Howard the Merchant Helps Revive Starbucks

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Discussion
Mar 26, 2010

By George Anderson

Howard Schultz to the rescue. That’s the current picture
of Starbucks’ CEO, who stepped back in to run the company in January 2008 after
watching the chain struggling with same-store sales declines and fumbling to
find its way.

Mr. Schultz, who describes himself as a “merchant,” said the decision
to return and lead the company was simple. “I love this company. I love its
180,000 people. I feel a responsibility to them and to the shareholder base,"
he told the Financial Times.

After taking over at Starbucks, Mr. Schultz
took dramatic steps to cut costs and that meant the closing of 600 underperforming
stores with over 12,000 employees finding themselves out of work.

He also went
to work trying to reestablish a point of difference between Starbucks and
its competitors. Mr. Schultz believed the chain had become too much like other
coffee houses and decried what he called the “commoditisation” of Starbucks.

For
Mr. Schultz, the task of transforming Starbucks was not only about product
selection and customer experience but also corporate culture. He wrote in memo
a to company employees, "We are and will be a great, enduring company, known
for inspiring and nurturing the human spirit. I will lead us back to the place
where we belong, but I need your help and support … My expectations of you
are high, but higher of myself."

In October 2008, Financial Times reports, Mr. Schultz took
heat from flying in 10,000 U.S. managers to New Orleans for a three-day
conference. Part of the experience for attendees was to volunteer 50,000 hours
with non-governmental organizations to help repair homes and clean roads in
a city devastated by Hurricane Katrina.

Mr. Schultz describes the New Orleans
event as “one of the smartest things we did to reinstall the values of the
company."

After his interview with the Financial Times, Mr. Schultz had
a meeting with 50 managers and told them, "We can’t allow mediocrity to creep
back into the business. The worst thing we could do is not understand what
happened three years ago."

Discussion Questions: Do you agree that Starbucks has transformed itself in the past three years? Where do you see its biggest challenges and opportunities ahead?

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16 Comments on "Howard the Merchant Helps Revive Starbucks"

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Bob Phibbs
BrainTrust

Howard was first and foremost a marketing guy. He is the visionary and soul of Starbucks who backs up his words with actions. That’s why they are a formidable competitor and please don’t regurgitate McDonald’s and Dunkin’ Donuts–not even close.

Doron Levy
Guest
Doron Levy
6 years 3 months ago

His last quote sums it up best. Starbucks fell into the crowd and literally became ‘just another coffee joint’ with regionals and locals eating their lunch in terms of service, price and product. The ‘slimming down’ of the chain and improvements in service have helped them regain market share but it is a slippery slope and Mr. Schultz’s foray into small name coffee bars is an indication that customers are looking for the ‘local coffee bar’ experience. Where is the poetry reading and the hippie gal playing guitar?

While Starbucks has become better at what they do, it really is a bunch of zombies at their laptops caffeinating themselves. I would love to see their ‘to go’ numbers in comparison with who stays in.

Paula Rosenblum
BrainTrust

The founder (Howard Schultz) had a vision. And for better or worse, without the founder, the company stumbled into being a “big chain.” Now it is returning, as much as possible, to its roots. No matter how you slice it, it’s a 10,000 store chain – hard to be homey at that size…but I think a good job has been done getting close.

We’ve seen this every few years in the world of retail or brand management … Steve Jobs returns to make Apple interesting again, the Gralnicks coming out of retirement to re-invigorate Chicos (and back to retirement again).

We should never forget the importance of the brand. Technology is important, and managing our costs is a corporate responsibility, but holding the brand sacred is most important.

As for “McCafe”, forget it, but I’ll always be a Dunkin’ fan. Pre-dates Starbucks.

Ryan Mathews
BrainTrust

I think the jury is still out. Forgive my cynicism but I don’t see the same clear brand differentiation that Starbucks enjoyed in the beginning. Still seems to me to be a company struggling a bit with maturity.

Roger Saunders
BrainTrust

No organization, large or small, is immune to the need to strategically view what they need to START doing, STOP doing, and SUSTAIN doing. It is core to keeping a business thriving and moving forward.

It is “hard” to make decisions like closing stores that are under performing–a great deal of emotional capital is involved. Sometimes, in order for companies to move forward they have to make these “STOP” type of decisions.

At other times, organizations need the proverbial ‘kick in the butt’ that permits them to launch new items–drinks, designs, food items in the case of Starbucks. They had to “START” taking new, innovative actions.

And, of course, no organization grows as large and as successful as Starbucks without doing a great number of things that are right. Retailers need to honestly look at those elements that are working for the customers and their organization, recommit to them, and “SUSTAIN” that momentum.

Starbucks has regained their mojo.

Marge Laney
BrainTrust

It looks as if Mr. Schultz is taking a page or two out of the playbook of Mr. Magnus at Zappos. Good start, but he should embrace it whole cloth. As the founder of Starbucks, Mr. Schultz has the vision and chutzpah of leaders that is often lost when they leave and the companies grow for the sake of growing. It takes a real leader to buck the chant from the experts and Wall Street. If more retailers would listen to and invest in their employees and their customers, they would thrive and return more value to stockholders than any other strategy has ever accomplished.

Kevin Graff
BrainTrust

Long live Starbucks! OK, that might be a little over the top, but look at what they’ve accomplished over 10,000 stores. Most retailers struggle to execute their brand over less than 1% of that total number of stores. Dunkin’, McDonald’s, Tim Hortons … they all have their place and have done a good job with it. But it’s a very different place than where Starbucks hangs out. With every passing month I can see them getting better by re-establishing their brand positioning through innovative products, consistent service and strong marketing. Mr. Shultz has them on the right path yet again.

Doug Stephens
Guest
Doug Stephens
6 years 3 months ago

I think Starbucks still faces two problems:

1. The competition learned from them and now looks and feels a lot more like them. It’s not that they’re not nice stores, it’s just that they’re not quite as remarkable as they used to be.

2. The Barista system is truly a “system” that was built on there being a certain specific number of staff and protocol to make it work. With staffing budgets cut, the efficiency of the custom coffee system has broken down. This is leading to even longer customer wait times which could pose a problem for the chain.

Camille P. Schuster, PhD.
BrainTrust

Starbucks did have a distinctive difference when it started. That difference was so popular that it has been emulated. Continuing to carve out a distinctive position in a more crowded market is more difficult. Knowing your consumers and testing innovations is a good route to take.

It is too early to draw a conclusion about the current Starbucks effort. They are still in the testing stage after a long period with little innovation.

Kai Clarke
BrainTrust

Coffee, community and chat. Starbucks needs a leader that has a focused, motivated, vision to implement change and Howard seems to be this person. Only time will tell. The real test will not be to lambaste him about a short term event, but how well the company does over the mid and long terms. Profits, focus and vision will determine how motivated and enthusiastic both Howard and the Starbucks team really are.

Michael Boze
Guest
Michael Boze
6 years 3 months ago

I think Starbucks has gained ground since the return of Howard Schultz for several key reasons

1. Stock value is headed in the right direction, which is investor confidence.

2. Starbucks has learned how to function better in a more competitive environment. The response to the McDonald’s coffee assault was slow in coming but gained momentum. That was a huge shift in thinking and behavior. The realization that they were in a market share business and were vulnerable to others poaching their customers will never be forgotten and will serve them well in the future.

3. Investing in and improving the process of making a cup of coffee with better espresso machines.

4. Successful product launch in their core business with Via.

5. Howard Schultz is passionate about his business and it shows.

David Biernbaum
BrainTrust

Full disclosure: I am addicted to Starbucks, I have a Gold Card with my name on it, and I drink two to three Lattes every day, and the employees at “my” Starbucks are “family” to me.

All that said, I’m extremely impressed with the job that Schultz is doing (second time around) to make Starbucks once again a dominant leader in the premium coffee shop business. He has set a model example of how to win over his own employees as part of his strategy to win over and solidify his customer base. A lot of retail businesses could learn a lesson from Howard Schultz.

John McNamara
Guest
John McNamara
6 years 3 months ago

2009 Net Income was 30% below 2006 levels. Not exactly what I would call a turnaround.

Phil Rubin
BrainTrust
6 years 3 months ago

The turnaround at Starbucks, and Caribou for that matter, partly reflects financial engineering and recognizing that growth through new stores, like everything else, reaches the law of diminishing (and ultimately negative) returns.

That said, Starbucks, unlike Caribou, has refocused through Mr. Schultz’s leadership to be intent on both the quality it delivers and, most importantly, its customers.

While it’s easy to be cynical about Starbucks, I believe they are on the right track and will be increasingly successful under their current leadership.

Paul Banbury
Guest
Paul Banbury
6 years 3 months ago

Mr. Schultz is the rare founder who can build and run a big company. This one necessarily has a lot of moving parts, and it is easy to lose the thread. HS made some smart moves when returning, and continues to choose wisely while confronted with a myriad of strategic and tactical options. Here is my take from last week’s shareholders’ meeting.

It is the people that will enable SBUX to continue to grow, and HS has a handle on how important they are. His devotion to partners is legendary, documented and, I believe, true.

The future is overseas, and Starbucks is developing well around the world.

Devangshu Dutta
Guest
Devangshu Dutta
6 years 3 months ago

The business is far from fixed, though it may be looking better.

The environment is different. Consumer wallets are leaner, competitors are meaner, and Starbucks may yet need to shrink further; the fat ain’t all in the latte.

Yet, there must be much good in the business if, for all its faults, it still gets imitated around the world.

On a different note, if the entrepreneur needs to step back in to fix things gone horribly corporate (bland) and wrong, maybe it’s time to acknowledge that there’s a logical limit to the size of personalized experience businesses. Or, as a friend says, scale can be a logical outcome of excellence but excellence is never the logical outcome of scale.

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