Friday, November 16, 2007

Mo Lattes Mo Problems

As Starbucks launches its first-ever tv ad campaign, same-store sales growth is slowing and so is the stock price (down over 32% this year), raising the question of whether the titan of coffee is reaching its saturation point. With a goal of launching over 40,000 stores worldwide, CEO Howard Schultz expressed concern in an internal memo last spring that the rapid growth of the company (currently over 13,000 stores worldwide) has led to "the watering down of the Starbucks experience" for customers.

Anyone that knows me, knows I have become an avid fan of Starbucks over the past few years. I used to mock Starbucks junkies, but after discovering the breve mocha my attitude changed as quick as Barry Bonds' bench press. One thing I love about Starbucks is that it is not just about the coffee, its about a culture and consistent experience. I admire their business model and ability to create a brand that inspires incredible loyalty from both customers and employees. No matter where I am in the world when I step inside a Starbucks I feel at home, my wife and I call Starbucks a faithful friend.

Today's turmoil within Starbucks highlights an issue that all successful businesses must face as they grow, over-saturation. How much is too much growth? At what point does a company lose its soul and how can a company balance consistency in customer experience with aggressive growth. Even though the critics are in full force right now in regards to the demise of Starbucks I am confident that they will adapt and continue their success for three reasons:

1) Details - "Retail is detail." - Howard Schultz
Starbucks has taken Malcom Gladwell's advice and embraced the idea that, "little things can make a big difference." Walking into your local Starbucks is a lesson in product placement, design and attention to detail. Everything from the napkins to the furniture to the music selection and volume is intentional. Starbucks understands, better than almost anyone, that the smallest details matter in creating the right customer experience. This attitude is widespread throughout the company and is a pillar that Starbucks was built upon. As long as this doesn't change there is no reason why their company cannot continue to expand successfully.

2) Relaxed Affluence
One of the best-worded phrases I have heard to describe the image of Starbucks actually came from a management textbook, Strategic Management: Competitiveness and Globalization, I used in college which described the progress of Starbucks in China. "Although China is a nation of tea drinkers who generally don't care for coffee, Starbucks is counting on its image of relaxed affluence to attract the Chinese. " After returning from a trip to China, my wife's best friend Sarabeth (worked at Starbucks as a barista) told us how powerful the Starbucks image had become in the land of tea drinkers. Chinese would keep their Starbucks cups, fill them with water and tote them around as a status symbol to let their peers see that they had reached the socioeconomic level required to purchase this luxury item. Starbucks is a symbol of the ever-growing Bobo (bourgeois bohemian) class, coined by David Brooks, found grazing for the past decade or so in America at places like Anthropologie, Restoration Hardware, etc. The booming Chinese middle-class is birthing its own Asian Bobos...Starbucks understands this and will, therefore, continue their success in Asia.

3) Baristas
"Sometimes you want to go, where everybody knows your name, and they're always glad you came." - Cheers Theme Song. Every company talks about customer service, very few really know how to put words into action. The front-line workers of the Starbucks corporation are their baristas, the people who actually make and serve the coffee. They make Starbucks what it is. They intentionally memorize the names and drinks of customers to create an inviting atmosphere. I have never met a disgruntled barista. This isn't to say that they don't exist, but I have talked with several people who have worked for Starbucks and never heard anything, but pride at how the company served them as employees. Treating your employees well is good business because happy employees are more willing to go the extra mile for the customer and company alike. Starbucks gets this and this is the third reason they will continue to prosper.

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