Starbucks’ Howard on the Hotseat

starbucks1.gifA Fortune magazine interview by Fortune editor Andy Serwer with Starbucks’ new, um, old CEO Howard Schultz had a number of interesting comments for coffee shops, as well as for anyone in the process of re-examining their business. It IS still January 2008, so re-examination this time of year is probably going on somewhere.

The interview speaks of Schultz forcing Starbucks to shift its focus away from bureaucracy (Schultz’s words) and back to customers (notably, where most mom and pop coffee houses never left) rather than being transaction-driven. The local coffee shop still has to remain agile and fierce about its people and experience, but watching Starbucks closely is bound to pay dividends.

Schultz notes that they focused on efficiency rather than the experience, something obvious when looking at their pre-ground coffee shipped in from Jersey and elsewhere, while the local shop often grinds beans roasted that day while you wait. Fresh, fresh, fresh (that’s an advertising hint, BTW).

Those often-charbroiled beans aren’t roasted in store, as they are with many local shops (but not all local franchise type operations). Again, freshness becomes an issue, along with the experience.

There is real money at stake here, even to a company their size.

Does Howard put the grinders back in every store and stop overcooking their beans in centralized commodity roasters? Does he rip out the megabuck automated machines and replace them with manual machines fine tuned by the experience of a real barista rather than an order taker? Evening out the experience from store to store is a laudable goal, until it does the equivalent of McDonaldizing their stores.

The interview topic turns to long lines, a problem some stores might love to have. But how do they fix it without turning the place into just another McDonald’s? How do all those customers get the Starbucks experience when they are 12 deep in line?

Notable was the comment Schultz made regarding “we will do more things to better reward our most loyal and best customers”. Retailers of all shapes and sizes should be doing that, and thinking about it constantly.

Serwar pushes forward asking Howard about the “Wall Street problem”, but Schultz wax-on, wax-offs that question with one of the things you should take away from this interview regardless of the business you are in: “We can’t exceed the expectations of shareholders unless we exceed the expectations of customers first.”

Next, he asks Schultz why no strong number two competitor hasn’t emerged. Howard speaks to the unique structure of their business, from sourcing coffee to roasting to distribution and retail. He attempts to slam some unmentioned competitors in a reference to commodity-based coffees, but Serwar let it go, and failed to ask him about the collective impact of coherent local shops that love to see the corporate behavior seep throughout Starbucks’ business. They are Starbucks’ real competition, and he’ll never be able to examine their stock performance.

Finally, Serwar closes with a salvo that has to have folks in Chicago’s McD headquarters laughing. “Did McDonald’s announcing it was moving into the coffee business in a bigger way affect your decision?” Howard says “No.”, and I wonder what look crossed his face as he saw his gourmet coffee business (oops, experiential people business) being compared to a drive thru burger joint.

That’s how you know how much work Howard has in front of him.

Looking back to the one gem you have to take away from this… How are you exceeding the expectations of your customers? How will you do so next week? Next month?

One thought on “Starbucks’ Howard on the Hotseat”

  1. Good morning!

    Thanks for participating in The Seventh Day: Fifth Edition. The Carnival is now live at On the Horizon and there are many other wonderful posts included. I hope you will stop by and check them out! I also invite you to participate in the Carnival again — you can submit one post on any topic per blog from the prior week at any time up to 6:00 p.m. (Pacific time) each Saturday to be included in the next day’s edition!

    Blessings to you on this beautiful Sunday!

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