Starbucks Lessons

Starbucks.

I could have said, "Don't be Stupid like Starbucks", but I said that a couple years ago when they were falling apart.

And lot's of companies and brands make these same mistakes.

Now that they've worked on getting themselves upright again, here's some lessons that we can learn from their recent history as told to us by Craig Arthur:

How the Quest For Growth Can Be Disastrous for Your Business

Two valuable lessons for all business owners.

By Craig Arthur, Wizard of Ads Partner

Starbucks. The rise. The stumble. The back to basics.

*(Bolding in all quotes by editor)

In his 1997 book “Pour Your Heart into It” then Starbucks CEO Howard Schultz said…

“A company can grow big without losing the passion and personality that built it, but only if it’s driven not by profits but by values and people.”

Schultz went on to say…

“The number-one factor in creating a great, enduring brand is having an appealing product. There’s no substitute. In Starbucks’ case, our product is a lot more than coffee. Customers choose to come to us for three reasons: our coffee, our people, and the experience in our stores.”

“We could save millions of dollars every year if we bought even slightly cheaper coffee. If you can raise profits by shaving costs on your main product and 90 percent of your customers wouldn’t even notice, why not do it? Because we can tell the difference.“

”Higher profits, at the cost of poorer quality? The best people would leave. Morale would fall. The mistake would eventually catch up with us.“

”Every business has a memory. The memory of sacrificing quality for profit would have been fixed in the minds of Starbucks people forever. It would have been an impossible price to pay.“

Starbucks success was built on a Memorable Customer Experience and Prime Locations.

Aroma
”What’s the first thing you notice when you approach a Starbucks store? Almost always, it’s the aroma. Aroma triggers memories more strongly than any of the other senses, and obviously plays a major role in attracting people to our stores.“

Baristas
”The hiss of the expresso machine, the clunk-clunk as the barista knocks the coffee grounds out of the filter, the bubbling of the milk steaming in the metal pitcher, and, at the bean counter, the swish of the metal scoop shovelling out a half-pound of beans, the clatter as they hit the scale - for our customers, these are all familiar, comforting sounds.”

Brand
“Authentic brands do not emerge from marketing cubicles or advertising agencies. They emanate from everything a company does, from store design and site selection to training, production, packaging, and merchandise buying. In companies with strong brands, every senior manager has to evaluate each decision by asking: “Will it strengthen or dilute the brand?”

The CEO’s who followed Schultz should have had that quote etched on their desks.

Schultz stepped down as CEO of Starbucks in 2000, with a total 2,498 stores.

Orin Smith took the reins and at the end of his 5-year term (2000-2004) the total number of Starbucks stores stood at 8,569.

Under new CEO Jim Donald, (2005-2007) the push for expansion accelerated sharply. He added 6,414 stores in three years, bringing the total to 15,011 stores worldwide.

But in the race to please shareholders with increased turnover and increased profits, Starbucks made the major blunder of diluting the customer experience and opening stores in less than prime locations.

On February 14 2007, Schultz sent an email to the Starbucks executive team, with a subject line, “The Commoditization of the Starbucks Experience”.

Here are a few excerpts:
“Over the past 10 years, in order to achieve the growth, development, and scale necessary to go from less than 1,000 stores to 13,000 stores and beyond, we have had to make a series of decisions that, in retrospect, have lead to the watering down of the Starbucks experience, and, what some might call the commoditization of our brand.”

“For example we went to automatic expresso machines, we solved a major problem in terms of speed of service and efficiency. At the same time, we overlooked the fact that we would remove much of the romance and theatre that was in play with the use of the La Marzocca machines.”

“This, coupled with the need for fresh roasted coffee… moved us toward the decision and the need for flavour locked packaging.”

“We achieved fresh roasted coffee, but at what cost? The loss of aroma-perhaps the most powerful non-verbal signal we had in our stores; the loss of our people scooping fresh coffee from the bins and grinding it fresh in front of the customer, and once again stripping the store of tradition and our heritage.”

Luckily for Stabucks, Schultz took back control, and once again they are back on track, but only after a mighty big scare.

In Smart Growth, Building an Enduring Business by Managing the Risks of Growth, author Edward D. Hess wrote, “Starbucks shows that: (1) small changes can add up and can have a big impact; (2) rapid growth can dilute a company’s culture; (3) rapid growth can dilute the customer proposition; and (4) the pressure from the public market to grow can cause dilution of quality controls. All of these outcomes can result in a competitive position vulnerable to attack by new competitors.”

Business success can breed arrogance and give business owners a sense of invincibility.

And the race for business growth and increased profit can lead to business failure.

Lessons from the Starbucks experience:

1. Even a strong brand struggles in a poor location. Remember, expensive rent is the cheapest advertising your money can buy.

2. Dilute the customer experience and watch your business collapse. As a business owner you must evaluate each marketing and cost saving decision by asking: “Will it strengthen or dilute our brand?”

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