February 22, 2008 – Business Management Article

Starbucks, the leading retailer, roaster and brand of specialty coffee in the world, has been struggling amidst a faltering economy, its own rapid growth (international expansion and growing presence in 43 countries) and increased competition from cheaper rivals. Starbucks wants to turnaround its business by providing customers with the distinctive Starbucks Experience and building on Starbucks legacy of innovation.

The return of Schultz and the Starbucks success story

Howard Schultz returned in early January as Chairman and Chief Executive. Schultz had served as chief executive officer from 1987 to 2000, a period where Starbucks enjoyed exceptional U.S. and international growth. Schultz is acknowledged as the architect of Starbucks brand image and a coffee visionary . In 1982, he joined Starbucks Coffee Company as director of operations and marketing. At that time Starbucks had only four stores. In August 1987, Schultz purchased Starbucks Coffee Company. In 1992, under his leadership, Starbucks was the first specialty coffee company to become a public company. The growth of Starbucks has been amazing: from 17 stores in 1987, to more than 15,000 worldwide today.

The Restructuring Moves

Ever since his return, Schultz outlined a series of initiatives to help transform Starbucks. These initiatives were largely governed by the principle – ‘getting back to the essence of what drove Starbucks past success’.

Soon after Schultz returned as CEO, quite a few top management jobs were shuffled and some new posts were created like the chief creative officer to lead efforts to improve the experience customers have in the stores. For the first time, Starbucks unveiled plans to start offering limited free wireless Internet service. The partnership with T-Mobile – which only offered a paid subscription service – ended with switching over to AT&T Inc.

Commenting on the recent reorganization efforts Schultz said, “We realize that we are operating in an intensely challenging environment, one in which our customers and (employees) have extremely high expectations of Starbucks. And we have to step up to the challenge of being strategic as well as nimble as our business evolves. Unfortunately, we have not been organized in a manner that allowed us to have a laser focus on the customer.” He added that the company will be reorganized from two to four U.S. field divisions, in an effort to “enable the company to align our leaders closer to our customers and partners.” The East and West divisions will be replaced with four new ones: Western/Pacific, Northwest/Mountain, Southeast/Plains and Northeast/Atlantic.

No warm breakfast sandwiches and job cuts

In January 2008, Starbucks announced that it will stop selling warm breakfast sandwiches. The reason: the egg, cheese, bacon and ham competed with the coffee aroma in stores. Perhaps to re-ignite the emotional attachment with customers and restoring the connections customers have with Starbucks® coffee, brand, people and stores. A three-hour training session for all employees on making espresso was also scheduled.

In 2008, Starbucks will open hundreds fewer U.S. stores than initially planned and will close about 100 poorly performing domestic stores. It will ramp up its expansion overseas to increase the profitability of Starbucks outside the U.S, even redeploying a portion of the capital originally earmarked for U.S. store growth to the international business.

Also, in February 2008, Schultz announced 600 job cuts (about one-third who worked at the company’s Seattle headquarters in the US) in an e-mail to Starbucks’ more than 170,000 employees, calling it a difficult decision aimed at sharpening the company’s focus on customers. Some analysts felt the move was to remove bureaucracy and lower costs.

More restructuring changes will be announced at the company’s annual meeting on March 19.

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Keywords: Brand Strategy and Management, Coffee Retailing, Corporate Restructuring, Starbucks, Turnaround Strategies