Starbucks' 'venti' problem
COFFEE ADDICTS WERE SHAKEN, and stirred, recently when a memo written by Starbucks Corp. founder and Chairman Howard Schultz was posted on the Internet. Noting with a mixture of pride and horror that Starbucks has gone from 1,000 to 13,000 stores in 10 years, Schultz expressed regret over a "series of decisions that, in retrospect, have led to the watering down of the Starbucks experience and what some might call the commoditization of our brand."
"Some people," Schultz wrote, "even call our stores sterile, cookie cutter, no longer reflecting the passion our partners feel about our coffee."
The memo was seen as a rare example of brutal executive candor. Of course, to this Starbuck's habitue (doppio espresso, no sugar) it would have been more timely, say, five years ago, back when there was still a block in midtown Manhattan that didn't have a Starbucks.
But the Schultz memo is interesting and useful nonetheless, because it shows that even an iconic company that serves a highly addictive product can water down the immense value of its brand by expanding too far and too fast and in too many directions at once. Sadly, this is a fate that befalls many American companies. Time and again in recent years, we've seen small, cutting-edge and quirky brands gain critical mass -- only to lose their charm and customer appeal after they engage in breakneck expansion.
Why does this happen? Companies can't help it, in part because the huge macroeconomic forces that dictate corporate behavior impel them to expand too fast and too wide. But at the same time, the powerful psychological forces that dictate consumer behavior can cause customers to recoil from the chains they once loved.
Many of America's best-known chains came of age in a period in which it was easy for companies to go public at a comparatively young age. And publicly held companies, whether they make turbines or tiramisu, are programmed to maximize efficiency and increase sales every quarter -- no matter what. Inevitably, this mentality leads to the cutting of corners.
In his memo, Schultz noted that increasing the scale of Starbucks had led to a number of necessary corner-cuts: For instance, the introduction of "flavor-locked packaging" that has caused stores to lose their distinctive aroma, or the decision to install automatic espresso machines. "We solved a major problem in terms of speed of service and efficiency," Schultz noted, but "overlooked the fact that we would remove much of the romance and theatre that was in play with the use of the [La Marzocco] machines."
