The Starbucks' learning curve


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Article on Starbucks operations analysing the chains strengths with focus on key growth and expansion strategy.

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The Starbucks' learning curve

  1. 1. column2 . images retail . may 2013The StarbucksHaving sustained commitment to a core concept,delivering consistent quality and experience, whileconstantly improving efficiencies are key for foodretailers in India WHO are aiming to grow theirpresence via creating retail chains. Let’s explorewhat budding retail chains in India should definitelylearn from the speciality coffee giant Starbucks,which is now on an expansion spree in the countryBy Gaurav MarchandaAs news rolls in about yet anotherstore being opened by Starbucks ina key location in South Delhi, thecoffee chain’s expansion sprint inIndia is well and truly on its way.Starbucks has quietly gone about itsbusiness and further plans to openaround 50 stores in 2013. I wouldn’tbe surprised if it did a few moregiven that the chain has mastered theart of opening new stores in recordtime. The growth story of Starbucksis one for the business history books.Coming from an inconspicuousspeciality coffee retailer based out ofSeattle to one of the largest chains ofwell… anything.While pursuing my Masters inMelbourne, Starbucks was alwaysthat exquisite experience I lovedindulging in. I was intoxicated bythe deep coffee aroma, the quickand happy service, the relaxedatmosphere, the flowing backgroundmusic and of course the Starbuckscup of coffee. It was the perfectmeeting point with fellow students,who seemed to revel equally inthe setting. As a business student,I would inevitably research casestudies on the brand and hearprofessors talk in length aboutaccounts of it. All stories fuelledinto my sense of affinity towards theretail chain.When I think about the presentscenario in India, my mind bogglesat the potential that food retail hasin the country. I simply can’t holdmy excitement when I imaginethe new concepts that could budout in the food loving nation. Theincreasing propensity of people to“eat out” and “meet out” is going togive entrepreneurs a great avenue tobuild concepts that invite people notjust for the product they sell but forthe experience they offer. This is notrestricted to coffees, but extends to, asfar as the long list of Indian foods go,vada pao, dosas, paans, tea, mithais,take your pick. The list is endless andso is the potential.Creating retail chains is the futureof business as they bring efficiencies,improve quality, deliver consistentvalue and well, just create morerevenues. That’s where Starbuckscomes in as it provides a greatlearning curve for Indian food chains
  2. 2. columnmay 2013 . images retail . 3of the future to follow. Here is mytake on seven key aspects that can belearnt from the Starbucks story.Recognise Your Concept’s PotentialAll great chains start their businesswith a vision of a concept that goesbeyond what is already establishedand believed to work best. Starbucksis one of the main proponents thatidealise this belief. In the initial years,Howard Schultz struggled to convincethe former owners of the brand on thevast potential in the Starbucks’s ideathat he saw.Several times over, he had to faceresistance from investors who showedlittle faith in the expansion potentialfor the chain. However, recognisingthe power that the daily consumeditem - coffee - has created a wholeconcept around it and pushingthe idea to perfection through acontinuous process of tweakingand tinkering were instrumental inchanging the fate of the Starbucksbrand.Love What You SellStarbucks was founded by peoplewho loved fine coffees. They exploredand learned different sources ofcoffee beans and experimented withalternative methods of roasting itto bring out deep coffee flavoursand aromas. This made for a strongstarting for the coffee chain as theircore offering was now unique. Thistradition of passion for the productwas passed onto future managersof the company, who still scout theworld for procuring the best coffeebeans. This brings in unparalleledunderstanding of what they sell andhow to sell it perfectly.In-depth knowledge is indispensableand that comes from real passionfor the product you sell. OftenIndian food retailers start off sellingsomething unique, authentic andtruly special, but after reaching acertain scale lose focus on nurturing,improving and making it un-duplicable, and that’s when qualitydrops, and so does the customerfootfall. Your product is your lifeline.Making love and passion for yourproduct the core of your company’sconcept is a must.Happy Employee Leads to HappyCustomersAt an early stage, Starbucks’management realised the importanceof investing in people. The companyoffered unheard of employee benefitsand stock options even to its part timeemployees. The main idea for thecompany has been to treat employeesas partners and not workers. Treatingpeople like they own and equallyshare and contribute to the company’sgrowth is a great way to deliverexceptional service.In an industry that is perpetuallystruggling to retain well-trainedemployees, it is a significantadvantage in becoming a preferredemployer, which helps attract the besttalent and delivers the best service.Good talent comes at a higher price,but exceptional service providesirreplaceable competitive advantage inthe service industry.Deliver an Experience, Not Just aProductSelling a good cup ofcoffee is relativelyeasy to manage. Whatdifferentiates one chainfrom the other in thiscompetitive world is howfar beyond the productcan a retail chain go.Starbucks goes lengthsto create an emotionalconnect with the customer.That’s how customers gofrom being “customers,” to“loyal customers,” and then to“brand patronisers.” Only whenall the aspects of the retail offeringsupplement and reinforce eachother and deliver that unique valueproposition, does a brand reallydeliver a great experience over andabove a great product.Whether it is the fixtures a storehas, the music that plays in it,the merchandise display style,the aroma, the staff attitude, theAll great chains starttheir business with avision of a concept thatgoes beyond what isalready established andbelieved to work best
  3. 3. column4 . images retail . may 2013track of the on-the-ground realities,something that has brought about thedownfall of the best in the business.Having ideas and perspective flowingin from the employees working inoutlets and customers availing theservices is essential to constantlytweak and better the existing conceptof a chain.Some of the most striking andimportant ideas for Starbucks likeoffering low-fat milk or selling musicin stores came from “comment cards”left behind by customers. Againlistening to your own employees isimperative as they are eventuallythe ones who face the music whiledealing with the customers and mostlikely to be the first ones to detect anyfault in the brand’s offerings.Great companies are builtaround great values. Exceptionalorganisations that finally achieveunprecedented sales and are trulyloved by consumers are those that arebuilt on ideas of sustainability and along-term commitment to everyonelinked to the company, whether it isemployees, distributors, shareholders,customers, or the society on thewhole. Having effective values andbacking them by actions eventuallylead to attracting people who bide bythose values and in the process helpspread them, thus creating a self-perpetuating dynamic model.What makes Starbucks what it istoday is that it delivers exactly whatit promises - an exquisite atmosphereand the best coffee, consistently.Going by the past experience, I wasworried about the brand’s ability todeliver in India the same experiencethat made its core value propositionworld over. Now, as I write thisarticle, sipping my favourite brand’scoffee its Select CityWalk outlet, I amglad to report that the coffee and theexperience is everything I rememberit to be.light, it all matters. Each and everyaspect has to be in sync to create anatmosphere that builds a comfortzone for the customer where hewould want to come back againand again.Get the Key Retail Aspects RightWhile the Starbucks story does seemlike a dream run on the outside,opening outlets at the pace at whichStarbucks does requires vigorousfocus on planning and an in-depthunderstanding and appreciation forkey operational aspects of the retailbusiness. Having an eye for locationsthat puts you where the customer is,managing and controlling new-storeopening costs, creating a store designthat works and is easily replicable arePartner Wisely and Expand YourReachAfter Starbucks reached a certainsize, it partnered with PepsiCo tocreate a mass marketable versionof its Frappuccino product line.This move had a few implications.Firstly, it meant that Starbuckscould capitalise on the establisheddistribution network of PepsiCo,After Starbucks reacheda certain size, itpartnered with PepsiCo tocreate a mass marketableversion of its Frappuccinoproduct linesome of the aspects Starbucks hasmastered over the years.The backbone of efficiency in theseaspects is the operational structureof the company which focusses ondeveloping zones and expandingthrough a hub and spoke model-- a model that the company hasreplicated over and over again indifferent regions. Being smart aboutthe key retail aspects will alwayskeep your business on its feet whenthe competition gets tough. Havingexperienced professionals whounderstand the aspects of chainbusinesses is essential to a fastexpanding food chain retail store.thus reaching customers in ways notimagined before. Also, having one ofits most popular products availablethrough grocery stores not onlyaided sales for the company but alsofurther expanded the chain’s brandpresence. Today, the sales of ready-to-drink coffee products by Starbucksthrough grocery retail exceed $1 bn,establishing it as one of the pioneersin the industry.Listen IntentlyExpanding a retail chain concepttakes considerable effort, and thetop management of a fast expandingchain can very quickly and easily loseABOUT THE AUTHORGaurav Marchanda is a consultantwith Wazir Advisors.