Starbucks Takes Step Back to Move Forward
Starbucks had previously announced it would slow the pace of new store openings in the U.S. and now the coffee giant has announced plans to shutter 600 underperforming stores this summer.
The store closings are expected to affect up to 12,000 employees or roughly seven percent of Starbucks’ workforce. The company said it would seek to place as many as possible in other locations. Starbucks plans to open fewer than 350 new units in the U.S. next year while the chain seeks to accelerate growth overseas.
Starbucks’ move is part of a plan to boost its bottom line and stock performance.
“In January, we committed to transforming the company through a series of critical and strategic initiatives to improve the current state of our U.S. business and build the business for the long term,” said Howard Schultz, chairman, president and chief executive officer of Starbucks, in a press release. “Our executive and field leadership teams conducted an extensive review of our U.S. company-operated store portfolio with a goal of enabling our organization to focus its efforts on locations where we can more effectively improve the customer experience.”
“Throughout the history of the company, we have always aspired to put our people first. This makes our decision to close stores difficult, because it is disrupting the lives of the people who have worked so hard to deliver superior service to our customers,” Mr. Schultz added.
Discussion Questions: Will Starbucks’ store closings along with the other moves the company has made this year reinvigorate the business or will it still be searching for answers in the year ahead?
My Starbucks quit offering Mocha Valencia, so I quit Starbucks. I now buy Starbucks’ darkest-roasted beans, grind ’em in a conical burr grinder, and brew in a French press. Add a little hazelnut or orange flavoring syrup (like Starbucks does it), and it’s just as good or better than the coffee house stuff. Certainly cheaper. I suspect lots of coffee drinkers are switching back to home-made using high-quality beans, grinders, and brewing methods.
The closing of 3.75% of their stores (600 divided by 16,000, right?) in some ways is addition by subtraction. One of the things Starbucks learned during their fairly recent one-day, chain-wide closing for retraining and motivating was that a little consolidation would allow them to cull the least effective baristas in the surviving locations and replace them with the best performers from the closed locations. This gives them a culture jolt at a time when being a Starbucks barista isn’t nearly as cool as it used to be.
The store closings are important as a signal that Starbucks is no longer interested in “growth for growth’s sake” if they end up cannibalizing themselves and cutting into their own comp sales growth. The other recent moves are more important, however, in the revitalization of the Starbucks brand.
The retraining of associates and elimination of egg sandwiches from the menu are two keys to bringing back some of the in-store “mystique” associated with Starbucks. The new “house blend” (Pike Place) seems to be getting mixed reviews from Starbucks die-hards. It’s critical for the chain’s key product to define what it stands for in light of broader and improved competition from McDonald’s to Caribou and many others.
Starbucks was the first to bring specialty gourmet coffee to the masses; they own the category. Howard was brilliant at hiring the top talent to guide the plan from the start. Once his interests left the day-to-day, Starbucks lost their way opening too many stores in a market that was becoming saturated. They’ll adapt and continue to grow now that they are no longer pursuing movies, music, cafes and other non-core businesses.
Having just returned from a business trip through India and other parts of the subcontinent, I for one would ‘beg’ Starbucks to open some stores over there so I wouldn’t have to go two weeks without my daily Grande fix.
What Starbucks, and an increasing number of other retailers, recognizes is that North America is but one small corner of this world. Markets change and so it only makes sense that they rationalize their business here. There are billions of up and coming consumers in other parts of this world now ready for a new experience. As the masters of experience-based retailing, Starbucks may be just what they are looking for. More retailers would be well advised to look beyond North America’s borders for their next sustainable growth opportunity.
The benefit of these closings, after charge-offs will be increased profitability, and new-found money to expand with into the four out of five location types that were most successful.
People still enjoy an affordable indulgence and there are many more people who don’t have convenient access to Starbucks. It doesn’t have to be a $50 a week habit for them to make money if they have access to more casual consumers of the “escape.” This, coupled with improved service will work tomorrow as it has in the past.
I try a lot of independents and find that in the coffee business, like any other retail independent there is too much variability in quality of product, quality of atmosphere, and especially quality of service. It’s almost like when Holiday Inn and Howard Johnson’s took the variability out of choosing a motel.
Look for more closings in the future. Simple math–too many locations too close together. Starbucks is selling a product that you can get for free in any hotel lobby. Starbucks is trying to sell at a premium price what others give away.
Their complicated loyalty card with complicated WiFi rules is just making things worse. My favorite coffee shop has better tasting coffee for 89 cents, unlimited free WiFi, comfy chairs, a fireplace, and no loyalty cards. It’s called McDonald’s.
I have to agree. Starbucks is green, not brown. Starbucks was not prepared for the impact of local coffee shops, the upgrade in coffee at fast food shops and economic slow down.
I believe more important then the coffee was Starbucks’ customer service. People I wanted to see and buy from everyday. I think closing 600 stores will leave 600 locations for competition and they may have done this too quickly. Don’t panic, think through tomorrow’s strategy and methodically over lay the brand with purpose.
Okay, I for one am in an absolute panic that one of the 600 closings of underperforming Starbucks might be the one closest to my office. If that’s the case, I will need to drive or walk two blocks or 0.7 miles further to get my Venti Non-Fat double shot Vanilla Latte.
The truth is, Starbucks is one of the greatest success stories in the history of the world. However, at the present time there are simply too many of them, too close to one another, for the number of customers that presently exist. It’s a matter of supply and demand, and the right balance. Starbucks also has more competition than it once did, however, the foam will rise to the top and Starbucks will be around for a very long time. I do wish though that they would bring back the green cups. Starbucks is green, not brown. Now, that’s the real issue!
I applaud Starbucks’ management for trying to take the required steps to get back on track. I fear however that they may be a more effected by the current state of our economy than most and are in for a tough road ahead. If they can survive this recession, they should be able to return to their former levels of growth and glory. How long that will take is anybody’s guess.
The strategy to advance store openings in the 04-07 time frame was a good one, as the economy was positive and the workforce was growing so people had the money to visit their local Starbucks for their favorite $4+ escape!
The combination of stressed household budgets and expanded layoffs and early retirement offers here in the US has all of middle America on a severe budget diet, and one of the fist things you need to cut is “indulgences.” Starbucks is an indulgence that many people had to scratch off their wish list. Some have replaced their Starbucks indulgence with making their special latte at home.
The advancement of “energy drinks” may have also impacted sales as well, so Starbucks has a solid rationale for this decision. Taking out things like CDs from the Starbucks locations will not help and actually hurt total register rings at the remaining locations in my opinion. You have to continue to build on “the starbucks experience” and maximize sales to a shrinking customer base.
Jim Donald was a great CEO there, and his departure is an additional void they will have to overcome. His commitment to taking care of customers is best of class and his personal hands on, open to listen leadership style with associates working in stores is unmatched…even by Howard, who founded the company. Good luck Howard!
In today’s economy nothing is a sure thing, but Starbucks seems to be making a lot of the right moves. Still keeping people and the quality of its products first along with focus on its core business. I think the quote “It is not the big who eat the small, or the fast who eat the slow. It is the focused and the flexible who beat the unfocused and the unflexible.”
Starbucks is proving to be both focused and flexible.
Even the greatest retailer (and I do consider Starbucks to be one) periodically miscalculates and makes mistakes. For Starbucks it was the desire to be ubiquitous, and then it further lost its specialness by producing packaged coffee such as is “brewed” in the waiting room of my car dealership. Fewer outlets and stores–a LOT fewer stores–will put them back on the right road. Also, they need to “rethink” Pike Place. It is a generic tasting product that few who have tried it can rave about. I wonder why they did not use Pike Place for their “packaged” retail beans and save the “traditional” bolder, good stuff to provide actual differentiation for the customers who buy expensive coffee drinks in their stores.
Starbucks’ wheel is turning, just as it does for every high-flier in retailing eventually. Geographic expansion is a great strategy for success until it isn’t any more. When you reach market saturation (in ‘Bucky’s case super-saturation), only increases in store productivity can further build the top line.
Worth considering: Grinding hard on store volume by introducing more varied products, raising prices or trying to move more customers past the counter faster may be in fundamental conflict with Starbuck’s role as a “third place” for its loyal customers.
So there’s the dilemma. Starbucks’ shops may be cash cows individually, but apparently not growth vehicles. The company’s stock price, until recently, reflected an expectation of further rapid growth. Closing non-contributing locations should help the balance sheet greatly, but it won’t help the topline picture until those resources are reinvested in other, more productive pursuits.
I’m with some others above–a global growth strategy might be desirable here.
Every well-run retailer closes stores from time to time, whether the economy is good or bad. Every retail chain cannibalizes itself, but the best-run chains limit the damage. The worst-run retailers give themselves an annual new store opening quota and reach that quota even when the deals offered are mediocre. It’s like saying, “You have to hire 5 people tomorrow” and you get only 3 good candidates. Will you hire 5, knowing that 2 of them aren’t the best?