Case Number: 5-211-259, Year Published: 2011
HBS Number: KEL665
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Authors: Craig Garthwaite; Meghan Busse; Jennifer Brown; Greg Merkley
Key Concepts
Competition, Competitive Strategy, General Management, Growth Strategy, Strategic
Positioning
Question:
Q1. When Starbucks was rapidly expanding its store locations in 2006–2009 it made
specific changes in order to facilitate that growth. What did Starbucks gain-and give up-as
a result of each change?
Q2. When Schultz returned to Starbucks as CEO in 2008, how had the competitive context
changed since his first tenure running the firm? What had caused or facilitated the
changes?
Q3. Why did Schultz respond the way he did to the changes he found in 2008? What was
he trying to achieve? Were his responses effective or ineffective?
Q4. Did the introduction of VIA make sense in light of the market and the company’s other
action?
Q1. When Starbucks was rapidly expanding its store locations in 2006–2009 it made
specific changes in order to facilitate that growth. What did Starbucks gain-and give
up-as a result of each change?
During its phase of expansion, Starbucks concurrently executed two initiatives to support
its aggressive growth strategy – making Starbucks products more accessible through mass
distribution channels, and dramatically expanding its retail stores. To facilitate its second
initiative of rapidly expanding its store locations in 2006-2009, Starbucks made specific
changes to its stores. Each change has resulted in both gains and give ups –
•Use of Push-Button Verismo machines
Operational changes at stores included replacing traditional La Marzocco machines with
Push-Button Verismo machines at coffee making. This has simplified and reduced the cost
in hiring and training of baristas. More importantly, the automated machines have
improved efficiency as they have reduced the operation time to pull an espresso shot from
60 seconds to 36 seconds, thus helping the stores to meet Starbacks’s stated goal of serving
every customer within three minutes. The frequency of transactions was higher. However,
the height of Verismo machines blocked the customer’s view of the baristas while
preparing beverage. Together with the shorter time required for pulling the coffee,
customers and baristas were difficult to had good personal relationship. Certain longtime
customers even felt that the Verismo machines produced coffee of inferior quality.
•Use of pre-ground coffee beans
At the beginning, Starbucks shipped whole coffee beans to its global network stores.
There they were grounded just before brewing to preserve the volatile oils that produced
coffee with the best tasting and smelling. In order to save the time for preparing each
serving, Starbucks shipped air-tight packs of pre-ground beans to the stores. This has
affected the consumers’ perception of the quality of the coffee, although Starbucks claimed
that the flavor of the pre-ground coffee would not be affected.
•Standardize the design of new stores
Starbucks limited its new stores being opened to four standardized design templates. This
has helped lower its store opening costs. However, the stores with standardized design and
limited variations could not adapt to the specific communities of the customers, and failed
to provide them a warm feeling of neighborhood and a comfortable “Third Place” with
high quality. The stores became just a chain of standardized stores.
•Broaden the business to other non-coffee products
Starbucks broadened its businesses to a wide range of products including music, book
publishing and movie production works, many of which were even non-coffee-related
(CDs, DVDs, or books). This has increased the revenue of the company but the firm’s
focus on premium coffee has disappeared.
On the whole, Starbucks used to own competitive advantages in brand awareness and
customers relationship. It has committed itself to the core values of providing customers
with premium coffee and a community space. It could provide high quality customer
services with individualized store location atmosphere, and has been proficient to create
high customer advocacy in social media. To secure its standards of services in all coffee
stores and for effective management of the increasing number of stores and employees,
during 2006-2009, Starbuck has introduced systems and operational changes which have
resulted in a high level of standardization regarding uniformity in product range, shop
design and service. In other words, Starbucks has changed its customer oriented strategy
to cost saving strategy in order to support the rapid growth of the company in the
expanding period.
Nevertheless, Starbucks failed to understand and take into account their customers’ want.
The changes have led to misalignment of company core value as the customers’ need and
the experience no longer felt personal, and also have led to loss of the company direction
gained from previously loyal customers who opted for independent coffee shops and cared
more about the coffee they were serving.
As result of the standardization across the shops, the Starbucks Concept has been
standardized. The “Starbucks Experience” in people – good connections between the
baristas and the customers, in place – specially designed stores, and in product – high
quality product, has been hampered. The idea of “Third Place” has been impaired.
Customer satisfaction has been diminished. Starbucks gradually lost its prestige in the
market.
Q2. When Schultz returned to Starbucks as CEO in 2008, how had the competitive
context changed since his first tenure running the firm? What had caused or
facilitated the changes?
When Schultz was CEO in his first tenure, Starbucks was a strong upcoming retail coffee
store in an undeveloped and growing industry sector of premium coffee selling in the
United States. Focusing on its unique identity and distinctive coffee tasting experience,
Starbucks became a premium coffee brand. It enjoyed a favorable growth rate with no
