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How Starbucks got its groove back

One fine day in the 1980s, Howard Schultz, Director of Retail Operations and Marketing for the young, up and coming coffee shop chain, Starbucks, was on a buying trip to Milan, Italy. While there, he noticed the coffee bars present on practically every street. These coffee bars acted they were meeting places, performance spaces and public squares. The coffee bar made up a key part of Italy’s social glue, with over 200,000 of them in the country.

Two years later Schultz bought Starbucks from its founders for $3.8 million, and began to realize his dream of spreading that coffee culture across the world. Today Starbucks has the clout the compete with, and if necessary collaborate with, the biggest names in the business – only a couple of months ago, it was announced that Starbucks would begin providing coffee for Burger King restaurants. Despite this, Schultz has never forgotten those roadside cafes in Milan, and has kept them central to his vision.

However, by 2007 sales were slowing, and the company’s stock price was cut in half.

“We got swept up,” Schultz has said. “We stopped asking: How can we do better? We had a sense of entitlement.”

Deciding drastic action was needed Schultz reinstated himself as CEO of the company after an eight year hiatus, and brought in a series of wide-reaching changes that turned around the fate of the company – changes that other businesses could stand to learn from.

KNOW THYSELF
When Schultz returned to the helm of his company in 2008, he could see clearly where the problems lay. For many customers Starbucks had lost the ambience that had made it a success, making it as faceless as a McDonalds or Wal-Mart.

“The battle within the company is making sure growth doesn’t dilute our culture,” Schultz has been quoted as saying.

Unlike the cheaper, more anonymous fast-food chains, Starbucks has always stayed clear of focus groups. It also rarely franchises its stores out, meaning control of the company’s image and identity stays with the company. Starbucks sells the New York Times, but not USA Today, because Schultz thought it “felt right”. If Schultz doesn’t like a new drink, you won’t see
it in stores.

So when it came to combating competition from the likes of McDonalds and Dunkin’ Donuts, Schultz decided to do it on his own terms. Rather than compete on price, he chose to compete on identity. One of his first acts on returning to a CEO position was to tell shareholders Starbucks would stop using prepared bags of coffee and start grinding beans on site to bring “aroma, romance and theater” to its stores.

That same year, Starbucks opened its website My Starbucks Idea, a sort of giant Internet suggestion box and discussion forum. If you browse My Starbucks Idea, you’ll find people discussing a range of topics, from the lids on the coffee cups, to the performance of individual Starbucks locations, even whether or not guns should be allowed in the store. However, one thing that’s clear is that the forum-goers are passionate about the subject. The key part of the website’s name isn’t “Idea”- it’s “My Starbucks”.

And yet, despite sweeping changes across the Starbucks line, the key knowledge Schultz has shown in his steering of the Starbucks company is that having a strong identity is not the same as becoming homogenized. At the same time he was instigating these across the board changes, Schultz took a select group of employees to one side and asked them: “If you were going to open a store to compete with Starbucks, how would you do it?”

The end result was 15th Ave. Coffee & Tea.

On the door it says “Inspired by Starbucks” and although you’ll find Starbucks’ blends in the coffee cups, you won’t find a Starbucks logo anywhere else in the store. Yet, if you ask Schultz, he’ll tell you this coffee shop is central to what Starbucks is all about.

“It reminds me of the early days, when we were fighting for survival, for respect,” Schultz says. “To me this harkens back to when we were at our best.”