STARBUCKS BACK TO BASICS? MADE BY VIBHA BEHL MBA 2 ND SEM.
STARBUCKS-A Coffee Retailer
Financial crisis created serious problem for the giant coffee retailer.
More and more customers started to cut down on consumption of expensive coffee.
Service quality levels are falling.
Drop in traffic and profits at Starbucks in 2008.
Revive the brand and bring back customers to its stores.
We (Starbucks) somehow evolved from a culture of entrepreneurship, creativity and innovation to a culture of, in a way, mediocrity and bureaucracy - Howard Schultz, CEO, STARBUCKS
The wheels have really come off of this train. It’s amazing how fast business has derailed. If scales are down mid-single digits, that is rapid erosion.
- Larry Miller, Analyst, RBC Capital Markets
At some point the US is going to be a mature market. The big question is when does that occur.
- Bill Hulkower, Analyst, Mintel International
Net loss of US$6.7 mn for the quarter ended June 2008.
Announced that it would close down around 600 of its underperforming stores in US and nearly all its stores in Australia, in addition to cutting about 1,000 non-store jobs.
Falling fortunes eroded its competitiveness.
Worsening US economy resulted in falling home prices, rising unemployment and cash- strapped customers.
In 1971, the first store of Starbucks was opened.
Howard Schultz acquired the company in 1987.
Then Starbucks started setting up cafes where customers could sit and sip their favourite lattes and espressos.
Become behemoth with around 15,000 stores in more than 40 countries by early 2008.
Rapid expansion becomes problem.
Criticized for impersonal service after mid-2000s.
The design of the new stores was also criticized, on the grounds that they lacked character.
Introduction of hot food.
Installing new espresso machines that limited the interaction between baristas and customers.
It’s a brainchild of English teacher Jerry Baldwin, History teacher Zev Siegel, and writer Gordon Bowker.
Opened in 1971 in Pike Place Market, Seattle.
The first store sold fresh roasted, gourmet coffee beans, and brewing and roasting accessories.
Company legend was named after the coffee-loving first mate in MOBY DICK.
A) Engraving of a twin-tailed siren (15th century)
B) First Starbucks logo (1971 - 1987)
C) Il Giornale logo
D) Merging of Starbucks and Il Giornale (1987 - 1992)
E) Redesigned Starbucks logo (1992 - today)
F) Current Starbucks logo , a revival of the original
The firm’s logo was a two-tailed mermaid with the store’s name around it, designed by an artist friend of the trio.
By 1980, it had become the largest roaster coffee in Washington.
In 1980, Zen Siegel sold his share to other partners.
In 1982, Howard Schultz, who then represented Hammarplast in the US, was hired as the had of marketing at the company.
Schultz on his business visit to Milan, Italy noticed that every street had coffee bars which not only served coffee-based drinks, but also were meeting places where people could socialize.
But Baldwin didn’t agreed and carried on with selling espresso in a corner that proved successful and started serving 400 customers.
After much persuasion, the owners allowed to put espresso machines in two stores.
Schultz decided to start out his own and established a coffee house named II Giornale, meaning “The Daily” in italian.
In 1987, Starbucks was put up for sale.
In order to raise the required funds of US$3.8 mn to acquire Starbucks, Schultz presented his plan to several investors.
His vision was to launch 125 stores in 5 years’ time.
He named his II Giornale coffee houses as “Starbucks”.
Converted them into classy and comfortable coffee houses.
He also changed the logo.
In 1990s, Starbucks expanded rapidly.
By 1997,it had over 1,400 stores in North America and Pacific Rim.
By the late 1990s, Starbucks was one of the most reputed brands in the US and the company was established as the leading retailer and roaster of specialty coffee in North America.
Its first international outlet opened in Tokyo in 1996.
In 1998, it entered UK by acquiring the Seattle coffee company and renamed it as Starbucks.
In 1999, it bought Tazo Tea company, a Portland, Oregon-based tea manufacturer and distributor.
It acquired Hear Music in 1999, and began selling compiled CDs under the Hear Music brand at its stores.
In 2000, Schultz stepped down from the post of CEO.
ORIN SMITH, who till then was the Chief Operating Officer, was made the CEO.
In October 2002, Jim Donald was appointed as President of Starbucks.
In May 2005, Donald assumed the role of CEO as well, after Smith retired.
It entered continental Europe in 2001 when it opened stores in Switzerland and Austria.
From 2001 to 2004, it opened on an average 1,200 stores every year, and in 2005, the figure touched 1,700.
It entered Oman, Indonesia, Germany, Spain, Mexico and Greece in 2002; Turkey, Chile, Peru and Cyprus in 2003; Paris, France in 2004; and Jordan in 2005.
New stores were planned in Algeria, Bulgaria, Colombia, Hungary, Poland and Portugal.
STORM IN A COFFEE CUP?
Beginning 2007, Starbucks saw a slowdown after years of growth.
Company’s shares fell 20% by mid-2007.
Main reason was the economic situation in the US.
California and Florida-that accounted for 1/3 rd of its domestic revenues were among the worst hit by the housing slump.
The costs of opening new stores, distribution expenses, as well as material costs were touching new highs.
Positioned itself as an expensive and exclusive coffee brand.
Aimed to become the one place outside of work and home where a person could feel ‘at home’.
Projected it ‘The Third Place’, where one could come and meet friends, chat and generally unwind.
Also, the company started to open Kiosks at busy areas as airports and book stores.
Earlier 1999, Schultz had replaced the manual espresso machine with automatic ones.
New machines didn’t allow baristas to make eye contact with customers.
Change was made to improve efficiency.
Old machines caused frequent stress injuries.
Schultz found new interests as-
He championed causes as a the national healthcare legislation, on which he spent considerable time-before Congress, on television, and in President Bill Clinton’s Oval Office.
In 2001, Schultz became the co-owner of the Seattle SuperSonicsa, a professional basketball team .
In September 2006, it was reported that the Lattes and Frappuccinos sold at Starbucks were as calorie rich as the stuff sold at McDonald’s.
In late 2006, the company was also embroiled in an unexpected controversy when the government of Ethiopia accussed Starbucks of “blocking trademark protections for the names of the country’s top coffees.”
The motivational levels of baristas and other employees- who formed an integral part of it-also seemed to be going down.
What is the Starbucks Experience?
Starbucks offered a variety of products like mochas, frappuccinos, tea drinks, fruit smoothies, ice creams and its own range of breakfast, snacks, plus franchised merchandise like T-shirts, books and music.
It was starting to face competition from the likes of Dunkin’ Donuts and McDonalds.
In 2006, McDonalds had announced that it would start selling gourmet coffee.
By pricing the coffee low, McDonalds planned to expand the market.
In January 2008, Schultz replaced Donald as the CEO of Starbucks.
He would focus on “customer experience and innovation” to reverse the slide in shareholder value.
Howard is the architect of the Starbucks brand and the visionary behind the unique customer experience that is at the heart of this remarkable company’s success.
They believed needs to be done, there is no better person to drive change and ensure that Starbucks is positioned to innovate, execute and relentlessly focus the entire organization on the customer.
CHANGING THE WAY
On February 26,2008,cost the company US$10 mn.
It closed 7,100 stores in the US for three hours so that baristas could relearn the art of coffee-making.
It hoped that this 3 hours training program would increase motivation levels among the baristas and improve the quality of coffee.
The warm breakfast sandwiches would be removed from the menu by 2008 fall as the warm sandwiches interferes with the coffee aroma in the stores.
CUSTOMER-FACING INITIATIVES TO HALT SLIDING SALES
Introduction of Mastrena, a semi-automatic espresso machine as the new Swiss-made espresso machines performed much like a manual machine and delivered ‘the perfect shot’ everytime. It will allow baristas to make eye contact with customers while they prepared coffee.
The “complete reinvention of brewed coffee in-store.” A new blend would remind customers of the Starbucks of early days.
The introduction of the loyalty program that would reward registered cardholders.
The launch of mystarbucksidea.com, an online community that allowed customers to “play a role in the company’s future.”
To strengthen Starbucks’ relationship with Conservation International to address concerns that the company was not dealing with the coffee growers in developing countries.
Implementing one of the new ‘transformational’ initiatives, it announced the launch of Pike Place Roast, a new blend to compete with the drip coffee offered by McDonald’s and Dunkin’ Donuts.
The company also unveiled new brewing equipment- the Clover Brewing System. Clover’s unique brewing process is similar to the coffee press method, but it utilizes a special vacuum technology that brings out the complex, rich and distinctive flavors of some of the Starbucks rarest and most exotic coffees.
In March 2008, it announced “a new phase in their decade-long partnership.” it involved entities in putting efforts to educate coffee growers on the most eco-friendly methods of farming as well as protecting the land, water, and forests that surround their farms.
It would spend US$7.5 mn for the first three years on projects in Indonesia and Mexico that would protect standing forests and restore ‘degraded landscapes’.
mystarbucksidea.com was launched in March 2008. the website invited suggestions and ideas from customers who had to first register themselves online.
The suggestions were rated by other registered users.
It would implement the top-rated suggestions.
To show visitors the company was serious about the initiative, the website has an ‘Ideas in Action’ blog section, which highlighted how the company was taking action on customer suggestions.
In April 2008, it announced the introduction of a new loyalty program in the US and Canada.
Under this program, customers would receive free coffee refills or add-ons such as soy milk or flavored syrup.
Free Wi-Fi service was also offered for two consecutive hours at company stores.
The loyalty program was available to Starbucks’ prepaid or credit card holders who registered themselves online.
Customers would also be offered a tall beverage of their choice free with every pound of coffee that they bought.
In April 2008, Schultz decided to do away with the music business.
Ken Lombard, the head of Starbucks’ entertainment division was dismissed.
Starbucks entered into an agreement with Concord Music Group, where the latter would manage its Hear Music Label.
In May 2008, the company reported a 21% decline in earnings for the second quarter. The net income fell to US$108.7 mn from US$150.8 mn.
In mid-2008 the company was all set to introduce a new fruit-based drink that had become quite popular in Italy.
In July 2008, the company announced that some 600 stores would be shut down across the US, resulting in the loss of 12,000 full and part time jobs.
The company planned to shut down 61 of its 85 stores in Australia.
The current economic environment is the weakest in the company’s history, marked by lower home values, and rising costs for energy, food and other products that are directly impacting our customers.
Strabucks announced that it would slow its expansion in the US. And was planning to open only 400 new stores in 2008 fiscal, a 43% decline from the 1,800 units that were opened in fiscal 2007.
The company expected international sales to account for over 40% its revenues in 2011.
The company planned to open 1,050 stores outside the Us in 2009, 1,150 in 2010, and 1,300 in 2011, especially in countries such as China and Eastern Europe.
On July 2008, Starbucks reported a loss of US $6.7 mn for the quarter ended on June 2008.
In July 2008, Schultz announced the launch of Vivanno Nourishing Blends, new ‘health and wellness’ beverages, in stores across the US and Canada.
According to the company, the drinks were nutritious-the Orange Mango Banana and Banana Chocolate flavored beverages “provide at least one serving of fruit, 16 grams of protein, and 5 grams of fiber with 270 calories or less and no artificial colors, artificial sweeteners or high fructose corn syrup.
Despite concerns that smells of hot food interfered with the coffee aroma, Starbucks announced the launch of 5 new breakfast items in September 2008.
The items included oatmeal, a chewy fruit and nut bar, apple bran muffin, a multigrain pastry called the Berry Stella, a mutligrain roll and a protein plate featuring a hardboiled egg, whole wheat bagel, peanut butter, cheese and fruit.
The company didn’t contain artificial preservatives, colors or sweeteners.
Analysts appreciated Schultz’s moves to revive the Starbucks brand, some critics were not sure if these efforts would be enough to bring customers back to the stores.
Barista- a person who works in a coffee bar
Cannibalization- to reduce the sale of one of its products by introducing a similar new product
Behemoth- a very big and powerful company
Kiosks- a small shop/store open at front, where newspapers, drinks, etc are sold
Yuppie- a young professional person who lives in a city and earn a lot of money that they spend on expensive and fashionable things
Logo- a printed sign or symbol that a company uses as its special sign
Plummenting- to fall suddenly and quickly from a high level
Espresso- strong black coffee made by forcing steam or boiling water through ground coffee