Starbucks Coffee Company: Transformation and Renewal

1.Problem Analysis:
a)Position Statement :
Starbucks built its own experience over so many years but recently it was losing its ability to sell
its own nuanced, complex and layered story to its customers, employees and the larger public.
b)Problem Diagnosis:
After visiting several stores, Schultz found that the spirit of Starbucks was missing. Customers
who used to treat Starbucks as their third home, no longer felt a personal touch while entering the
store. Only few employees care to remember the customers name. There was an obstruction in
the line of sight of customers which essentially blocked their view from the preparation of
coffee. The smell of coffee, an essential component of Starbucks experience was missing.
Several stores were running out of ingredients. The aesthetics of the barista started diminishing
to a large extent. For ex customers smelled burnt cheese from ovens warming morning breakfast
sandwiches that overcame the coffee aroma in itself. The ritual of selling the best coffee was
seriously compromised. Also managers no longer seemed personally interested in their work or
proud of what they were doing and delivering. Many seemed more concerned with gross margins
rather than companys core values. The drive to expand was compromising the companys core
values of maintaining relations with customers.
Starbucks was expanding at an impressive growth rate, many stores were being opened leading
to higher workforce management. Although the stores were showing impressive track record, all
was not well under these achievements. Same store sales were declining; newly opened stores
were cannibalizing existing ones.
c)Problem Proof:
Schultz identified the same problems facing the company and communicated the same to his
senior team on his visits. He also wrote various free form memos to co-workers. He used these
missives to lay out his thoughts on the business, outlining his plans for new initiatives and
articulate his philosophy.
Also, in September 2006, same store sales were 7% higher than the year before but it represented
a slowing from 8% in 2005 and 10% in 2004 further proving the declining sales of same stores.
2.Decision Analysis:
The major decision confronting Starbucks is to continue the growth while preserving its culture
and values.

The reason behind the decision is that Starbucks banks on its experience. This is the companys
core competency and its major competitive advantage. This is an offering which is very hard to
replicate by the competitors. On the other hand focusing on the product coffee can be easily
replicated.
If we take into account other industries, all major companies are moving towards entering the
consumers life and they are not being limited to a single product or offering. They are offering
multiple offerings related to their domains in the interest of the consumers.
Looking at their competitors we can say that they are excellent at selling the product to the
customers while Starbucks relies on creating an experience which helps in retaining the
customers.
Other Decision Options:
Starbucks may consider diversifying in other food businesses. Like its competitors it can
leverage on it as it already has the means and logistics to do it. It can also consider expanding in
other territories. It can also consider moving to Tier 2 cities in countries it already operates in. It
can also look for developing different product offerings in tea, coffee and snacks which can cater
to a large segment of people.
Criteria for the decision:
The main criteria that can be applied are long term sustainability of the firm while making
considerable growth. Creating and maintaining an enriching environment will help the firm to
attract the customers and carve its unique brand in the industry. Creating Starbucks experience
can also be its single most strength as against its competitors. In my view this is the main criteria
in which customers will judge Starbucks.
Another criterion that can be applied is Cost Benefit analysis. This means how investing in
various diversification programs will help Starbucks in maintaining profitability over the long
run.
Ease of applicability of the decision can also be one of the criteria. How the company can
leverage its existing infrastructure and utilize the same in making decisions.
3.Action Plan
Goals:
a)Establish Long term Customer Relationship:
This should be the single most important goal of Starbucks. As it is losing on the personal touch
of customers, developing the same could help the company reinvent itself.

b)Connect beyond stores:

The Starbucks experience should not be limited to just its on store experience. Connecting with
customers beyond the premises will sustain the brand.
The action strategies can be short term, medium term and long term.
Short term Strategy: Investing in employee and managers training can be the first step in
maintaining the Starbucks experience. The training should be focused on developing human
connection and encouraging conducive atmosphere. It should also develop a robust social media
campaign and mark its presence. It should focus on getting local brand ambassadors to whom
local people can relate to. They also need to be involved in CSR activities and take firm stand on
issues related to social affairs. In relation to this they can sponsor some of the social works of
local NGOs and can also sponsor other activities to make their presence. They can also try and
exploit digital marketing, home delivery services, memberships coupons, retail products.
Medium term Strategy: Since their major concern is customer involvement, they should open
new stores which can help in store promotions and employee customer relationships. They can
also exploit technology like big data in predicting the tastes of the customers and developing
customized products for its customers. This will in return help them to connect with their
customers and customers will feel a personal touch while going in the stores. Technology will
also help them to take active part in the customers life event for ex their birthdays or
anniversaries. This would help them to connect with the customers on their important days and
develop a personal relation with them, thus retaining them for a longer duration of time.
Long Term Strategy: In the long term, they should diversify their business portfolio. They
should not restrict themselves as coffee shops. They can try expanding to leisure and relaxation
industry where customers come to feel relaxed. They should also invest in research and
development in food products and create new deliverables for the customers. They can also
develop medicinally beneficial products and promote the health benefits of the same. They can
also open training programs where they can educate the world about coffee and other beverages.
Lastly they can also acquire aggressively and should not let competition rise beyond a limit.
4.Conclusion
As we see from the case that Starbucks is losing the experience that it was known for and as a
result is losing its customers. The recommended decision will help the company in creating the
same experience for which the customers came to the store. The decision will help the company
in maintaining a loyal customer base and help it to retain the same for a longer period of time. It
will also help them to mark their presence in the industry.