Early this month Howard Schultz announced that Starbucks is undergoing major transformations in its operations. These transformations include major overhaul in its structure and closure of an estimated 600 stores in the United States. This is the most drastic move Starbucks has made in 25 years of its existence and it rocked the media, the stock market, the industry and its stakeholders.
Schultz’ and his executive team’s decisions were prompted by loss of consumer confidence and significant reduction of sales especially in its outlets in the U. S. which they attributed to the “watering down of Starbucks experience and commoditization of its brand” (Starbucks Coffee Company, 2008).Despite the on-going crisis, Starbucks is still undeniably the number one specialty coffee retail company in the world and its business strategies serve as valuable reference for management research. This paper identifies some of these significant strategies that brought Starbucks to its current position and analyzes the company’s mission, stakeholders and other factors that contributedMission Statement and Major Strategies The “Starbucks experience” is the company’s cutting edge, serving the “highest quality authentic coffee, a third place where people congregate beyond work or the home” (Thompson et.
al. , 2005, p. c-22). The diminished quality of service in Starbucks was a result of many wrong decisions, which the company recognized and now tries to revert through its transformation strategies. (Starbucks Coffee Company, 2008) The analysis necessitates a review of the company’s mission statement and its major strategies.
At the moment of commitment, the entire universe conspires to ensure your success. ” (cited in Starbucks Coffee Company, 2008) This famous quote by German writer Goethe inspired Schultz and this influenced the making of the company mission statement. The mission statement expresses Starbucks’ strong commitments to its customers and its environment. Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles as we grow.The following six guiding principles will help us measure the appropriateness of our decisions: Provide a great work environment and treat each other with respect and dignity.
Embrace diversity as an essential component in the way we do business. Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee. Develop enthusiastically satisfied customers all of the time. Contribute positively to our communities and our environment.
Recognize that profitability is essential to our future success (Starbucks Coffee Company, 2008).The mission statement clearly expresses the company’s value for its employees, its customers, its community and environment. Its main strategies are quality, diversity and profitability as a means to achieve business success. It is expected that the six guiding principles set by the company would make them achieve their goal of becoming “a premier purveyor of the finest coffee in the world” (Starbucks Coffee Company, 2008). Starbucks has so far achieved this goal with its $23 billion investment, 16,000 coffee shops in 35 countries and close to 170,000 employees (Hoover’s, 2008).
Its achievements are also evidenced by its numerous awards such as Fortune’s 10 Most Admired Companies in America (2003-2007), Business Ethics Magazine’s 100 Best Corporate Citizens (2000-2007) and Ethisphere Magazine’s World’s Most Ethical Companies (Starbucks Coffee Company, 2008) and its competitors trailing far behind: Gloria Jean’s with 280 mall locations, Tully’s Coffee, 98 stores, Caribou Coffee, 241 locations, including McDonalds, Dunkin Donuts and Krispy Kreme all developing upgraded quality coffee products. (Thompson et. al. , 2005, p. c-31) Starbucks has been steadfast in its commitment to its employees.
Management’s action clearly showed the company’s value and respect for its employees. The company provides competitive salaries and incentives including bonuses, profit sharing, stock purchase plans, stock option plans and skills training. Starbucks implements aggressive human resource programs to attract and retain the best people. But the move to close 600 stores most affected the employees and Howard Schultz expressed in many of his messages that the company will try to suppress the impact by accommodating as many of the displaced workers and giving ample separation benefits to those who will not be placed (Starbucks Coffee Company 2008).Quality vs. Profitability It is novel to push for quality standards, diversity and profitability as major strategies.
But Starbucks stumbled many times because of the conflicting results of their strategies. Starbucks wanted to continue to provide only the best coffee and the best experience for their customers in their stores, which is why they are able to apply “premium pricing” (Rae, 2006) and charge as high as $4. 50 for a cup of “Dulce de Leche Latte” (Helm, 2008). Coffee used to be manually brewed by highly skilled baristas, a romantic service style that made customers keep returning.Because of economic pressures and the need for speed and efficiency, automatic brewing machines were installed in the shops.
Coffee was served fast but lost the romance of brewing. Adding to this, coffee beans were vacuum-sealed in paper packets transported to the shops making transport more convenient and efficient. But the aroma that drove Schultz to join Starbucks in 1981 and what he considered the “temple of worship of coffee” (Helm, 2008), is gone and the authentic Starbucks experience is missed by its avid customers. Quality vs.
Diversity The company’s expansion program was the biggest achievement so far.The “Starbucks everywhere” (Thompson et. al. , 2005, p. c18) strategy meant to blanket a store in every neighborhood particularly in metropolitan areas in the United States to maximize revenues and reduce delivery and management costs.
The company also expanded globally penetrating even China and many places in Europe. It was a big challenge for Starbucks to maintain its quality service in all of its shops spread around the globe. They have a mix of employees with cross-cultural differences and the communities where the shops are placed have varied preferences.They also had to deal with varying rules and legislations of different governments. The company had to keep up with the international standards at the same time blend with the needs of the local communities.
Starbucks must have gotten too big and too diverse for the current structure and systems to control. The situation pressured Schultz and his executive team to reorganize the company structure to be able to monitor the diverse problems of their stores. It also forced Schultz to return as CEO to personally manage again the global operations.And more painfully, it forced the closure of 600 U. S. -based non-performing stores (Starbucks Coffee Company, 2008).
Diversity vs. Profitability Aside from embracing diversity among its employees and in its geographical sites, Starbucks maximized its resources through diversification of its products. Many of its products and partnerships passed the tests on marketability and boosted the company profits: “Frapuccino with PepsiCo, coffee-flavored ice-cream with Dreyer’s Grand Ice Cream, Kraft packaged Starbucks coffee, Tazo tea, Hear Music CDs” (Thompson et. l. , 2005, p. c-12).
They also established partnerships with hotels, airlines and airports to serve its coffee products. After many years of hesitations, they allowed to franchise their shops to selected partners. These moves boosted revenues and Starbucks’ brand recognition. But some ventures were proven unsuccessful. The internet-based investments brought a total loss of approximately $58 billion dollars before they were pulled out in 2000.
Among these were a variety of investments not very much related to coffee: Cooking. com, Living. om, Kozmo. com and Talk City, Inc. (Thompson et. al.
, 2005).It also ventured in mail order operation through published catalogs for its selected products but sales fell off because of the massive store expansion and Starbucks products were also made available in supermarkets. The mail order operation was discontinued in 2003 (Thompson et. al. , 2005). Starbucks continues its research to come up with new products; even those with far relations to coffee like teddy bears, breath mints, notebooks, CDs and even music recording (Helm, 2008).
These products are practically new and effects have not been evaluated yet. Starbucks is a hot topic in the stock market, the media and critics follow all kinds of news they can get from the company, the employees, the customers and other stakeholders. A mistaken comment of a military writer about Starbucks not supporting military activities in Iraq and Afghanistan was made a big issue. Even court decisions prohibiting tips taken by Starbucks supervisors had to be discussed in the company webpage.
Admiringly, Schultz and his management team are quick to respond to simmering issues and many of these are settled before they get to affect the company performance and reputation significantly. (Starbucks Coffee Company, 2008) Conclusion A 45% decline in SBUX stock performance for the past quarter (Hoovers, 2008) is a strong signal to Starbucks management to make the aggressive move. Schultz’ transformation programs are the answers. These may hurt many of its stakeholders but may also be the best possible means to bring back the once experienced quality in Starbucks’ products and services.
Closing down 600 stores is just one of the many tough decisions management has made and admittedly, these are just tests of their capabilities. “The most serious challenges we face are our own doing” (Behind the Spin: Starbucks, 2008, p. 1). Schultz and his team brought this company to success and they have expressed confidence that they will overcome the tests. Nothing can stop Starbucks from the race to becoming “the premier purveyor of the finest coffee in the world” (Starbucks Coffee Company, 2008).
