Starbucks CEO Sends McCafé A Venti Thank You

Posted by Anthony Zumpano on November 13, 2009 10:55 AM

Once Starbucks reached its saturation point (one location on practically every block), it had nowhere else to go but down – and that’s exactly where it went. Stores were underperforming, the stock price plummeted, and the brand was forced into a steamed-milk showdown when the McCafé coffeehouse concept began brewing front and off-center at most McDonald’s restaurants.

But less than two years after Howard Schultz returned as CEO, following an eight-year hiatus, Starbucks’ future looks as sweet as a Strawberries & Crème Frappuccino.

Every brand experiences growing pains, and Starbucks, which opened new locations at an arguably pathological rate, was no exception. Speaking at Thursday’s Ernst & Young Strategic Growth Forum, Schultz felt his brand lost its focus after 15 years of infallibility: “Somehow, along the way, the level of that feeling” – the love inspired by a people-based business – “got somewhat blurred by success.”

Schultz made some difficult decisions, but they were essential for the brand’s survival. If your brand is in trouble, or isn’t as successful as it once was, you can learn a lesson or two from Schultz’s boldness.

In February 2008, shortly after returning to the company, Schultz ordered all stores closed for three hours to focus on barista training, a move that subjected the brand to ridicule from its competitors. He shuttered some 900 stores, a very public admission that “we had stretched the brand beyond its demography,” as he told the forum.

He insisted that the company focus on its core principles, cut waste, and innovate, and when a certain fast-food franchise with even more locations than Starbucks decided to hone in on its core business, Schultz claims it was a blessing in disguise.

“McDonald's made us better,” he said, not quite elaborating. Did McCafé somehow inspire the development of Starbucks’ Via instant coffee? Not necessarily, but the McDonald’s competition and what Schultz called “a death march of people saying Starbucks’ days were over” forced the brand to execute drastic decisions that made it a leaner (by comparison), profitable company again.

Are you ready to make those kinds of decisions for your brand?

More about: Beverages, Starbucks, McDonald's, Howard Schultz, McCafe, Via, Ernst & Young

Chris DiAlfredi says:

I no longer 'believe' in Starbucks, but I'm still a fan of Howard Schultz. His eight year hiatus demonstrated how valuable the leadership he provided was and truly how important his vision and direction were for the brand.

Schultz is right to offer a nod to <gulp> McDonald's. Starbucks lost its way, grew too big, and erroneously positioned itself to be in direct competition with the Golden Arches. The board was greedy. This was a fight Starbucks was never designed for--kind of like a welterweight boxer with all KO's that wants to go up against heavyweights because there's more purse money. It's no longer fun to watch. The smaller pugilist usually just takes an ugly beating.

Its brand was originally so attractive to its advocates because it was the anti-McDonald's--focused on quality of coffee and beverages, customer service, and environment. I fondly remember a Starbucks that chose to not have a drive-thru window. Eclectic, intentionally mismatched (but comfortable) furniture, world-beat and jazz, free wi-fi, and knowledgeable baristas that could afford to talk your ear off were the exact reasons for the Starbucks brand's strength.

These brand decisions were expertly calculated by a motivated Mr. Schultz during the early years--before there was a board to answer to. Since it doesn't seem likely that Starbucks will consider going back to private any time soon, I don't have much faith (or hope) that Schultz will be able to right the ship again. Deciding to take on McDonald's and focus on the fast feeder's grab-and-go market was obviously the work of investors' poor decision-making skills, fueled by simple greed and short-term gains. The unfortunate by-product if this pursuit was the inevitable alienation of the brand's core customer base. It's such a shame to see. Just stop by any Caribou Coffee and ask them.

Chris DiAlfredi
http://www.rubberbrandman.com

November 16, 2009 04:57 PM # Reply

Tim Johnson says:

I don't agree totally with Mr. DiAlfredi. I have never thought the fact that McDonald's and Dunkin' Donuts entry into Starbucks' space signaled the end for Starbucks. It's never been about having "the best" coffee. There will never be a time when people will sit for hours in Mickey D's studying, reading, people-watching, holding offsite meetings and conferences. The smell of deep-fry grease overpowers coffee, and no one really trusts a "barista" who ends each transaction with "You want fries with that?"

Schultz was right. McDonald's did make Starbucks better, but not just in the way Schultz referenced. It also made the world step back and remember exactly how Starbucks is different.

Every brand faces competition, and every brand has its ups and downs. The Starbucks brand is solid. That the company is now more subject to the whims of a possibly greedy board is problematic, but if they stick to the values that made them great, they'll thrive, despite competition and criticism.

December 11, 2009 09:01 AM # Reply

payday loans says:

Interesting post

December 23, 2009 11:10 AM # Reply

Automobili says:

People in our contry preffer good cafe bars. Starbucks coffie is not so good taste.

January 6, 2010 10:40 AM # Reply

monitor stands says:

Thanks heaps to the author!

January 19, 2010 03:07 AM # Reply

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January 23, 2010 01:51 PM # Reply

Insightful piece, thanks a lot!

January 27, 2010 01:01 AM # Reply

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January 27, 2010 05:07 AM # Reply