
I think the love will come back. They over reached, which is human nature, and they will make a come back.
I might even put a bit of money on their stock because I see it as a value investment for the long run.
After every sunset, there is a sunrise; night is followed by day. The way I see is that night is dawning on Starbucks, BUT eventually day will come and Starbucks will come to life again as this brand has an emotional connection with its customers. Such brands never fail to impress.
It has been interesting to watch the rise and Fall of star bucks in Australia. A quintessential American brand that provided a service that wasn’t new to our market (coffee store) but brought a new way of enjoying coffee in a relaxing environment with a consistent and quality (and importantly for them replicable) product. I agree with both Pauls and Salam’s comments that they feel like they have lost their way in terms of brand building and their staff were a real point of difference. I compare the way they operate (on a much smaller scale) to another Australian based juice chain Boot Juice. They are franchised across Austalia (and now in the U.S.?) and every store is energetic, bright and makes you want to drink their juice. Sure, marketing isn’t that simple, but I stopped wanting to drink Starbucks coffee and look at them now. Maybe I caused the crash??!! Looking forward to seeing starbucks 2.0 – the empire strikes back.
You may also want to check out a series of posts John Moore (from Brand Autopsy) and I did when that letter from Howard Schultz leaked out of the company.
http://tinyurl.com/2t9583
Howard outlined some key issues he wanted to see fixed with the company.
John and I, both former marketers at Starbucks provided our recommended solutions…
It’s been cool to see much of what we suggested has been the course Starbucks is taking…
The series is called “Solving Starbucks Problems: One Post at A Time” – It starts here at Brand Autopsy: http://tinyurl.com/2t9583
Umm, HELLO? Starbucks started going downhill YEARS ago. for the last 2 years the price has been a slow and steady decline. ITS AN OVERPRICED MCDONALDS, WITHOUT THE BURGERS AND FRIES. I wouldn’t give them my money, and I certainly wouldn’t drink their bitter brew. Viva Local Neighborhood Cafes!
HOW CAN COMPANY AT THE STATURE OF STARBUCKS RELEGATE THE BRAND BUILDING CODES. OFTEN I SEE ONCE IT IS ASSUMED THAT COMPANY IS IN THE PEAK, OFTEN TAKE LESS PAIN IN INVESTING BRAND PROMOTIONS. THEY FIND IT EXPENSIVE OR THE WASTE OF MONEY.HAVING UNDERSTANDING THE CUSTOMERS HAVE CHANGED INCLUDING ME HAVE ASPIRATIONS BROADLY TO LOOK AT A NEW OUTLOOK DEMANDS SOME THING NEW ALWAYS. LOYAL CUSTOMER IS NOT BOTHERED ABOUT STOCK PRICE THEY WOULD WANT TO SEE NICE RECEPTION AND SERVICE AFTER ALL THE AMBIENCE GIVES A FEELING THAT THIS PLACE IS MY FAV.COMPANY HAVE TO GIVE IMPORTANCE TO THESE FACTS. PUBLIC RELATIONS IS NEED OF THE HOUR, FROM WHERE THEY CAN REBUILT THIER IMAGE, RATHER THAN BRAINSTORMING.
I live in Mexico City and even though Sbux is doing pretty well you can feel the difference from a few years ago.
You go to a store and cause they got so much clients the service is slow. Also a no-no that is happening is to see the store very dirty! This happen also a month ago in NY City and I severly questioned myself if the dirty experience was worth 4 bucks.
I dig your bit on “brand building-codes”. It makes good sense. And, with that I think brands need to build off of their rich history. Every company who has ever been successful has one. It’s funny, I was writing about this just yesterday and to recap here, I would say that Starbucks lost their way and turned their back on brand building-codes when they stopped pulling shots of espresso by hand. They turned their back on great cups of coffee only to embrace push-button brewing. In Wired Magazine in an article by Mathew Honan, called “The Coffee Fix,” Schultz announced that the Colver coffee machine produced “the best cup of brewed coffee” he’d ever tasted. Starbucks hopes to have 80 Clover machines installed by the end of 2008.
http://avrilmclane.blogspot.com/2008/08/bitchin-espresso-shot-after-shot.html
BTW, I live in Seattle.
Starbucks needs to… embrace what makes them a success… (1) a quality, hand-made product, prepared by (2) a well-trained and friendly person in a (3) clean store.
That’s it. It’s not a new flavor, a new brewer, a new store design… none of that.
Quality product. Quality staff. Quality location.
you think?
Cool blog
Thanks, webmaster.