The Un-Starbucks

In the following paper, the re-invention of Starbucks is examined as it struggles from a very real downturn to reclaim its glory as the front runner in the coffee beverage industry globally. Many facets of the business are looked at, going as far back as the beginning of the company. This return to the roots introspective resulted in changes that precipitated a spectacular rise in consumer appreciation of the brand and in the stock price, the financial world’s strongest value indicator.

The methods adopted by Starbucks are outlined and contrasted to an article written before the results of the reinvention had occurred, when it was not clear if the company would pull out of its slump. As the company returned to market prominence with its brand stronger than ever, and a renewed expansionist vision, pundits can only state, “coffee’s on!”

Introduction

Starbucks is a brand name that has come to be synonymous with coffee. Since humble beginnings in 1971, to the ubiquitous reach of over 15,000 locations in over 43 countries globally by 2007, Starbucks has captured and raised coffee culture to a fine art and a thriving corporate brand. However, in 2007, the seemingly never ending climb of success came to a halt. From a high of $38, its share price tumbled to a low of around $8 by the end of 2008, and from February 2008 to January 2009, the company closed 977 stores and cut 18,400 US jobs.

While the slowing economy had an effect on Starbuck’s sales, management was forced to make an introverted assessment of the corporate direction and brand positioning.  In 2008, the company let go of its acting president and re-engaged the founding president, Howard Schultz, an entrepreneur with the revitalizing visionary style of Steven Jobs of Apple Inc. In a Case Analysis titled “Trouble Brews at Starbucks” (Buchanan, L., Simmons, C.J., (2009), it was noted that Schultz indicated the company would seek to return to a core set of purpose to create long-term value for customers and stakeholders.

As we near the end of 2010, has Starbucks succeeded in this mission?  Are long term goals back on track and has the company seen its revenues rise? Can Starbucks revamp the company? What can be done, rebranding, a return to core values or a new set of initiatives that adds weight to the bottom line? The company has tried all three quite successfully and we shall explore the new Starbucks zeitgeist.

SWOT Analysis of Starbucks

Starbucks had great foundations of strength to leverage as it re-examined its mission moving forward. However, the company had reached an unhealthy saturation with no clear direction. Below is an analysis of the challenges the company face as it struggled to re-invent itself.

 

Turnaround Tactics

The company had strayed considerably from its core values as a premier coffee social experience by diluting the brand and becoming dangerously close to a fast food outlet. Before leaving as CEO, Jim Donald was prepared to offer $1 coffee, as he struggled with shrinking market share. They diluted the brand, over saturated markets, and served breakfast foods that overpowered the scent of the coffee. These initiatives may have driven the brand to the brink.

The first item addressed in the revitalization of Starbucks was the re-positioning of the brand. The company decided to return to the reason people flocked to their stores in the first place. They returned to their roots, the ‘third place’ philosophy incorporated at the beginning of the company.  This sprang from the idea that people went to work and they went home but they wanted a third place they could go that was inviting, affordable and allowed them to linger, relax and meet up with friends.

The company also examined its products, placement and positioning and determined that while some products were worthwhile, others detracted from the core service. They stripped shelves of items as diverse as teddy bears, made the areas more spacious to walk through and decreased the menu size by about two-thirds. This helped to return the locations to the coffee shop atmosphere they originally intended to offer.

The Un-Starbucks

As part of the re-positioning of its brand, Starbucks has embarked on some bold initiatives that have onlookers wondering, “Where’s the brand?”  After much research and strategizing, the company recently designed a new line of coffee shops that do not feature the Starbucks logo or streamlined green interiors. Instead, they have gone back to a ‘neighbourhood meeting place’ style with a type of location that is defined by dark wood, comfortable seating and a homegrown atmosphere.  These locations offer beer and wine and have an independent look and feel.

The new stores are owned by Starbucks but do not share the name. They have names that fit in with the local vernacular like “15th Avenue Coffee & Tea” and have an artsy feel, going so far as to host poetry readings and open mike events. The CEO, Howard Schulz is featured in video ads showing him seated casually with baristas drinking coffee and discussing the company’s redirection around a table at the new venue.  These commercial spots are vastly different from the ‘animatics’ of a previous era and are designed to show a classless humanity and lack of hierarchy in the un-Starbucks in the new locations, and signal a return to their roots.

Advertising slogans and campaigns remind customers that the real reason for Starbucks is great coffee.  One ad states:

“If your coffee isn’t perfect, we’ll make it over.

If it’s still not perfect, make sure that you’re in a Starbucks”.

Another ad states:

“This is what coffee tastes like when you pour your heart into it”.

Further initiatives in the HR realm trains baristas to act friendly and engage with the customers in the old fashioned, Italian bistro style that made those small shops ubiquitous throughout Italy.

Critics may say Starbucks is showing a kinder, gentler side with these new directions while environmentalists can rejoice that, in a recent joint initiative with Mississippi River Pulp, the company plans to ensure that 100 percent of its cups are reusable or recyclable by 2015.

Additional changes to the Starbucks environment is welcome news to web users as Starbucks has initiated free and unlimited wifi to all customers. It used to be that a customer had to be a signed on member, now it is a one-click wonder with no restrictions across all of North America.  With a coffee in hand, browsers can enjoy sitting at their leisure, an experience that further enhances the people friendly environment engendered in the new Un-Starbucks.

In a re-positioning of its main product, the coffee beverage, Starbucks has come a long way from tinkering or toying with a $1 per cup concept. Instead, they drilled down on bettering the classics and while editing the menu, kept up with a variety of seasonal drinks such as pumpkin latte in October or Christmas coffee in December.  These coffees have become favorites and this translates well into bulk packaged coffee sales.  A new line of single serving coffee, known as Via, comes flavored in Cinnamon, Caramel, Vanilla and Mocha. Additionally, contrary to former policy, free refills are offered.   In other words, the focus is back on the customer and on the coffee.

There is no need to offer $1 coffees in an attempt to retain market share with the new spirit returned to the company and this is reflected in sales. The company’s stock has gone up from lows of $8.89/share (Dec 12, 2008) to today’s rate of $32.16/share (Dec 14, 2010).  Revenues have hit an all time high of $2.84 billion with gross profits of $2.08 billion.  The company has again adopted an expansionist policy with plans to open 100 new stores in the U.S. and 400 new stores worldwide.

Problems with Kraft Foods

While the company has forged ahead with re-invention, not everything has been percolating as expected. The company assessed its 12-year distribution relationship with Kraft Foods, the second largest food and beverage company in the world after Nestle. In emails back and forth to Kraft as early as January 2010, Starbucks complained that Kraft did not give enough attention to the placement and marketing of the Starbucks product line on grocery store shelves even though its bagged coffee sales had risen from $50 million to $500 million annually in ten years under Kraft’s tenure. When Starbucks wanted to get out of their 12 year distribution contract (seen by many as a move to buy back and regain control of their own brand),  Kraft retaliated by lodging a lawsuit stating that Starbucks offered only $750 million for what should be more than $1 billion at fair market value.  The two companies may take the best part of 2011 to resolve these issues. On Dec. 6, Kraft asked a federal court for a preliminary injunction to stop Starbucks from trying to sell its bagged coffee through a new partner. Whoever wins this argument, it will, nonetheless, be Starbucks who is the real winner as its coffee products are now firmly entrenched in consumers minds as a staple and its share of the market will continue to grow.

HR Challenges

While Starbucks is listed in Forbes as one of the top 100 Employers for its benefits to employees, this area continues to give concern to management. Unions have been formed as workers demand higher pay, guaranteed full time hours, increased affordable health care and a safe work environment. Accusations of union busting tactics have many people up in arms and in July 2008, the National Labor Relations Board settled a dispute with Starbucks that ended with a formal reinstatement of fired personnel. While Starbucks may not be the largest or worst of employers, its union activities amongst employees is making sure that the playing field is fair to workers. Not all Starbucks are unionized and the company is engaged, along with Whole Foods and Costco, in a lobby for an amendment to the Employees Free Choice Act, which would require up to 70 percent of employees to sign union cards instead of the proposed 50 percent.  While its troubles in this area appear to be far from over, there is no clear outcome at this time and it remains to be seen how many employees will be influenced to join the union.

Conclusion

While authors Buchanan and Simmons (Buchanan, L., Simmons, C.J., 2009) described Starbucks as having experienced a “fall from grace”, their analysis came too early in the turnaround to see the results, which are nothing short of spectacular and show the staying power of the brand.  The company has managed to regroup, recoup and enter the new decade more unified than ever with the growth in revenues to show for it. The Starbucks experience is, once again, customer centric, and the coffee is not too bad either.

Application

An examination of the methods and logic that Starbucks employed to shine its lackluster crown in the coffee world, may be adopted by other enterprises. The mandate is to be focused on what the customer wants, give them what they want in the best possible way and return to core products and values.  This ethic transfers across most business models successfully and, while it was the root of transformation for Starbucks, it is also the basis for successful offerings in technology, hospitality, construction and every industry.

The core service at my firm is the preparation of business plans.  The success of the work done is more than the preparation and submission of the work itself but includes customer relationship management and reporting facilities.  A satisfied client will recommend the firm over and over again and the firm relies on these referrals or word of mouth marketing to drive its business.

The lessons learned from the re-invention of Starbucks are a strong reminder to remain true to core values and identify customer needs that will generate enduring relationships. The primary lesson here appears to be that, rather than a focus on sell, sell, sell, companies should turn their focus to the customer and becoming the best in breed and then enjoy the benefits that will clearly result.

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