Starbucks Case Study, August 2008 Recap: Howard Schultz in and out as CEO Howard Schultz has been

in and out of Starbucks as the Chief Executive Officer since 1987. In 1971, Starbucks was founded in Seattle, Washington. Shultz joined the firm in the mid-1980s and decided to start “Il Giornale.” In 1987, he purchased all of the Starbucks’ assets and become the CEO. Former CEO Jim Donald joined Starbucks in October 2002 as president of the North American division and became CEO effective March 21, 2005. Two years later on February 14, 2007 the infamous “Valentine’s Day Memo” was sent from Schultz regarding business decisions that may have led to negative effects in Starbucks. Donald was asked to step down as CEO in 2007 as a result of slowing of same-store sales and Schultz was asked to return to his former CEO position, effective January 7, 2008. From the February 14 memo: “…one of the results has been stores that no longer have the soul of the past and reflect a chain of stores vs. the warm feeling of a neighborhood store. Some people even call our stores sterile, cookie cutter, no longer reflecting the passion our partners feel about our coffee. In fact, I am not sure people today even know we are roasting coffee. You certainly can’t get the message from being in our stores.” Capsule History of Starbucks Starbucks as been in operation for over two decades in the United States as well as into Europe, Asia and is currently working on Central and South American expansion. They continued to experience growth in revenue for YE 2005, 2006 and 2007 which has been said to be attributed to an increase in domestic and international stores, product development and mix changes as well as increase in prices. Growth relies mostly on visibility, word of mouth, saturation store placement and other informal marketing methods. In November 2007, however, Starbucks launched its first-ever nationwide TV ad campaign as a result of sluggish traffic in US stores. Net income was up to 26M USD in 1995. After growing share price from 1992 to YE 2004, the market has been volatile with marked downward trend. Stock price peaked at ~40 USD in May 2006. At the time of Schultz’s reposting, shared were down to $18.38 USD. Finally, on April 24, 2008, shares hit a 52-week low of $15.39. The firm has never once paid a dividend to shareholders.

John Legend.Recent years have brought much more competition. Firms include McDonalds. “Workplace. An “Environmental Mission Statement” articulates the importance of understanding environmental issues and buying and selling environmentally friendly products. Keith Urban and Paul McCartney. “Project Runway. the firm formed Hear Music in March 2007. To expand beyond the record label. Hear Music was to form relationships directly with artists and distribute recordings.” Musicians in this category included Bob Dylan. clothing). A Key Performance indicator addresses a variety of categories including the firm’s past. which was visible in the 2005 Key Performance Indicator. evidenced by their Mission Statement talking to concerns from employees. which is different from years past.” The purpose of this collaboration was to create limited-edition T-shirts that represented customers’ favorite drinks. as many firms in the food industry are trying to break into the coffee market.” “Partner satisfaction” and “Partner engagement” percentages were absent. Product Mix: Since the February 2007. In addition to adding merchandise to its line. Starbucks has made many different changes in its product mix with both the core (coffee. food) and non-core items (music. Among the non-core product extensions includes teaming up with the Bravo Network series. Joni Mitchell. Dunkin’ Donuts. Additionally. This promotion celebrated the launching of wireless iTunes Wi-Fi music store in more than 600 locations including New York and Seattle. environment and communities. Annie Lennox. This type of promotion was an attempt on Starbucks’ behalf to build its business beyond coffee and beverages to include merchandise such as books and mugs that have entail lower labor costs. Starbucks additionally teamed up with iTunes to give away 50 million songs that included selections geared towards a “younger generation. These shirts included graphic icons that represented beverage choices such as a grande iced triple 2% latte or a tall skim cappuccino with sugar-free vanilla syrup. Wendy’s and Sheetz. In 2007. present and future goals and whether or not they were successful in achieving them. Corporate Social Responsibility: CSR is a central element to Starbucks’ philosophy. Joss Stone. who have all added less expensive coffeebased items to their menus. On top of the 50 million songs. a record label with the Concord Music Group. volunteerism declined and there was no report of health and safety under the “Employee” portion of the report. Paul McCartney was signed as a debut artist and records were released by musicians such as Ray Charles and Sergio Mendes. .

The new item was called Pike Place Roast. What experienced even more changes that Starbucks’ non-core products. This plan didn’t last very in March 2008. redeemable at the Apple Inc. Schultz made it a goal to “bring back the soul” and introduce a new blend that would attract the original Starbucks drinkers from the 1980s. introducing MyStarbucksidea. were its core source of revenue. an “everyday” brew.” The website was monitored by a select team of employees that were able to respond back to . as they decided in December 2007 that they would stop serving warm breakfast items. the firm turned to the Internet. Changes included alterations in healthfulness of beverages. the statement was also made that work was underway to remove trans fats from markets outside North America. For the additions that Starbucks made. however. This move wasn’t expected to have a negative toll on Jones. they decided on eliminating products as well. to new items. breakfast items to capitalize on instore breakfast traffic. The purpose of this was to create more room for lunch items such as salads and sandwiches. At the time.Starbucks offered its customers a free “song of the day. This was a website where coffee fans had free reign to suggest coffee flavors or other products that could be added to the Starbucks menu in order to enhance the “Starbucks Experience. to removed items. via customer requests. to customer feedback. the company started to look towards adding low-calorie food and beverage options to its menu and had an entire time working on a “better for you” program. served in specially designed cups using the original 1971 logo. continue to work on the healthfulness of their products. The firm gave out loyalty cards in March 2007 for free refills and two hours of free wireless Internet to lure in customers. as Starbucks sales only amounted to under 3% of Jones’ total revenue.000 locations. Due to sluggish store traffic. Two more additions to the menu that took place in April included a fresh fruit and whey smoothie and an icy/sweet beverage developed with an Italian company. in November 2007 the firm announced plans for a nationwide TV ad campaign to reach out to more customers. They did.” at over 10. In April 2008. Starbucks made other attempts to spread the word. its beverages. portions. such as Jones Soda. In March 2007. Then. After using TV as a form of promotion. Additions included warm sandwiches. iTunes Store selected by Starbucks Entertainment. announcing the elimination of trans-fat usage in all US. Outside core and non-core products. the use of whole milk was eliminated from products and 2% became standard. UK and Canada stores by YE 2007. On April 8 the company offered free 8 oz.

In June 2007. Among these include decrease in calories for bakery and beverage items and increasing the percentage of customers who view Starbucks as having healthy menu options from 21 percent to 50 percent by 2010. What Starbucks experienced even more than changes in number of stores opening and closing. closings and expansions. 200 of these stores being international locations. In other areas. They announced a plan to open 10. . Later in the year. the target was changed from 2400 to 2600. organizational shuffling. Corporate and Organizational Changes: Over the past few years. shares hit a 20-month low and the firm announced plans to open 2400 more stores in 2007. Shultz announced an overhaul in management structure. Starbucks also expanded its relationship with PepsiCo for ready-to-drink beverages available in China. CFO Peter Bocian replaced Michael Casey. to receive an annual salary of 575K. (See Exhibit 1) Other notable differences include the heightened concern in terms of healthy products. Starbucks has experienced a number of store openings. 2006 Health & Wellness goals include investigation into the use of organic ingredients. Internationally. After which. Eventually. Starbucks made adjustments to expand business around the globe. Finally.customers and report suggestions to more decision-makers of the company. while Casey transitioned into a senior advisory role. According to the 2006 CSR report. as seen in Exhibit 3. the firm planned on the addition of UK and Ireland stores to 100 in 2008 and a store in Lyon. Schultz continued to lower the pace of new stores openings to 1. the Starbucks license in Quebec and Atlantic Canada. France. menu customization and readily available nutritional information.000 more store by YE 2011. Martin Coles moved from the position of President of Starbucks Coffee International to Chief Operating Officer in June 2007. however. Exhibit 4 examines the firms Health & Wellness goals for 2007. One of the largest changes occurred in January 2008 when Jim Donald was replaced with Howard Schultz at the Chief Executive Officer. To begin with. Starbucks announced the opening of 80 stores in greater China for the following fiscal year as well as a joint venue with Mexico to form Café Sirena as part of Latin American expansion. eliminating 600 field-operation positions and 220 corporate-level jobs. In July 2007. the firm decided to close 45 grocery stores at Save Mart and Lucky. brought development rights from Coffee Vision Atlantic. a Mexico restaurant operator signed a letter of intent to develop coffee shops in Argentina and Chile.600 in the US and closed 100 underperforming stores by September 2007 and cut face for new store openings by 425. especially.

On February 4. having a renewed clarity of purpose and are laser-focused on the customer experience.” others found the ability to get in and out of the store appealing and kept them coming back. Additionally. Additionally. a new position in the company. he approved of the elimination of La Marzocco machines for automated machines. While some customers missed the loss of “soul. Although an attempt to increase efficiency. left the company in April 2008 to “pursue other business interests.starbucks. these two decisions resulted in a loss of aroma in every store. In February 2008.000 Starbucks stores for a 3. he eliminated the scooping of whole-bean coffees and merchandised stores with prepackaged bags. February 11.000 emails from customers and employees with suggestions on improving the dedicated “Transformation Agendas” sent by Howard Schultz to updates shareholders about Starbucks’ progress to rebrand itself and reconnect with its audience. 2008 the memo discussed receiving 2. Schultz shares thought that he “knows to be true” that include roasting the highest Arabica coffee in the world. It . Starbucks acquired Coffee Equipment Company that makes a non-drip machine to allow baristas to deliver one freshly brewed cup of coffee at a time. Schultz closed over 7. 2008’s memo announced the in-store education and training event for a hands-on espresso training experience. Chris Bruzzo was named the Chief Technical Officer.5 hour barista training to “perfect the art of espresso.” New equipment was ground in for efficiency and customer connection. The goal of this education session was to provide a renewed focus on espresso standards for a high-quality beverage. similar to a French press. President of Entertainment. the US field operations were organized into four divisions instead of two creating: Western/Pacific. They added a shorter automated espresso machine so that the customer could make eye contact with the barista as they create an espresso shot. Efficiency in Starbucks Equipment/Preparation of Core Products: As a part of Schultz’s effort to “bring back the soul” to Starbucks. Northwest/Mountain. Reconnecting with the Starbucks Image: Transformation Agendas to Starbucks Partners: There is a series of pages on www.” Furthermore. He voices his high expectations of customers and employees and encourages them to continue communication. Southeast/Plains and Northeast/Atlantic.Harry Roberts returned to the company as Chief Creative Officer and Senior VP while Terry Davenport was appointed as Senior VP of marketing to lead a new marketing and brand strategy function. Ken Lombard.

the Pike Place Roast.” he spends time to announce the introduction of a new coffee. In this agenda. Other “agenda” items include modifications in a variety of fields from US Store Development. he discusses the opportunity to celebrate history and take everybody “back to the future.000 shares. do these events show a measure of success of failure on Starbucks’ part to rebrand them selves and bounce back? Essentially.4% in pre-market trading. a lot has happen in Starbucks’ history and then Peltz invested in 900. 2008. as the SEC showed that Nelson Peltz’s Train Partners has a new stake in the coffee retailer.000 shares in Starbucks.” (See Exhibit 6) Where Did Starbucks Go from Here? On May 16.demonstrated focus on transforming the Starbucks Experience for both customers and partners. to US licensed Stores. to Marketing and Global Communication. Later on in Schultz’s list of “agendas. what is he trying to insinuate? . Given the previous pages. The activist investor has about 900. Starbucks advanced 2. to Partner Resources.

Non-Core Month February 2007 Core Product Non-Core Product Project Runway limited edition t-shirts that represented customers’ favorite drinks Formed “Hear Music.000 stores with Wi-fi by May 1. Core vs.Exhibit 1:Product Mix. Alaska. Wi-Fi Music stores live in 600 locations Outlined plans for first ever nationwide TV ad campaign Stopped serving breakfast sandwiches Targeted more than 7. Switched to 2% as standard milk. Canada. for qualified AT&T customers . Used old 1971 logo Dropped Jones Soda to make room for salads and sandwiches Gave away 50 million iTunes songs. June 2007 September 2007 November 2007 January 2008 March 2008 April 2008 Customer loyalty card for free refills and two hours of free wireless internet Introduced “Pike Place Roast” coffee and offered free 8-oz cups on April 8.” with Concord Music Group March 2007 May 2007 Planned on adding low-cal food and working on a “better for you” program Eliminated use of transfats in all stores in continental US.

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