Starbucks: A Brand In Decline? Suggestions For Growth And Change
Published February 25th, 2007 in Customer Experience, Brand
Update Feb 9 2010: I wrote the below post nearly two years ago. Since then, Starbucks has really turned things around from a customer experience perspective. Read my new post: Four Lesson From Starbucks: A Brand on a Mission.
Original Post: Is Starbucks a brand in decline? Starbucks chairman Howard Schultz sent a memo to senior executives at the company last week in which he said:
“we have had to make a series of decisions that, in retrospect, have led to the watering down of the Starbucks experience and what some might call the commoditisation of our brand.”
Reasons for this commoditisation, outlined in the memo, include:
- Automatic espresso machines introduced to solve the problem of “speed and efficiency” have detracted from the “romance and theatre” created when baristas had to pull their own shots. Doubly problematic, the height of the machines create a physical barrier by blocking baristas from the line of sight of customers who can no longer watch their drinks being made.
- Flavor locked packaging helped Starbucks achieve the goal of getting fresh roasted bagged coffee in every city of every market they are in. However, the cost of accomplishing the goal has resulted in the erosion of Starbucks tradition and heritage when customers used to have coffee beans freshly scooped, ground and bagged in front of their eyes. Further, the loss of aroma from not having fresh coffee beans sitting in bins has robbed Starbucks of what Schultz suggests was the most powerful non-verbal signal they had in their stores.
- Streamlined store design helped Stabucks get a handle on the ROI on their sales to investment ratios but has led customers to feel that Starbucks locations are devoid of soul, cookie-cutter, sterile and lacking the warmth of a neighbourhood store.
- Merchandise in stores is inconsistent and doesn’t illustrate that coffee is Starbucks core business. Some stores don’t have coffee grinders, French presses, or coffee filters.
Additionally, last August I suggested that Starbucks’ stock price was down due to poor customer experience created by the popularity of Frappuccino’s as a morning drink which has caused long line-ups due to the amount of time it takes to create one. This, in turn, has resulted in espresso lovers turning away from Starbucks altogether.
Recent sales-growth support what Schultz is saying: same-store sales rose 7 percent in 2006, compared with a rise of 8 percent in 2005 and 10 percent in 2004. The good news is, Starbucks is still growing, but the growth is slowing.
In the same memo, Schultz says:
“I have said for 20 years that our success is not an entitlement and now it’s proving to be a reality. Let’s be smarter about how we are spending our time, money and resources. Let’s get back to the core. Push for innovation and do the things necessary to once again differentiate Starbucks from all others.”
So, the question is, how can Starbucks find its lost soul?
Generally speaking, Starbucks can get back on track by re-discovering the focus it once had as a small business and by finding the momentum it once had as a growing company. Of course, Starbucks could consider cost cutting their way back to sustainable growth to appease shareholders, but this seems unauthentic and irresponsible.
Some specific ideas for growth include the following:
- Re-invest in the customer experience - The customer experience makes the brand and Starbucks, while still a powerful brand, needs to get back to customer experience basics and renew the intimacy it once had with customers, solve the long line-ups created by inefficient drink making processes and re-establish Starbucks as the “third place” in customers’ lives following home and work.
- Re-discover its core business in coffee - Schultz believes that Starbucks sources and buys the highest quality coffee available. High quality coffee is a differentiating attribute; as a result Starbucks should focus on product differentiation if this is in fact the case. Starbucks can reinforce differentiation at every customer touch-point whether it be the merchandise in store, marketing communications, or their web site. Differentiation also includes rediscovering and promoting Starbucks’ heritage, tradition, and passion for the coffee drinking experience.
In short, Starbucks needs to get back to basics and focus on the customer experience and product.
Making these changes will require hard work from every employee at Starbucks; from Schultz right down, and most importantly, to the baristas on the front lines. The leadership at Starbucks will need to ask tough questions to initiate change, questions like the ones Marty Neumeier offers in his book Zag:
- What is stopping the change?
- How is that a problem?
- What would have to happen for it NOT to be a problem?
What are your suggestions for positive change at Starbucks? What are some of the other tough questions they will have to ask themselves as they position themselves for change?
23 Responses to “Starbucks: A Brand In Decline? Suggestions For Growth And Change”
- 1 Trackback on Feb 27th, 2007 at 7:19 pm
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I think the one of their biggest problems is pervasiveness. It’s a cliche to talk about how there’s a Starbucks on every corner, but it’s pretty close to reality. It’s hard to feel passionate about something that feels so available and mass-produced.
And the other problem is that their espresso just isn’t that good. It sure ain’t worth dodging the crowds of high-schoolers, soccer-parents, and middle-management-types ordering their corn-syrup and cream beverages (sure, with a little coffee flavor) which take forever to make.
I agree with Chris. It’s a problem that extends to so many categories: if you’re too big and everywhere be prepared to face the heat. Look at Microsoft, Wal-mart, McDonalds even Nike
Marketers with ambition need to check if their brand can scale to the number 1 position. Not all brands are designed to do that. Starbucks certainly wasn’t.
And they are quickly heading into the fast food catergory They have been rolling out their breakfast sandwich menu (which is not too tasty)
McDonalds has countered by preparing to serve lattes and expresso drinks
let the war begin
If Starbucks was smart, they’d dump the breakfast sandwich menu idea altogether. Why invest in such a futile battle?
Scott
Idea Sandbox is kicking off a series of articles on the same topic of “solving starbucks problems”.
It would be interesting to track.
http://www.idea-sandbox.com/blog/2007/03/solving_starbucks_problems_one.html
Starbucks is going through the inevitable aging process - they recognized and successfully exploited a market niche, using strategies which appealed to the trend for trading up. So they were able to take advantage of getting in on the beginning of a trend. The inevitability of this fortuitius happening is that people see your success and imitate it, increasing the number of competitors in the market and necessitating a change in strategy as a brand/product transitions from a “new” or “growth” market to a “mature” one. In a mature market, the number of competitors increases, there is increasing price sensitivity and also if a company has overcapacity, it shows up as others challenge market dominance.
Starbucks is having the same moment Microsoft did when it realized that, to stay competitive, it was going to have to change to web-based technology - and I remember stories of Bill Gates storming through his headquarters in the middle of the night, screaming at tired programmers, as Microsoft stood to lose its market dominance in that vulnerable gap between doing what it did well and realizing it needed to change.
Overcapacity is a definite problem, as many markets are oversaturated - one questions whether it can be a successful model for Starbucks to have as many close stores as, say, a 7-11, with fewer and more focused products. One salient point is that, after the first cup in the morning, coffee is an impulse buy, and there is no impulse if there is no trigger, i.e., seeing a Starbucks on the corner and thinking, “I could get a latte right now”. It worked for Mc Donalds, which also dealt with a problem of overcapacity recently, and closed down many units.
Meanwhile, despite the fact that they are not individually franchised, I have never been to a Starbucks where the barristas, both in the store and in the drive up, have been less than knowledgeable and friendly, and have never received a less than consistently quality product.
All the same, I’m not going to cry for Starbucks until there are fewer than 5 people in line ahead of me EVERY time I go there, or I see less than 5 cars in the drive up ALL the time!
how can someone compare starbucks with mcdonads? mcdonalds is nasty. starbucks is not over, there is so much growth more to come. if the stock goes down any further, its ripe for take over by coke or pepsi
Starbucks I tried in the Professional Cener and I think just about anything is better value and almost just about anything if I ever drink coffee outside is better. Two dollars and fifty cents for aa coffee should get you a really good one not something in paper cups.
The following are better: Tim Horton’s, McDonald’s, Instant coffee, Coke or Pepsi for what you pay for it. I refuse to support any of their outlets ever again unless its an emergency or a need to use the bathroom. Their designs are the same everywhere you go and the only thing they really care to make look any different are the urinals
i think that a big problem is the huge turn over rate,due to the fact that workers are expected to take serious abuse from customers.then you have to train all new people very quickly and they often get little training and get thrown into making lattes and they taste bad.i stopped going there because 9 times out of 10 my lattes taste horrible because baristas arent being shown how to properly calibrate the machines.also,i got tired of seeing customers completely disrespect your employees.noone should have to take being called a moron because they (heaven forbid) had to ask a customer to repeat their order for a 1/2 decaf 1 splenda 2 equal 80%whole milk 20% skim 2 1/2 pump sugar free vanilla wet cappuccino!!!!
I believe Starbucks is too big of a monster to go down… Sure stock is down, but it’s sure to make a big comeback! The starbucks experience is definitely something that the baristas must work on, but that is surely easily to manage…
I noticed so called ‘green’ bottled water at starbucks. This water is packaged in plastic bottles which are a serious environmental concern given the ammount of bottled water we’re consuming (I live in the city and all the water I drink is either from bottled water or water coolers). If starbucks offered water in refillable glass bottles and even allowed people to refill the bottles at the store for a fee they could charge a premium price and be offering an environmental service.
Starbucks are noisy unpleasant places. The help is loudly screaming about coffee orders or screaming at customers to have a great day. In some I have heard machines beeping annoyingly while I try to read and drink some chai. Recently at a small Starbucks a manager was loudly evaluating an employee in the middle of the store. It’s a big deal to find a regular cup (not paper). Others the pastries and bagels are all frozen. Silly and pretentious with their own names for small medium and large.
Each cup of ‘fresh’ brewed coffee purchased should be ‘fresh’ brewed. Often times a cup of Starbuck’s fresh brewed is not fresh. I believe that if you are going to pay for a cup of fresh brewed the beans for that cup should be ground and brewed when it is ordered.
Also, I think Starbuck’s should place smaller kiosk type structures staffed by one or two people in high traffic areas rather than having a full Starbuck’s ’store’ on every corner. Get back to basics and improve your product.
The problem I believe is Howard Schultz, because he cannot pinpoint the exact cause of the decline, he should know as taught inside Starbucks it’s always “People”. The fact is there’s a lot of terminations, may it be legal or illegal, he’s losing the best people, specially on the manager’s level. Mr. Schultz, please open your eyes and look at the people not in your level but at the level from your Zone to Regonal to your District Managers. Do you think they are really taking care of the people at the Manager’s level, 100% nope. Check your turnovers, employees who have worked so many years either left or got terminated…Why? District Managers so authoritarian thinks the best way to solve a problem is just get rid of them and replace them, without knowing why a change of behavior and performance…dig deeper and you will know why. They push these employees, pressure them for results, punish them for failure and terminate them if they cannot stand the expectations, 3 years of a good job would just be nothing of a month of sub par performance of the store. These are just some of whats really happening inside. Until next time.
You have hit the nail on the head. Starbucks used to be a nice experience, cool people, nice locations with a comfortable setting. Now it is almost stressful… it is even less personal than ordering at MacDonald’s where at least the person you order from will hand you your food.
I personally would like to see the brand collapse and allow the privately owned coffee shops to flourish. Here in Houston there are so many amazing coffee shops that feel like start bucks used to and they also offer great food, even a glass of wine to have at lunch…
If the managers a Starbucks want to improve things, they need to spend some time in theses places… it is not only about the coffee after all
White Mocha is exactly right. The problem is at a District and Regional level. I was employeed for 5 years, starting at barista and working up to Assistant Store Manager. I had good experiences with all of my district managers until my last one. I was fired for leaving money briefly un-attended while dealing with various customer and partner problems that day. I was never disciplined prior to that day for that violation. It was frequently something that people do because of the nature of the business. It was something that I had seen from ALL managers, in each store I worked at from time to time. Not only that, after I was fired, I found out she had an embarrassing personal situation that I think she thought I knew about, and somehow disliked her for it…but I digress.
Obviously the Starbucks Experience has been declining in the past year or more. Customers are more routinely dissastisfied with the product and service, and it is directly related to the high turnover rate at the barista level. This however has been fueled recently by the need for Starbucks to re-allign its management(salaried)/hourly ratio from a 40/60 to a 20/80. So now they need excuses to fire managers, preferably higher paid, and thus often the longer tenured ones. The problem is, they were often the only ones enforcing the standards that made the company popular and sucessful to begin with. I understand at will employment, and the need for accountability to the stock holders. I understand that I wasn’t garunteed a job for life even though I thought that was what I had. The fact is, wether it was personal or strictly managing from a district P&L level, they fired a very loyal dedicated and hard working employee, who was commited to raising the level of the experience of his customers, specifically by bonding with and developing the newest baristas to uphold the same standards I was taught over 5 years ago. Now they have a bigger gap between the upper management and the hourly partners, which results in a more drastic varience between individual visits. If the Manager, or District Manager are in the store, perhaps people are on their best behavior. If not, you’re likely to get a bad experience. The turnover they have created has destroyed their credibility in the market, which has in turn caused declining sales and customer count.
I’ve seen customers from the stores I worked at thoughout the years, and most frequently I hear “it’s really gone down hill since you left that store.” I’m not saying this because I think I was the BEST worker, but merely because they felt like they were always put first, cause they were. I was the guy that stopped doing stuff cause the line got too long, instead of ignoring the elephant in the room cause I had to make sure the display had all the mints and gums facing the same way, or I just needed to finish some paperwork before going home, or even worse because “I was supposed to be off at 2:30p.m and its already 2:45!” I was fired in by a District Manager who had been with the company atleast 2 or 3 years less, with my Regional Director being at the position for about the same amount of time as my District Manager (based on the employee numbers they used). The fact is they fired a good one (and without good cause according to the EDD).
When I was fired my stock was worthless. They offered no severance package. I was told I was being fired for “something we routinely seperate managers for.” When I responded, “it’s something that every manager does,” she replied “we’re gonna get ‘em too.” Right. Call it for what it is. The product has outlived its “trendiness” and the people who went for the experience just aren’t getting it anymore. The baristas don’t care, cause most dont have stock in the company, and don’t plan on doing more than working for a quick paycheck and to give out free drinks to friends. Even worse, the new class of upper and middle management isn’t as heavily committed or invested in the stock so who cares about declining sales and customer count, as long as I still have a signed paycheck, right? I had no animosity towards the company or anyone personally until the day I was fired. I was even ammused when the same position in the same area was posted online only 2 months after I was fired. I’m glad I worked there for the time I did. I got great training, learned some valuable skills, and also had some great customer/employee friendships. I also learned that politics and budgets mean more than investigation and introspection. For a company that promotes “dignity and respect” as its first guiding principle, and “create enthusiastically satisfied customers all of the time,” as its fourth, it would appear that in the trying times the sixth principle is more important: “recognize profit is essential to our future success.”
Is the experience you got today, or last week, really worth the money you have to work hard for? If you have to work hard your money, shouldn’t they? Don’t let upper management blame declining customer counts, sales, a catasrtophic stock drop, and bad customer experiences on poorly trained, under paid, hourly baristas. No other company holds the lowest common denominator accountable for the its financial collapse like Starbucks is trying to. Obviously I no longer go to Starbucks. I would hope that others that I share my story with will join me in boycotting Starbucks. But if you insist on going, try to work out a tips for coffee swap with your friendly hourly barista, so you’re not stuffing some hypocritical RM, DM, RVP or CEO with bonuses built in that are paid for by budget related terminations like mine.
I don’t go to Starbucks because the internet is not free and the food (cookies etc. are not good. They look to fat). I rather drink my latte with toasted home-made bread with butter or a warm croissant…
I leave in Cambridge, MA and Darwins offers just that. You go there, you always find a seat, the music is great and trendy and you have free access to the internet!!!
I rather stay in Darwins all morning, drinking lattes, eating home made bread or croissants and using internet for free!!! And the employees there are really nice, always laughing, acting crazy…it’s a great place to go instead of Starbucks.
My husband and I go to Starbucks every afternoon. We love it. The protein lunches are good - fresh and prepared well. The best thing is the biscotties and the coffee, and tea. We drink just plain back tea or coffee. I like the taste of what Stabucks serves, and the atmosphere.
I think better training of employees would be a plus. They are friendly, but sometimes coffee is not hot enough, or they sometimes need to make coffee before they can serve us. I think frequently having to make coffee when a customer orders, in a coffee place, is not acceptable.
If Starbucks does decide to serve alcohol, I hope you have the alcohol bar in another room other than the coffee bar room. I probably won’t go to Starbucks if the alcohol and coffee is served the same room. There are just different types of atmospheres, generally speaking, in each type of environment.
plus. their baked goods are crap! i mean, hellllloooo… do i choose between an 800 calorie piece of dried out lemon loaf or banana bread?! their baked goods are overpriced, stale, and feel like they’re getting dropped off by costco.
Why buy overpriced coffee from McDonald’s when you can buy overpriced coffee from your local independent coffee shop and support small business?