Starbucks: Re-creating Its Uniqueness

INSPIRED BY ITALIAN COFFEE BARS, Starbucks’ CEO Howard Schultz set out to provide a completely new consumer experience. The trademark of any Starbucks coffeehouse is its ambience—where music and comfortable chairs and sofas encourage customers to sit and enjoy their beverages. While hanging out at Starbucks (Ticker: SBUX), they can use the complimentary wireless hotspot or just visit with friends. The barista seems to speak a foreign language as she rattles off the offerings: Caffé Misto, Caramel Macchiato, Cinnamon Dolce Latte, Espresso Con Panna, and Starbucks’ Mint Mocha Chip Frappuccino are among some 30 different coffee blends. Dazzled and enchanted, customers pay $4 or more for a Venti-sized drink. Starbucks has been so successful in creating its ambience that customers keep coming back for more. Starbucks’ core competency is to create a unique consumer experience the world over. That is what customers are paying for, not the cup of coffee or tea. The consumer experience Starbucks created was a valuable, rare, and costly-to-imitate intangible resource. This allowed the company to gain a competitive advantage.

While core competencies are often built through learning from experience, these competencies can atrophy through forgetting. This is what happened to Starbucks. Between 2004 and 2008, Starbucks expanded operations rapidly by doubling the number of stores from 8,500 to almost 17,000 stores (see Exhibit MC6.1). It also branched out into ice cream, desserts, sandwiches, books, music, and other retail merchandise, straying from its core business. Trying to keep up with its explosive growth in both the number of stores and product offerings, Starbucks began to forget what made it unique. It lost the appeal that made it special, and its unique culture became diluted.

For example, baristas used to grind beans throughout the day whenever a new pot of coffee had to be brewed (which was at least every eight minutes). The grinding sounds and fresh coffee aroma were trademarks of Starbucks stores. Instead, to accommodate its fast growth, many baristas began to grind all of the day’s coffee beans in the morning and store them for the rest of the day. To make matters worse, in 2008 the global financial crisis hit. The first items consumers go without during recession are luxury items such as a $4 coffee at Starbucks (see revenue drop in Exhibit MC6.1).

Coming out of an eight-year retirement, Howard Schultz again took the reins as CEO and president in

January 2008, attempting to re-create what had made Starbucks special. In 2009, Starbucks introduced Via, its new instant coffee, a move that some worried might further dilute the brand. In the fall of 2010, Schultz rolled out a new guideline: Baristas would no longer multitask, making multiple drinks at the same time, but would instead focus on no more than two drinks ata time, starting a second one while finishing the first. The goal was to bring back the customer experience that built the Starbucks brand. By the summer of 2013, Starbucks operated some 21,000 stores in over 60 countries, bringing in $14 billion in annual revenues.

DISCUSSION QUESTIONS

1. What resources and capabilities formed the basis of the uniqueness of Starbucks in the first place?

Why was it so successful?