Is the Buzz Wearing Off At Starbucks?

February 28, 2007 | blog | By Mike Sullivan

Schultz told Starbucks CEO Jim Donald in no uncertain terms that the company has lost its way. He cited the gradual breakdown in the unique Starbucks customer experience as the chief culprit for what he now feels is a chain-like store atmosphere devoid of all the quirky delights that made the concept great in the first place. He didn’t lay the blame for this at his CEO’s feet. Shultz said everyone on the management team, including him, is responsible for where the brand is today. Talk about an objective look in the mirror.

The backdrop for the concern certainly isn’t poor company performance. Starbucks continues to dazzle Wall Street analysts with magnificent comp sales increases and 2006 revenue growth of more than 20 percent. The chain is forecasting worldwide unit growth in the next five years that will push them beyond 30,000 locations, eclipsing McDonald’s as the largest food service chain on the planet. Starbucks is the stuff of Harvard Business Review case study dreams.

Still, Shultz is right on the money when it comes to “the commoditization of the Starbucks experience.” It’s a state of affairs that he says has allowed competitors of all sizes to “position themselves in a way that creates awareness, trial and loyalty among people who previously had been Starbucks customers.”

In making his observations about the decline of the customer experience Shultz cites no formal research. It appears he is simply relying on his sharp entrepreneurial instincts – the same instincts that propelled the brand from obscurity in the early 90s to its current status as category killer.

But Schultz and the team at Starbucks have their work cut out. Managing colossal chain growth and at the same time returning to the authentic ambiance of a one-off corner coffee shop is no easy feat. In fact, the two goals seem to be squarely at odds. I can’t think of a single chain that has accomplished such a task. If they manage to pull it off the Starbucks management team will truly earn their places in the business case study Hall of Fame.

So pull up a chair, grab a cup of coffee and let’s watch what happens. This could get interesting.


Mike Sullivan

President at LOOMIS, the country’s leading challenger brand advertising agency


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