Friday, February 22, 2008

Reenergizing Starbucks

You know a company is good when the mere suggestion that a tiny fraction of its stores may be closing in the next 12 months is taken as a sign of general economic malaise. After all, if it's not the force of the global economy slowing down, how else might Starbucks explain the sudden deceleration of their growth? Surely it can't have something to do with their expensive, mediocre coffee (especially compared with much cheaper fare from McDonald's), right?

Well, according to this article in Business Week, maybe it actually does. I know, I know, this would mean that throngs of Wall St analysts and FOX News personnel would be wrong, but apparently CEO Howard Schultz thinks that yes, maybe Starbucks has been doing a few things wrong the past couple of years. Business Week's Matt Vella does a great job of outlining the current problems facing the company (the biggest of which being deteriorating customer experiences at existing stores, and a playing field crowded by the likes of Dunkin' Donuts, Burger King and McDonald's), but also notes some possible solutions:
Brian Collins, chief creative officer of New York's Collins design research firm, thinks "technology seems underleveraged at Starbucks." Collins says the company could better use its digital resources to learn the tastes of regular customers. "Somebody call Facebook," he jokes, suggesting the company should create social networking tools to foster communities and facilitate social interaction at individual Starbucks stores.

Others, however, remain adamant that it's the coffee, not the technology, that will see Starbucks through. Geoff Vuleta, CEO of New York innovation consultancy Fahrenheit 212, says he has a radical solution that will solve the chain's problems even as it soothes Wall Street's jangled nerves: Open a chain of microstores devoted solely to making coffee. "No travel cups, no music, no machines, just amazing beans and a narrow range of the best-in-the-world coffee drinks," he envisions. Such microstores, he says, could hone the Starbucks experience—and result in a smaller, less costly footprint than regular stores which change at a slower pace. Jeneanne Rae, president of the Alexandria (Va.) service innovation consultancy Peer Insight, agrees, saying, "They can't move away from the essence of the brand; they have to focus on getting back to the basics."
I've spoken to folks at Starbucks a number of times about kiosk and digital signage projects, and in general their opinion has been that less is always more, especially when it comes to any form of 3rd party advertising. While I'm generally bullish on the use of in-store technology, I think the idea of microstores that focus on a few key coffee products is the best idea of the bunch. While admittedly it's going to be tough cramming lots of Starbucks style and panache into a couple hundred square feet, working with a small environment and limited product range will allow the company to identify and enhance the most core elements of the Starbucks brand in a cost effective fashion. These findings, of course, can then travel back up the chain into their regular format stores quickly and with little risk, since they essentially will have been vetted by hardcore Starbucks fans frequenting the microsites.

There's lots of speculation as to what direction the firm will take. But we're going to have to wait until March 19th to find out the truth: that's when CEO Schulz will announce his plans for rescuing the company from mediocrity.

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