Starbucks and the art of knowing where you come from

Globe and Mail

2 days ago

Gus Carlson is a U.S.-based columnist for The Globe and Mail.
Almost a year into his tenure as Starbucks SBUX-Q chief executive officer, Brian Niccol has signalled that the future of the beloved but troubled coffee chain is rooted firmly in its past.
In announcing the company's third-quarter results last week, Mr. Niccol made it clear that he is focused on recapturing the unique coffeehouse intimacy that was integral to the first small Starbucks in Seattle's Pike Place Market in 1971.
In that store, staffed by one person, burlap sacks full of coffee beans lined the shelves on exposed brick walls. Customers could choose fresh beans that were ground up and served piping hot while they waited. Simple, fresh, fast and very personal.
Mr. Niccol has reached back to that model. Among his back-to-basics touchstones: investing in staff training to improve a tattered customer experience; refurbishing stores and streamlining operations; rethinking a subpar mobile offering; using technology to reduce waiting times; and recasting menu development to improve quality consistency.
Starbucks shares turn lower as CEO Niccol's turnaround plans gain traction
Mr. Niccol knows something about turnarounds. He's the guy behind the rejuvenation of Taco Bell and Pizza Hut. He also took Chipotle Mexican Grill from a fringe player to a juggernaut in the highly competitive quick-service restaurant industry.
In each case, Mr. Niccol employed a back-to-basics approach to chains that had lost their way when they expanded menus in an attempt to be everything to everyone.
The problem with that strategy is that too often the focus on new products and processes dilutes the quality of the tried and true. When that occurs, the core faithful drift away – and as any business will tell you, it's often harder to re-engage a disgruntled customer as it is to entice a new one.
Mr. Niccol's strategy for Starbucks seems to be rooted in this mantra: More isn't always better. Concentrate on doing what you do best, but do it better.
Starbucks needed to get back to doing what it did best. When Mr. Niccol joined the company, it was a poster child for losing touch with its customers. Store traffic and sales had flagged in the three quarters leading up to his arrival.
Store quality had deteriorated, its menu expanded to the point where it was too big to deliver quality consistently, and its digital efforts were weak, leading to long waiting times and incorrect orders. While it was trying to be more things to more people, it lost the unique magic of its brand – offering fast made-to-order fresh coffee on a mass scale.
The result was a customer-experience nightmare. Investors worried that it was a situation where justifying US$6 or more for a cup of coffee was unsustainable.
Starbucks' weak financial performance and lack of a compelling growth strategy prompted activist investors, led by Elliott Management, to call for a leadership change.
Enter Mr. Niccol. Despite reporting a bigger-than-expected decline in U.S. same-store sales in the third quarter, revenue beat expectations.
He told investors that he was optimistic about the results of an eight-week test of his Green Apron Service program in 1,500 stores. The program, set to roll out in U.S. stores later this summer, will establish new quality and staffing standards to improve store operations and manage peak hours more efficiently.
Mr. Niccol said new software will reduce waiting times – 80 per cent of in-store orders are now made in four minutes or less, a target he set last year.
He also said he needed to cut back on menu selections before testing new products. Once the simplification is done, he plans to roll out products that are in touch with contemporary customer tastes.
On the horizon: protein drinks, new baked goods, including gluten-free and high-protein foods, coconut water and energy drinks, and a new dark-roast coffee.
With the new products comes a new process designed to improve preparation and quality consistency. Store employees are now consulted about what menu items can be made quickly and consistently. In the past, menu selections were developed at Starbucks headquarters, and it was up to the baristas to figure out how to make them.
As promising as these initiatives are, there's one challenge a reach back in history can't solve: prices.
Back in 1971, an entire pound of house-blend coffee beans cost US$1.50 at the first Starbucks store, a fraction of what it costs today. Not even a fast-food magician like Mr. Niccol can make those prices reappear.