How Starbucks reinvented itself way back in 2008
To say the coffee industry is massive is simply a massive understatement. Did you know that on average, over 2.3 billion cups of coffee are drunk globally in a single day? By itself, the coffee market is the second most traded commodity in the world after oil.
Starbucks is by far the most popular coffee chain in the world, with over 30,000 stores around the globe. One of the largest reasons for their success is tied to how they transformed coffee culture in major countries such as the United States.
Prior to Starbucks’ founding in 1971, coffee shops weren’t very common in most countries outside of Europe and Australia. In March 2008, Starbucks embarked on several initiatives to reinvigorate the ‘coffee experience. Some of the key changes Starbucks made were not only huge but carried big risks. To begin with the company provided customers who had registered Starbucks cards – free upgrades on a latte, giving back as much as 30 to 70 US cents per drink to the customer. Also included in this offer was free drip re-fills – all of which a senior executive of Starbucks termed “worth it”.
Before this, Starbucks took the unprecedented step of closing all of its 7100 company-owned stores in the US for three hours,(Leaving 4000 locations that were operating under license open), to re-train 135,000 baristas.
Part of the training involved the correct way to pull an espresso into a shot glass – not a paper cup. The move not only cut short the waiting time in queue lines, but also sent a clear message that Starbucks cared about quality – because with a clear shot glass, a barista can make certain that the espresso settles into three layers – unlike in ‘fast food’ outlets where beverages are pressure pumped into cups for delivery.
The changes were prompted after Starbucks experienced its first dip ever into the negative growth zone in the 3rd quarter of 2007 ending September, when traffic at established U.S. stores fell 1%, exacerbated further when it dropped again - 3% in the next quarter, and consumers showing boredom with Frappuccinos (accounted for 15% of sales). It was then that Howard Schultz stepped in January 2008, announcing, “It’s a time for reinvention”.
Schultz, who was hired in 1982 as Head of Marketing left the company in 1985 after failing to persuade Starbucks founders Baldwin and Bowker (who had named their 1st store ‘Starbucks’ – after the first mate in the classic novel Moby Dick), to embrace the café idea. They preferred that it strictly remain a coffee and equipment seller… than have it turned into a café serving espressos and cappuccinos.
After leaving, Schultz started his own coffee chain called ‘Il Giornale’, which became an instant success. Schultz returned in 1987 to buy Starbucks for US$3.8 million after it was put up for sale, thus beginning his journey towards turning it into the company he envisioned. This included turning coffee into a social experience where you could sit and drink a cup with friends.
To Schultz, it wasn’t about just about coffee either. The company took care of its employees. In a game changing move for a food retailer, Starbucks offered health insurance - a costly policy that Schultz insisted on. He had watched, as a child, his family finances evaporate almost overnight, when his father, a delivery-truck driver broke his ankle at work.
Schultz got his people to seek out what customers really want. Are most people looking for an experience – a “third place” community feel (apart from office & home), or do most of them just want a good cup quickly? To Schultz, keeping in touch with the past is key to future success. His mantra: “Remember who you are is the first step to becoming who you should be” has contributed to how his coffee bars have changed the way people perceive the beverage.
Soon the company entered into a meteoric period of expansion that continued after Starbucks went public in 1992. Just after 1996, Starbucks became, and is today, the largest coffee-house chain in the world.
Shafeek Wahab – Editor, Hospitality Sri Lanka, Consultant, Trainer, Ex-Hotelier
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