business news in context, analysis with attitude

Yesterday, in a long piece, I said that it was time for Starbucks to show CEO Howard Schultz the door…that despite his years of service and vision, he clearly has lost his touch and has become tone-deaf to the marketplace. (I used the decision to cut back on the brewing of decaf coffee in the afternoon as a prime example of this, though it is not the only one.)

I won’t reiterate the whole thing here.

You can read it in the archives.

But it generated a lot of email in response. (Not to mention a ton of new subscriptions, for which I thank you.)

MNB user Will Hsu wrote:

I’ve been an avid reader for the last couple years and thought you had some great insight on SBUX no longer brewing decaf in the afternoon. As the oracle correctly predicted, I just received an e-mail from Caribou that they will be giving away free 12-oz cups of decaf this Friday (1/30). Can you make it two in a row by calling for Howard Schultz’ departure?

Stay tuned.

Another MNB user wrote:

My problem with Starbuck’s originated several years ago.

I read an article that revealed how Starbuck’s was outbidding local mom & pop coffee cafes in NYC as the leases came up for renewal. Normally this wouldn’t concern me so much since this is ordinary business reality. What bothered me is that, at the same time, Starbuck’s was proffering itself as a “love all serve all” organization. If you’re a lion, just admit it.

Another MNB user wrote:

As a Starbucks customer, I always liked the atmosphere and third place experience. Most of the people who work for Starbucks in store care about what they are doing and want to put out a great product and give you a quality experience. Formerly, I ran a company for two decades with multiple retail locations. Liking what I read about how Starbucks treated their employees, I decided to take a position (at an upper level) with them a couple of years ago. I can tell you that in the Management end, there is less appreciation for the hard work being done. Many managers, against policy and rules clock out and continue to work several hours each week because they generally care about what they do and of course are working for that bonus. Also they do not wish to hear from their District Manager about why they can’t get their job done in 40 hours and are using so much overtime. At the District level, and in the Regional offices there are some who are extremely incompetent and or paranoid about someone else moving up to take their position. Most managers are hoping to do well enough to eventually move to a higher paying DM position. And DM’s to a Regional position. There was some of the good old backstabbing “dog eat dog” mentality as each position competes to move to the next level. I was warned literally day one by a long time, loyal Partner in the management end to be careful who you trust and what you say if you want to keep moving up. Not a reassuring start. Unfortunately, it was very true. I made friends with some really great people at all levels, but certainly found the lack of trust, integrity, and do the right thing mentality of some to be cancerous. Thus, I decided to go help a longtime friend, in a small company. It is here with my background and experience that I am able to make a difference, and although not entirely my motivation, I am also making double + what I was making at Starbucks. I had hoped to be able to make a difference at Starbucks. I am also a bit saddened that some of my Starbucks friends (some who worked several years there) are calling to see if I can help them find another job. If you can’t keep your best, most loyal people, the ship shall slowly sink.

I tell you this so you understand that part of the reason for the decline is in the upper levels at Starbucks. Training for Baristas, Shift Supervisors, and even the Assistant Managers and Managers is generally pretty good. Although Managers are far too bogged down with internal paperwork, computer work and reports instead of being out with their team working the counter and more importantly working the customers. Many DM’s (not all) are more concerned with trying to look good and act important rather than with actually helping their Managers, which of course WOULD make them look good. All of this trickles down to the bottom line, and ultimately the downward trend now being seen.

Starbucks has taken on the feel of a company that is desperate, grasping at straws and throwing things against the wall to see what sticks. They have forgotten what their real purpose is, taken on too many other products that bog down the task at hand, which is to produce a good cup of coffee or espresso, and provide un uplifting experience for the customer, a place they want to come back to again and again. As I learned a long time ago, many of the best ideas come from the people on the front lines and the customers too. There is not enough opportunity for those folks to be heard, and to put their personality in to the individual stores. Perhaps if they throw out some of those long and useless manuals and let the in store Managers make decisions that will help their business they can stop the bleeding. (of course some of the manuals are useful, or at least some of the info is useful, just too rigid) I have seen a trend back to the mom and pop coffee houses. Why? Because it just feels right. Perhaps if some of those in Seattle would slow down for a second, maybe have a DECAF (if they can get one after 12!) and go back to what made them successful from the start, Starbucks will survive.

By the way, I know it is not exactly what your column is for, but I do enjoy the wine tips. Just had a great weekend in Napa. Only disappointment was that Silver Oak was closed on Sunday. Can’t always afford the bottles, but love their Cabs!

BTW…that’s exactly what the column is for. Among other things…

Thanks for sharing.

MNB user David Livingston wrote:

I make two pots of coffee a week for me and my guests. One regular and one decaf. What we don't drink goes in the fridge. Then when its time to make another cup, I pour in a cup and stick it in the microwave for a minute. I can't tell the difference if it is fresh or warmed over.

Why can't Starbucks just keep some on hand in the fridge and warm it up? Would cut the serving time from 4 minutes to one minute.

I don't even know how to respond to this…because I – and a lot of other people – would suggest that it is easy to tell the difference.

MNB user Margaret Mittelstadt wrote:

I'm one of those decaf in the afternoon kind of gals. I agree with you that the decision should be left up to store managers, as each market is so different. A blanket dictum might not go over so well and could lower staff morale, although if it was a choice between laying off staff or cutting back on brewed decaf as a way to control costs, I'd choose the decaf. Brewing a single cup at a time isn't a bad idea. Four minutes isn't life or death in the grand scheme of things. Yes we can, right? And a decaf Americano (shot of espresso with hot water) is a divine 2-minute cuppa joe without the kick in the pants. I'll continue to support my independent, locally owned coffee purveyor as they have the finger on the pulse of their local community! And they make a dynamite latte!

MNB user Aaron Uesugi wrote:

From the comments it seems that most people missed the fact that while Starbucks will not have ready to pour decaf, they will brew it right there and the customer will have to wait 5 minutes. So while they wait the few minutes extra for their friends blended, nonfat whatever, they get a freshly brewed cup of decaf. It does seem to make sense that if there is less demand for decaf in the afternoon, Starbucks can avoid the waste of brewing a fresh pot of decaf every 30 min and tossing it out. Say they are open until 10pm each night, then avoiding the need to fresh brew every 30 min would potentially save up to 20 batches per day per store. That said, I totally agree that it is more of a framing issue from Starbuck’s side and they should have stressed the point of them personally brewing your cup of decaf, just like your made to order latte/mocha/cap on the spot.

A bunch of people wrote in to say that four minutes isn’t a big deal. But I would suggest that in a competition with McDonald’s and Dunkin’ Donuts, four minutes can be the difference between a sale and a customer goes elsewhere. Especially if the customer is using the drive-through, or has waited on line for a few minutes to place an order.

Another MNB user wrote:

This is not a question of losing their way more than it is not meeting customer needs. We are deeply passionate about Starbucks and loyal supporters, but just as Whole Foods does, they make it unaffordable to shop there. Instead of meeting customer needs, they try and force needs on the customer. In the beginning it was cute and trendy to wait in line for a 2 dollar cup of coffee or something more expensive. Those days are gone. People want speed and value instead they get slow and expensive. Maybe they change direction a little instead of changing people….listen to the customer; they will always take you in the right direction, one way or another. They’re not closing stores or losing money because of the CEO.... And by the way….their competition is also doing a much better job these days, which doesn’t help.

MNB user George Whalin wrote:

As a long time Starbucks fan I wholeheartedly agree that it’s time to shake up the management at Starbucks. It is not uncommon for the original visionary of a company to be unable to get the company back on track when problems arise. Yes, Mr. Schultz accomplished extraordinary things in the past. With the current problems and recent moves by the company it is clear how poorly the company is being managed today.

Another MNB user wrote:

I agree with your assessment on Howard Schultz, but would recommend bringing in an outsider who is aggressive and can think out of the box. Starbucks issue is complacency and creating a sense of urgency; and it is difficult for insiders to overcome the history they created; and most of the time don't acknowledge. Outsiders bring anxiety and force key leaders below out of complacency because you diminish their political strength. I would recommend seeking a CEO who has made positive major consumer-centric changes in the business world. Walmart and the $4 prescription, Amazon and the kindle, Apple and the ipod, Zappos and shoes. All poor strategic initiatives are made due to either greed, ego, or compromises to pacify the complacent nay-sayers. All good strategic decisions are consumer-centric; lack greed and ego undertones, and require elimination of all of nay-sayers. The Board of Directors has a fiduciary responsibility to the shareholders, and right now, they are failing that responsibility.

Still another MNB user wrote:

Sadly, I think I agree. The missteps with breakfast food and other new product offerings have detracted from the attributes that made Starbucks attractive to its most loyal customers: a passionate dedication to high quality coffee and customer service. The elimination of brewed decaf is particularly depressing, not only because that’s all I drink, but also because that very same process of brewing it created some of my favorite service experiences. Often I would stop by in the evening and order a decaf. If the pot was close to empty, and they had to make a fresh one, I was always offered my cup “on the house” for having to wait; a delightful little “wow” moment that made my day.

Now I find myself going to Starbucks far less frequently. The coffee at the gas station is good enough—and half the price! Starbucks is all about the experience. If that’s no longer special, then coffee goes back to being a commodity and price becomes a primary driver of consumer behavior. McDonald’s, Dunkin Donuts and every gas station in America have all upgraded their coffee to within striking distance of Starbucks’ gold standard. Instead of widening that gap, Schultz’ strategy appears to be motivated to satisfy Wall Street, not Main Street. Expansion, more product offerings, discount pricing and other tactical maneuvers are all about increasing or maintaining market share at the expense of brand differentiation and customer loyalty. The company’s fast growth phase is now over. Wall Street has turned its back on the stock. Never thought it could happen, but a takeover now sure looks like a real possibility.

P.S. Whatever the outcome, Starbucks’ story is a cautionary tale for Whole Foods, another high quality, high loyalty operation built on transforming a commodity into a differentiated brand.

Another MNB user wrote:

All of which you said about Starbucks is true. Starbucks is in the same situation that NIKE was in during the late 80’s when, after over-taking ADIDAS to gain national market share leadership, promptly went from 34% market share to 18% market share while Rebook came from absolutely nowhere to take a 32% market share and leadership in the athletic footwear wars that were going on at the time. Phil Knight wasn’t replaced – he went on to take his vision for the brand from a $1billion national company to a $22 billion global behemoth. Give Howard a chance to reinvigorate his vision. I too own a piece of the Starbucks brand in my mind and I believe in Howard to do the right thing. Will he be 100% correct with all his directives…no…but let’s not be too hasty.

MNB user Carla Baughman wrote:

I've been thinking exactly what you so well documented this morning for months now. I didn't agree with bringing Schultz back and, in this case, hate to see I was right. I also think this will make a great grad school case study that will be used for years to come, much to the dismay of Schultz & Starbucks.

MNB user Mona Doyle wrote:

That (decaf) announcement made Starbucks seem out of touch, even stupid. You' are dead on with your comments about that. But I think they do need to compete with McDonald's on the price of plain fresh coffee to get consumers in today's marketplace to think that they can afford to go to Starbucks for the atmosphere without spending $4.00 on a latte. Otherwise, coffee drinking will keep shifting home.

Another MNB user wrote:

I love Starbucks. I've spent many hours in their shops during undergrad school, and now during grad school, dumping copious cups of coffee into my system. It hasn't been the same. In undergrad, it was really something. The employees were friendly, they knew what they were talking about, and they had visions and passion. Now it's not this way. I had a friend who was a manager at a Starbucks for sometime, when she
approached her boss to discuss going back to school part time, his response: You don't have time for that here, you have to work. No passion for her desire to improve her education, and they worked her like a dog. I realize that as a manger you have some responsibilities, but to discourage someone from furthering their education, not a good vision for Starbucks. The corporate jet thing was sickening, I can't say anymore about that. This is a sad day.

MNB user Glen Terbeek wrote:

The problem is not about establishing the brand, which they have done very well, the problem is about how it is delivered. I believe they have lost the local coffee shop experience because they are too centrally focused on the brand.

The brand is somewhat important for people that travel, such as yourself, since you can rely on a predictable product, wherever you are. But I would guess that most coffee drinkers frequent the same two or maybe three locations most of the time.

The Starbucks' location near our house is losing business big time to a local organic coffee roaster. First of all, coffee is being roasted in the back room, creating a great aroma. And since the location is in a neighborhood of young families, the owner has done a great job of integrating the store into the local neighborhood. As an example, the local elementary school (the reason the young families live there) has students post their artwork on the coffee shop walls. There is a playroom in the shop for the young children, so their young mothers can enjoy their coffee while their children play. The location is close to a surfing beach, so the decor and other attributes of the shop
reflex that mind set. I have been in great local coffee shops in Seattle, Starbucks' home town, that are also doing very well. These independents are equally unique to their local markets.

The local coffee shops mentioned above wouldn't work on Fifth Avenue in NY or Michigan Avenue in Chicago. So why does Starbucks' try to make every store the same? If you don't believe me, check out the standard decor and furnishings, wherever you go. Or how about the recent dictate re: decaffeinated coffee. Shouldn't those be local decisions?

Maybe Starbucks' could learn from Intel, a powerful brand. They taught consumers that any computer is OK as long as "Intel is Inside". Maybe Starbucks' should be the Intel of coffee shops.

Could you believe; Surf Cafe, powered by Starbucks'?

They need to quickly reorganize and measure performance around the local market, not the brand. Changing CEO's without doing that would only prolong the current trend. This is even more important in today's economic conditions.

I suggested that maybe it would make sense for Starbucks to bring back its former CEO, Jim Donald, which led MNB user Jim McDonald to write:

Totally agree! Changes is needed. I’m a BIG Jim Donald fan. I worked for Ahold USA for almost 20 years and had the opportunity to work with Jim while we were considering purchasing Pathmark. I spent several months at Pathmark doing due diligence and potential integration work. During that time, I visited stores with Jim and found him to have tremendous “emotional intelligence”. Additionally, he was visionary and cascaded the objectives for the company to each member of the Pathmark team. While Howard Schultz has done some great things at Starbucks over the years, change is needed to move forward.

I’m a person that Jim Donald touched along the way and his leadership, dedication and ability to “put people first” will always impact my personal life and business career.

Finally, one MNB user wrote:

Today I thought I would read an apology from you on your misrepresenting Starbucks decision to alter its policy on brewing decaf in the afternoon. They actually have given permission for store managers to make that change rather than make it mandatory to brew decaf. Putting this in the proper context would of opened several interesting discussions on decentralizing decisions ............ or how companies can get customers/employees involved in product mix........ or product mix vs. profits during tough times....... etc.

I have no problem apologizing when I screw up, but I don't think this is one of those cases.

All the original stories that I read said the same thing – that the company was making this a policy, not a choice.

Now, since the story became public, Starbucks has backed off a bit, saying that it is merely a store manager’s choice. But, best I can tell, that is a shift…and it further reinforces my point that the whole thing was badly positioned and explained.

And I still think the original statements were made to impress stock analysts 48 hours before lousy numbers were reported.

One other point on this story. Yesterday, an MNB user, addressing the decaf issue, wrote that “The Who sang in the late-1960s, ‘What were once vices are now habits…’”

Which prompted another MNB user to offer a correction:

With all due respect to the debate on decaf coffee, can we make sure the cultural references are correct. "What were once vices are now habits" was an album by The Doobie Brothers. Mistaking them for the Who is like mistaking ginger ale for champagne. (Sorry, I'm not a coffee drinker and couldn't come up with a more drink specific metaphor.)

Point taken.

KC's View: