Good Case Study On Starbucks Memo

Re: Nokia Extra Credit Memo

As a company, Starbucks grew from humble origins in Seattle Washington to be a huge global chain of coffee shops numbering over 13,000 outlets. It has a majority share of the US market it helped create, and had managed to retain it’s homey feel that founder Howard Schultz had instilled from the top up. However, by 2007, it seemed that perhaps Starbucks had reached not only the peak of it’s success, but that it had lost perspective of it’s humble origins and was now becoming the big corporate chain that it had always avoided being perceived as (Koehn and others, 2014). This memos looks at the significant factors leading to the decline of Starbucks in 2007 and 2008 and how Schultz returned to the company in 2008 to “save the company” from this decline.
Some of the reasons for the decline had nothing to do with the company, but had to do with the overall economy of the world. 2008 was a year of great recession in the world, and “expensive” coffee is perceived as a non-essential item for people who have lost their job and are struggling financially to make their ends meet. Investors and analysts took note of Starbuck’s decline because it has been so successful in the previous two decades that it led to predictable and consistent profit growth (Stone, 2008). 2008’s turbulent year led to the New York Times headline “Starbucks profit down sharply on restricting costs” (Stone 2008). Another problem was increased competition from mom and pop joints who actually possessed the locally owned feeling that Starbucks tried to imbibe in all of its outlets. Starbucks, as the CEO noticed, began looking like all the anonymous chains that he had wanted his company to avoid appearing like (Koehn and others, 2014). It was not just the declining economy which was leading to the decline in Starbucks profits but its loss of something far less tangible—Schultz, then president of the board, noted that the person-ability factor of employees interacting positively with costumers was also in decline.
Some of the things that the CEO did were helpful to both the quality of the coffee and service, and were also effective PR stunts like in February 2008 when Starbucks, “Closed 7,100 U.S. stores for 3.5 hours to retrain its baristas on how to make the perfect espresso.” The closing was covered on all the major networks like ABC, CNN, NBC, CBS, Fox News, and even comedy centrals’ news program (Groth, 2011). Schultz tried to be more personable by asking people to email him directly, he hired outside consultants, invested in a major advertising campaign, and many other things that led to the turn-around.
The most important recommendation I see would be to give more control to the franchise owners in customizing stores. This might interfere with the “reliability” of the Starbucks experience, but it is more realistic and less deceitful for their image. Starbucks wants to be perceived mom and pop coffee shop; this is central to their branding. But the problem is they are not. They are a massive corporation, and a lot of their competition is from the mom and pop joints that they attempt to emulate. Regardless of Starbuck’s “humble” origins, if they want their image to be other than a farce, then they should focus more on an employee ownership model, and give the local franchise owners more autonomy.

References:

Koehn, Nacy F. Starbucks Coffee Company: Transformation and Renewal (2014). Harvard Business School.
Groth, A. (2011, June 19). 19 Amazing Ways CEO Howard Schultz Saved Starbucks. Retrieved February 21, 2015, from http://www.businessinsider.com/howard-schultz-turned-starbucks-around-2011-6?op=1
Stone, B. (2008, November 10). Starbucks Profit Down Sharply on Restructuring Costs. Retrieved February 21, 2015, from http://www.nytimes.com/2008/11/11/business/11sbux.html?_r=0
The decline of the empire of Starbucks - The Spectator. (2008, July 22). Retrieved February 21, 2015, from http://www.spectator.co.uk/columnists/any-other-business/852391/the- decline-of-the-empire-of-starbucks/