Starbucks Perks Up: Recapturing The Soul of The Coffeehouse

Starbucks Perks Up: Recapturing the Soul of the Coffeehouse
As Starbucks customers face shrinking disposable incomes, the purveyor of

premium exotic drinks such as Iced Caramel Macchiato and Espresso Frappuccino
has introduced lower-cost alternatives. Simple drip coffee, Pike Place Roast, and most
notably, Via Ready Brew, Starbucks’ line of instant coffee, signal attempts by
chairman and CEO Howard Schultz to lead his company back to recovery in
recessionary times. A costly indulgence, the $4 latte is now competing with
Starbucks’ own coffee drinks priced $3 on average; the chain has also introduced
$3.95 breakfast meals. Howard Schultz returned to the helm of his company after an
eight-year absence determined to restore Starbucks to its former glory by
taking it back to its roots.
Despite setbacks, Starbucks continues to reign as the world’s largest coffee
shop chain, with some 16,000 retail locations in North America, Latin America,
Europe, the Middle East, and the Pacific Rim—50 countries in all. Before the
recession hit, the company served more than 50 million customers weekly and
generated $10 billion in annual sales. Adding to its accolades, Starbucks has until
recently ranked among the top ten in the Fortune magazine list of America’s Most
Admired Companies. Moreover, the retailer was repeatedly named among Fortune’s
100 Best Companies to Work For, even after being forced to close 800 U.S. stores and
cutting 30,000 employees worldwide. (As a result, Starbucks slid from position 24 to
93.) However, last year alone more than 150,000 applicants vied for jobs with the
company.
Before the economy turned sour, Starbucks bucked traditional retail wisdom.
As it grew explosively, the company regularly broke the retail rule about locating
stores so closely that they cannibalize each other’s sales. In metropolitan areas such as
London and New York City, you may find as many as 170 Starbucks outlets within a
five-mile radius. This “being everywhere” approach created several distinct
advantages. Its numerous locations meant that Starbucks intercepted consumers on
their way to work, home, or anywhere in between. Moreover, ubiquity builds brand
awareness.
However, explosive growth may have led to complacency: “We got swept
up,” says Schultz. “We stopped asking: How can we do better? We had a sense of
entitlement.”1 Fearing for his company’s “soul,” Schultz revamped Starbucks, at one
point closing 7,100 stores for three hours to retrain employees on the Starbucks
experience. He also abandoned flavor-locked packaging and introduced
improved espresso machines.
Questions
1. What kind of information should Starbucks gather to help it decide how
closely to locate its stores?
2. How could Howard Schultz test his impression that the intimate communal
coffee-drinking experience is fading at Starbucks?
3. How can collected information be transmitted to Starbucks’ decision makers?
Under the leadership of chairman, president, and CEO Howard Schultz,

Starbucks shelved plans to expand the number of stores and to pursue other avenues
of growth beyond its coffeehouse business. The recession required a new approach,
“to transform Starbucks and return the company to sustainable, profitable growth
while at the same time [remaining] true to our core values and guiding principles” in
the words of Howard Schultz.
An entrepreneur who thinks outside the box, Schultz grudgingly introduced
new efficiencies to reinvigorate Starbucks. Instead of relying on his instincts and free-
flowing growth, he has agreed to do advertising and follows store sales data to
understand customer preferences for drinking coffee in the morning (out of necessity)
as opposed to in the afternoon (when it becomes a treat). Schultz also started to pay
attention to controlling costs and simplifying operations. He reluctantly standardized
how baristas prepare coffee, from “anything goes” to a consistent six-step process.
Pursuing the right business strategy is difficult, and Starbucks has experienced flops.
The chain scaled back its music business by handing over Hear Music, its short-lived
label, to Concord Music Group. Starbucks also abandoned plans to allow customers to
customize CDs in its stores and got burned by promoting at least one film that became
a box office dud. The poor economy forced the company to rethink its strategy. CEO
Schultz said: “We are committed to examining all aspects of our business that are not
directly related to our core.”
As for competition, Starbucks still remains the front-runner. Specialty retailers
such as Caribou Coffee—the second-largest non-franchised coffee chain in the United
States—The Coffee Bean & Tea Leaf, and Peet’s Coffee & Tea are all much smaller
than the market leader. However, Starbucks knows that competitors never sleep. In a
lagging economy, its biggest rivals are the low-end, low-cost coffee powerhouses
Dunkin’ Donuts and McDonald’s. Ironically, Starbucks has led the coffee revolution
of the last 20 years and forced its competitors to improve their coffee quality and
selection. The question now is whether the instore experience at Starbucks is so
unique that customers will pay higher prices for it. Both McDonald’s and Dunkin’
Donuts have taken direct potshots at Starbucks’ premium prices and attitude in their
advertising, eager to draw away Starbucks’ customers.
Questions
4. How important to Starbucks are the collection, organization, and distribution
of up-to-date information regarding food and beverage trends, competition,
and product development?
5. In what ways could Starbucks use the Internet to monitor its main competitors,
Caribou Coffee, McDonald’s McCafé, and Dunkin’ Donuts?
6. What kind of reports might employees assigned the task of monitoring
Starbucks’ competition write to management?

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Starbucks Perks Up: Recapturing the Soul of the Coffeehouse

As Starbucks customers face shrinking disposable incomes, the purveyor of

Under the leadership of chairman, president, and CEO Howard Schultz,

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