SEATTLE -- Starbucks Coffee Co. has announced a series of initiatives to refocus the company on providing customers with the "Starbucks Experience." The first step in this strategy was to appoint Howard Schultz, chairman, to take on the additional role of CEO, effective immediately, replacing Jim Donald.
The ouster of Donald, coupled with plans to close some U.S. stores and slow down opening new ones, comes as the world's largest chain of coffee houses has seen its stock plummet 50% over the last year amid declining traffic in its domestic stores, added [image-nocss] an Associated Press report. It also comes at a time when McDonald's is setting out to poach Starbucks customers with the biggest addition to its menu in 30 years, said The Wall Street Journal. Starting this year, the company's nearly 14,000 U.S. locations will install coffee bars with "baristas" serving cappuccinos, lattes, mochas and the Frappe, similar to Starbucks' ice-blended Frappuccino.
"Howard is the architect of the Starbucks brand and the visionary behind the unique customer experience that is at the heart of this remarkable company's success," said Craig Weatherup, chairman of the Starbucks board's nominating and corporate governance committee. "Given what the board believes needs to be done, there is no better person to drive change and ensure that Starbucks is positioned to innovate, execute and relentlessly focus the entire organization on the customer."
Widely known as the architect of Starbucks brand image, Howard Schultz joined Starbucks Coffee as director of operations and marketing in 1982, when the company had only four stores. In August 1987, Schultz purchased the company. He served as CEO from 1987 to 2000. The company went public in 1992 and saw rapid U.S. and international growth. From 2000 onward, in his role as chairman, Schultz focused on the company's global strategies and expansion. As chairman and CEO, he will be responsible for the overall strategic direction of the company, with a predominant focus on everything that touches the customer.
"We must address the challenges we face, and we know what has to be done," he said. "Put simply, we are recommitting ourselves to what has made Starbucks and the Starbucks Experience so unique: ethically sourcing and roasting the highest quality coffee in the world; the relentless focus on the customer; the trust we have built with our people; and the entrepreneurial risk-taking, innovation and creativity that are the hallmarks of our success."
Schultz said his agenda will include:
Improving the current state of the U.S. business by refocusing on the customer experience in the stores, new products and store design elements, and new training and tools for the company's store partners to help them give customers a superior experience. Slowing the company's pace of U.S. store openings and closing a number of underperforming U.S. store locations, enabling Starbucks to renew its focus on its store-level unit economics. Re-igniting the emotional attachment with customers and restoring the connections customers have with Starbucks coffee, brand, people and stores. Re-aligning Starbucks organization and streamlining the management to better support customer-focused initiatives and reallocating resources to key value drivers. Accelerating expansion and increasing the profitability of Starbucks outside the United States, including by redeploying a portion of the capital originally earmarked for U.S. store growth to the international business."We know that we can improve our performance by getting back to the essence of what drove Starbucks past successour passion for the business and a complete focus on the customer and our relationship with our people," said Schultz.
The confrontation between Starbucks and Oak Brook, Ill.-based McDonald's Corp. once seemed improbable, said the Journal. Hailing from very different corners of the restaurant world, the two chains have gradually encroached on each other's turf. McDonald's upgraded its drip coffee and its interiors, while Starbucks added drive-through windows and hot breakfast sandwiches.
The growing overlap between the chains shows how convenience has become the dominant force shaping the foodservice industry, said the report.
The new coffee program is a risky bet for McDonald's, the report said. It could slow down operations and alienate customers who come to McDonald's for cheap, simple fare rather than theatrics. Franchisees say that many of their customers don't know what a latte is.
The program attempts to replicate the Starbucks experience in many ways, starting with borrowing the barista moniker. Espresso machines will be displayed at the front counters, a big shift for a company that has always hidden its food assembly from customers. McDonald's says it wants customers to see the coffee beans being ground and baristas topping the mochas and Frappes with whipped cream.
"You create a little bit more of a theater there," John Betts, McDonald's vice president of national beverage strategy, told the newspaper.
Ads for the espresso drinks running in the Kansas City area, where the concept is already being tested, say you don't get a "condescending look" for mispronouncing the size of the drink at McDonald'sa jab at the "grande" and "venti" sizes at Starbucks. (At McDonald's, you just ask for small, medium or large.)
McDonald's executives said they aren't launching espresso drinks to go after Starbucks, but instead to cater to consumers' growing interest in specialty drinks. And although McDonald's is encroaching on the business that Starbucks invented, analysts told the paper that McDonald's may pose more of a threat to Dunkin' Donuts, which has a more similar customer base. Analysts also point out that McDonald's overall beverage expansion, which includes bottled drinks, is as much aimed at taking business from convenience stores and vending machines as it is from specialty cafes.
McDonald's franchisees said they think the new coffee drinks will be particularly helpful in drawing young consumers who prefer them to drip coffee.
Only about 800 of McDonald's U.S. restaurants have the specialty coffee drinks now, and some may not get the full beverage program until 2009. Executives and franchisees will not give specifics on how well the espresso drinks have sold in tests.
To improve store traffic and same-store sales growth, Starbucks has said it is trying to make its operations more consistent. It is reducing the number of items and promotions it offers and is focusing on what executives call the "vital few" areas that improve results, like selling more beverages and attracting more customers.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.