Starbucks after Schultz:

How to Sustain a Competitive Advantage?

Group 1
ANA KRISTIANA
BOI HUTAGALUNG
 History of Starbucks
Starbucks opens first store in
1971 Seattle’s Pike Place Market.
Howard Schultz joins Starbucks
1982 as Director of Retail Operations
and Marketing
Howard travels to Italy, inspired
1983 by popularity of espresso bars in
Milan.
Il Giornale acquires Starbucks
assets and changes name to
1987 Starbucks Corporation. Opens in
Chicago and Vancouver, Canada.
Total stores: 17
Completes IPO, traded on the
1992 Nasdaq using “SBUX”. Total
stores: 165
Opens first stores outside of
1996 North America in Japan and
Singapore. Total stores: 1,015
Acquires Tazo, a tea company
based in Oregon. Launches
1998 Starbucks.com. Total stores:
1,886
Schultz transitions from
2000 chairman and CEO to chairman
and chief global strategist.
Schultz returns as CEO. Focus on
2008 customer experience and
innovation. Total stores: 16,680.
Starbucks has >17,600 stores
2012 and is valued at $35.6 billion.
 Who is
Howard Schultz?
• Born in Brooklyn, NY, on July 19, 1953
• Worked as appliance salesman for
Hammarplast, which sold European
coffeemakers in the US
• Director of Retail Operations and
Marketing for the Starbucks Coffee
Company in 1982
• Founded a coffee company, Il Giornale
• Purchased Starbucks in 1987 and
became Chairman and CEO
• IPO in 1992
• In 2000, Schultz announced
resignation as Starbucks's CEO
• Returned as CEO in 2008 amidst global
downturn, managed to bring back the
company’s profitability
Starbucks Trademark
• A Place with good Ambiance
• Comfortable with free wifi
• Pleasing Sevices with Barista that can speak fluenty
in foreign language
• Variety Product (30 Different Coffee)
Starbucks’ core competency
create a unique consumer experience the world over. The strategic
intent was to create a “third place,” between home and work, where
people wanted to visit, ideally daily.

With this competencies Since 2000, Starbucks’ revenues have grown

15-fold, from less than $2 billion to some $27 billion in 2017
Starbucks’ Store & Rev
Starbucks’ Atrophy
While core competencies are often built through learning from experience, they
can atrophy through forgetting.
• Between 2004 and 2008, Starbucks doubled from 8,500 to
almost 17,000 stores.
• It also branched out into ice cream, desserts, sandwiches, books,
music, and other retail merchandise, straying from its core
business.
• It lost the appeal that made it special, and its unique culture got
diluted.
• New espresso machines, were so tall that they physically blocked
interaction between baristas and customers.
The Hero Comeback
• January 2008, Howard Schultz again took the
reins as CEO.
• In February 2008, Starbucks closed 7,100 U.S.
stores for 3 1/2 hours to retrain its baristas on
how to make the perfect espresso.
• Upon taking the post, Schultz invited people to
email him directly.
• For the first time in company history, Schultz
looked to outside consultants for ideas on how
to revive the company
• Also for the first time ever, Starbucks invested in
a major national advertising campaign,
employing BBDO.
The Hero Comeback
• He appointed a chief technology officer, Chris
Bruzzo from Amazon.com
• Starbucks introduced Pike Place roast to show it
was serious about coffee.
• Schultz made the executive decision to nix
heated breakfast sandwiches from the menu.
• The company replaced all of its outdated cash
registers and computers.
• In January 2009, Starbucks closed 600 stores --
or 7 percent of its global workforce -- cutting
$850 million in costs.
• Starbucks replaced all of its espresso machines
with the Mastrena, a sophisticated Swiss-made
machine.
The Hero Comeback
• Schultz also completely reorganized supply
chain operations -- getting products to stores
more efficiently and improving inventory.
• Costco's CEO once said that losing customers in
a down economy is much more expensive than
investing in them. Taking this advice, Schultz
created a customer rewards card.
• Starbucks overhauled the entertainment
division, scaling back on all the CDs and books
that had started to overpower the stores.
• Schultz decided to continue offering health
insurance to his employees -- in order to stay
aligned with the company's guiding principles.
The Hero Comeback
• Schultz shook up senior management, and later
added members of tech companies to its board
of directors, including Google's COO Sheryl
Sandberg
• Starbucks rolled out a new design for all of its
stores.
• In June 2009, Schultz announced that he would
increase partners' salaries according to merit.
• Schultz took a chance on instant coffee with
VIA. It turned out to be a hit and got tons of
media attention.
• The company committed to doubling its annual
purchase of fair-trade certified coffee to 40
million pounds in 2009
The Hero Comeback
• Howard Schultz studied other corporate
turnarounds in order to pull off his own

Source: https://www.businessinsider.com/howard-
schultz-turned-starbucks-around-2011-6?IR=T
The Hero Comeback
In 2010, Schultz rolled out new customer service
guidelines: Baristas would no longer multitask, but
focus on no more than two drinks at a time,
starting a second one while finishing the first.
Schultz also focused on readjusting store
managers’ goals. Before Schultz’s return, managers
had been given a mandate to focus on sales
growth. But Schultz focused his manager to
Starbucks’s differentiator that its special customer
experience.
Starbucks also continues its efforts to find new
levels of luxury offerings catering to higher and
customers within its existing customer base.
The Hero Comeback
Most of these initiatives continue. It has retooled its
Evenings program of alcohol and in 2017 announced such
offerings would be scaled back to continue only at its
Roastery locations. Starbucks’ goal it to double its revenue
from food over the next few years and to be seen as an
evening food-and-wine destination. To symbolize its
transition from a traditional coffeehouse, Starbucks dropped
the word coffee from its logo.
Starbucks’ Store Performance
Time to Discuss
1| How did Starbucks create its uniqueness in the first place? Why was
it so successful?
Because Starbucks’ core competencies to create a unique
consumer experience the world over is acceptable to the
customer. It overs a different experience than other company.
And in every store Starbucks’ manager strive to make that
customer experience continue to happen.

As a coffee shop It’s very success because it deliver value

that other competitors hard to copy.

As a company they can sustain it success because Scholtz

have succeed implement a good strategic leadership unto
Starbucks.
1| How did Starbucks create its uniqueness in the first place? Why was
it so successful?
Mission Statement
To inspire and nurture the human spirit – one person, one cup and one
neighborhood at a time.

Vision Statement
“To establish Starbucks as the premier purveyor of the finest coffee in the
world while maintaining our uncompromising principles while we grow.”

Values
• Creating a culture of warmth and belonging, where everyone is
welcome.
• Being present, connecting with transparency, dignity and respect
• Delivering our very best in all we do, holding ourselves accountable for
results.
• Acting with courage, challenging the status quo
• We are performance driven, through the lens of humanity
1| How did Starbucks create its uniqueness in the first place? Why was
it so successful?

THE STARBUCKS EXPERIENCE:

1) “Make it your own” – Customize the experience.
2) “Everything matters” – Focus on every aspect of
the job. Never ever lose your focus on your
customer’s experience and point of view.
3) “Surprise and delight” – Do the unexpected to
make buying a cup of coffee enjoyable.
4) “Embrace resistance” – Learn from your
mistakes.
5) “Leave your mark” – Do your job so that your
customers remember you.
(Michelli, 2006)
1| How did Starbucks create its uniqueness in the first place? Why was
it so successful?
1| How did Starbucks create its uniqueness in the first place? Why was
it so successful?
1| How did Starbucks create its uniqueness in the first place? Why was
it so successful?
1| How did Starbucks create its uniqueness in the first place? Why was
it so successful?

Cost leadership Differentiation Value Innovation

 To be a source of competitive advantage over time, core competencies need to continuously
2| be honed and upgraded. Why and how did Starbucks lose its uniqueness and struggle in
the mid-2000s?

In the Passage we have some insight why Starbucks struggle, as follows:

1. They forgot their uniqness in delivering uniqness,
2. To much focus on efficency, speed and sales growth, and
3. The company lost in strategy specialy when adjusting the strategy to compete with
other competitor.
Drivers of Starbucks’ Success

Right person in Employee Respect for local

the right place satisfaction culture

Tolerance of
diversity of Training program
Employee Quality
Tolerance of
culture
diversity of - Adaptability
- Partners Use of IT
culture - Dependability
- Employee
- Ability to work
- Communities Kualitas employee
in a team Innovations
- Suppliers
- Cards
- iPhone apps

Visionary leader Built on great - Wifi & websites

global partnership - New Variants
 Drivers of Starbucks’ Success

Customer
Enabler
needs
• Demographic
Affordable (baby boomer)
Luxuries • Lifestyle
BO

The leader in • Visionary leader

*BO = Business Opportunity
specialty coffee • Organizational
infrastructure

Resource
Drivers of Starbucks’ Success

Ambitious growth strategy in their early business plan to quickly grasp the
1) enormous specialty coffee market and become market leader.
Saturate the market!  Blanket an area completely with their stores to
2) gain foothold.

3) Consistently offers a combination of quality, authority, and relative value.

4) Price setting strategy: high value at moderate cost.

Mail order catalogue to tap into undefined markets, with distribution

5) through restaurants and hotels.

6) Wholesale distribution to enhance consumer awareness.

7) Invest heavily in recruiting leadership  the people.

 What strategic initiatives did Howard Schultz put in place to re-create Starbucks’
3| uniqueness after his return in 2008? Detail each strategic initiative, and explain why a
specific strategic initiative was successful, if so.

Schultz re-create what had made Starbucks special that is delivering special customer
experience with initiative as follows:
1. Focus in becoming a “third place,” between home and work, where people wanted
to visit, ideally daily.
2. Re-create the ambiance
3. How the barista works and comunicate
4. The manager Objective
5. Goes on-line
6. Persuing luxury offerings catering
7. Re-brand Starbucks form traditional coffee shop to the “third-place experience”.
Starbucks’ Competitive Advantage
Q: What is Starbucks’ most important source of competitive advantage?

Cost Differentiation focus:

BOARD

Differentiation  Serve niche buyer than

Leadership rivals
 Has unique capabilities to
serve needs of target
buyers segment
 Be profitable and offer
NARROW

Differentiation good growth potential

Cost Focus Focus  Resources and
(niche market) capabilities to serve an
attractive niche

COST DIFFERENTIATION
 What is your assesment of Howard Schultz a strategic leader? Where on
4| the Level-5 pyramid of strategic leadership would you place Shultz?
Why? Explained.
 How can new Starbucks CEO Kevin Johnson sustain the company’s competitive
5| advantage? What are some growth opportunities he could pursue? What
recommendation would you give him?

• He has to remember what Starbucks core competencies as a

“third-place experience”.
• He has to continue lead Starbucks focus with consistent
ability to interest, understand, and empathize with consumers
around the world.
• He must retain Starbucks inventiveness in order to stay
relevant.
Thank You!