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Case Study Starbucks Back To Basics Christina


This case won the first prize in the John Molson Case Writing Competition 2008, organized by the John Molson School of Business, Concordia University, Montreal, Canada.

Case Details:

Price:

Case Code:BSTR307For delivery in electronic format: Rs. 500;
For delivery through courier (within India): Rs. 500 + Rs. 25 for Shipping & Handling Charges

Themes

Growth Strategy | Globalization
Case Length:18 Pages
Period:2007-2008
Pub Date:2009
Teaching Note:Available
Organization:Starbucks
Industry:Food and Beverage
Countries :USA, Global

Abstract:

Starbucks is a major specialty coffee retailer, with presence in over 40 countries around the world. The financial crisis in the United States and the consequent global economic problems, together with rapid expansion in the number of its outlets created serious problems for the giant coffee retailer. With the economy showing signs of a recession, more and more customers started to cut down on consumption of expensive coffee. In addition, the rapid growth in the 2000s had diluted the 'Starbucks Experience' and the company's customers were complaining of falling service quality levels. Moreover, cannibalization of sales as new stores were opened too close to existing outlets also became a serious issue for the company.


The case discusses the possible reasons for the significant drop in traffic and profits at Starbucks in 2008 and the transformational initiatives that Howard Schultz, the founder CEO of the company, implemented to revive the Starbucks brand and bring back customers to its stores.

Issues:


» Understand the efforts needed to transform a commodity like coffee into an 'experience.'

» Recognize the role of leadership in turnaround management.

» Analyze the strategies undertaken to bring about a transformation in an organization.

» Recognize the need for retention of customers in the face of economic recession.

» Understand the perils of rapid expansion.

Contents:

Keywords:

Globalization, Entry and expansion strategies, Competition, Turnaround Strategy, Cannibalization, Gourmet coffee industry, The Starbucks experience, Transformational Agenda, Retail Management, Strategic Management, Managing in hard times, Luxury brands and recessions

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"It's really inspiring to talk about the quality of our espresso when we're here all in the same room," Justin Chapple, manager of the Starbucks on 85th Street and Lexington Avenue, told his employees as members of the press viewed a typical training session. "We want to be aware of how we are presenting our drinks to our customers."

The group watched a videotaped message from Schultz. The head and shoulders of the barista-in-chief filled the screen.

"This is not about training," he said to his employees, looking somewhat somber. "This is about the love and compassion and commitment that we all need to have for the customer."

The store's employees - dressed alike in black tops, green aprons and Starbucks caps - watched the screen carefully, some nodding in agreement. Schultz reiterated points from a famous memorandum he wrote in February 2007. In it, Schultz lamented the "watering down" of the Starbucks experience, blaming the expediencies of rapid growth for removing "much of the romance and theater" from the ubiquitous stores.

At the time, Schultz lamented, "We achieved fresh roasted bagged coffee, but at what cost?" (To be precise, a one-pound bag of Starbucks Caffe Verona sells for $9.95.)

Then employees broke into groups to discuss new techniques to improve the taste and texture of drinks. Would-be customers were turned away at the door. In Manhattan, at least, a few were left in the rain.

In his memo, Schultz mentioned the advent of automated machines that grind coffee beans and spit out espresso with little human intervention. Those machines, regularly assailed by espresso fanatics, are an ongoing sore point for the chain.

"The machine is really a tool," Ann-Marie Kurtz, the company's manager for global coffee and tea education, said in an interview. "Ultimately, the barista is still the artist."

She explained that baristas still control the quality of the espresso shot by adjusting the grind and also need to aerate milk just so to make it appropriate for lattes and cappuccinos.

Kurtz said Tuesday night's training was "not retraining as much as refining skills," and she likened it to the staff of her favorite Italian restaurant returning to Italy every year to immerse themselves in Italian food.

On busy Lexington Avenue, customers denied entry to the store were offered free drinks from a barista. Told of the company's plans for rejuvenating its brand, at least one Manhattan resident said he was unimpressed. "Honestly, I just want the coffee fast," said Cameron Kemal, 16, a student at nearby Regis High School. "The stigma of a big chain doesn't go away by making coffee slower."

But his friend said the new brewing techniques could make a difference. "When you see them pull a carton of something out of the refrigerator, it reminds me I'm paying five dollars for a squirt of liquid and milk," said Hannah Boyd, 16, who lives on the Upper East Side.

She helped herself to three free samples.

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