By Paula Rosenblum, Managing Partner
1/15/2008
In apparent recognition that endless growth is as much a myth as the bottomless cup of coffee, Starbucks bowed to the inevitable and brought founder Howard Schultz back into the role of CEO. As reported in Advertising Age, the company’s shareholders removed Mr. Schultz’s successor Jim Donald in the hopes of improving comparable store sales and re-invigorating the customer experience. Mr. Schultz has lots of ideas we like - changing store layouts, closing under-performing stores, slowing store growth in North America and developing new products by tapping data from the company’s loyalty cards. But the challenge is a big one. Re-creating a unique customer experience in over 14,000 locations is no small feat. In fact, it’d be ground-breaking and paradox breaking all at the same time.
A Familiar Story
The Starbucks story is well-known. Through some shared vision (or hallucination, depending on your point of view), Starbucks turned a cup of coffee, once a 50 cent commodity, into a $3.00 extravaganza. Baristas sold exotic coffees, lattes and cappuccinos in oddly named flavors and sizes (vente soy latte with a double shot of expresso anyone?) and most everyone who could barely afford it happily guzzled them down.
Arguably the price of coffee has risen proportionately higher than the price of gasoline, but no one has really complained. And speaking of gasoline, to Mr. Schultz’s credit, he’s not blaming sales declines on the price of oil. He’s placing the blame squarely in the company’s own lap. It’s lost its focus and quality control. In its zeal to efficiently open and operate tens of thousands of stores, it has found ways to tightly and effectively seal massive quantities of coffee and install new, more efficient coffee-making machines…the result – the stores don’t smell much like coffee and they don’t feel intimate, unique or high-end anymore. Technology helps them open more stores faster, but the thrill seems to be gone.
In fact, while residents of many transitional neighborhoods still believe they’ve “made it” when a Starbucks opens nearby, it turns out they’re not exactly right. It also seems that once you’ve got 14,000 locations (all company-owned by the way), you become fair game for the likes of McDonalds on the low end, and Dunkin’ Donuts in the mid-range. And people start blaspheming by saying things like “You know, I always liked Dunkin’ Donuts coffee better anyway.” That’s right. The vaunted Starbucks extravaganza seems to have become just another commodity. Hey wait – it IS a commodity. It’s COFFEE. Still, nothing beats a frappucino on a warm Miami afternoon.
Breaking the Paradox
We are, of course, thrilled to hear a retailer contemplate using its loyalty data to develop new and potentially location-centric products. Our research tells us that the smartest retailers are using customer data to inform their assortments and promotions. We are glad to hear a retailer acknowledge that too much growth is cannibalizing existing stores.
But can it be fixed? Can the company re-create the intimate experience that made it famous? We believe it can. And we don’t think it needs localized city assortments to do so. A sub-continent will do. If Starbucks can really perfect a Chai Latte along with its coffee, all of India sub-continent is ready to wish it a hearty Namaste. Emerging middle classes everywhere can’t wait for a good cup of chai.
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