Starbucks was forced to shut 600 shops. In 2008, Starbucks stock dropped by 50 percent, its profit had dropped 28 percent compared to 2007. In 2009, it had to close another 300 stores and laid off 6,700 employees.
What happened back then and What saved Starbucks from deviation?
Introduction
The first Starbucks store was opened in 1971. The company was a single store in Seattle’s historic Pike Place Market, back then.
Howard Schultz, who served as the CEO and chairman in 1987 to 2000, had a vision to bring the Italian coffeehouse tradition back to the United States. Back in 2008 ,when things went south, and Starbucks stock dropped by 50 percent, He took the charge as a CEO again. Schultz summarized what went wrong beside the Economic recession as “The commoditization of the Starbucks experience” .
And here are some insights;
1. The growth and brand commoditization.
He sent a memo to his employees on the first day he took off his position reminding them of what matters:
The company shouldn’t just blame the economy; Starbucks’s heavy spending to accommodate its expansion has created a bureaucracy that masked its problems.” Schwartz said.
Since the year of 2000, Starbucks was growing and scaling from less than 1,000 stores to 13,000 stores. Therefore, Series of decisions have been made, that overlooked completely the “ Starbucks experience” and the vision of being “a place for a sense of community”.
For example, Starbucks replaced the Marzocco machines with automatic espresso machines to improve its service. Meanwhile, they overlooked the fact that they were ruining the “Starbucks experience”. It went worse when the machines blocked the sight line, depriving the customer to enjoy watching their coffee being made and indulge in the full experience.
Another example is the fresh roasted bagged coffee in every international market which is definitely more effective solution than people scooping fresh coffee beans and enjoying instant grinding. However, it was again affecting the experience, the aroma, and the ambience that customers care about.
2. The Competition as a consequence.
The design of the stores was changed in a way that customers become unaware that Starbucks is roasting coffee. Consequently, customers are no longer getting along with the new ambience or the message from being in a Starbucks store. Starbucks deviated from the main goal of being a third comfortable place between the office and home; which in return led to competitors, of all kinds, to start attracting Starbucks customers. In 2007, McDonalds took advantage of Starbucks deviation from what made it successful in the first place. It was a brutal competition since McDonalds started to work on the quality of coffee and the service, which in return led to a huge drop in Starbucks’s stock.
3. Back on Track
It’s clearly that Schultz main focus was entirely on the cornerstone of any business which is “customer’s experience”. He proved how being focused on expansion and growth at the cost of customer’s experience could dramatically impact any business.
“ It’s time to get back to the core and make the changes necessary to evoke the heritage, tradition and the passion that we all have for the true Starbucks experience”.
Here are some insights on what Starbucks had done to bring back the best experience to their customers;
1. In March 2008, Starbucks launched an initiative ‘My Starbucks Idea’ allowing customers to exchange ideas with each other and with the company directly. Customers were able to give feedback and suggestions on the products, services, layout, in-store music, etc. More than 90,000 ideas were shared by about 1.3 million users on social media, and page views per month rose to 5.5 million.
2. The second initiative was ‘My Starbucks Signature’, that allowed consumers to develop their own signature drinks (hot or cold coffee), name the drink and share the new flavor with the community. Therefore, Starbucks informs the consumer of the product offering they have at their stores across the world.
3. The marketing teams made an early bird promotion to increase customer visits to stores during breakfast time. It included a free pastry with a coffee. This created traction online and over one million people across the US queued up at Starbucks outlets.
In June 2016, After the big movement that Schultz has made by evoking and innovating “ The customer’s experience” Starbucks share price was tripled and in December 2016, and Schultz decided to step down as CEO..
