Thursday, March 25, 2010

#Starbucks Solution For Success

History lessons for Starbucks 
Big quick service chains reach a tipping point around their 40th anniversary  or 10,000 units, whichever comes first.  For context, Starbucks is at listed at number 4 in QSR Magazine's flawed complete top 50 listing of QSR (LAZY research!) chains.  Keep in mind that this list is only US units, in an industry that is eminently global (YUM revenue from operations in China are equivalent to any one of the brands revenues in the US).  If you don't want to follow the link, consider that McDonalds operates over 35,000 units worldwide, and the three brands of YUM! account for more than 36,000.  Starbucks operates 16,635 units according to the 2009 Annual Report.  

When a chain gets so big, it achieves a kind of runaway critical mass- the size and the demands of growth trump the values and core founding principals.  This is not the function of dumb executives, avaricious owners, or evil capitalism.  It is a chain of events that forces companies to a centralized mindset to control every aspect of the business, including the customer experience.  In foodservice, the most personal of businesses, this is when things get pear shaped.

Starbucks' solution 

Partners first. That is THE cornerstone of the SBUX future success model. It is the best way to ensure the kind of path ahead will be different, better than those companies that have preceeded it.

The path of Starbucks has been well documented. It has negotiated the past couple of years, it's first significant challenge with success.   The day to day leadership of Howard Schultz is a significant ingredient.

At the shareholder meeting he recounted the day when, in the deepest part of the downturn in SBUX fortunes, he was confronted with the choice to legitimately dial back the ever escalating cost of health care benefits. It is to his credit he declined. His passion for this particular benefit, informed by his youth, is well known. I believe he has it exactly right- this feel-good, humane policy is a competitive advantage that helps define the brand. It also symbolizes a corporate strategy to significantly and meaningfully keep the sloppy, informal, messy human interaction at the counter "real", in spite of the risk of inconsistency.  And in doing so to express real confidence in the people of the organization, top to bottom.

And the stores matter

In the coming years Starbucks will continue to grow. This is a big brand, with a need to get bigger. The comparisons come easily- QSR chains have been on this path with a 20 (or more) year head start. How can SBUX avoid the QSR pitfalls?  SBUX revealed a growth strategy of building billion dollar brands launched from the credibility of the Starbucks store system. Leveraging this asset base seems obviously brilliant. It only works if the magic of the Starbucks experience is evident where it begins, the store.

When a company stamps out tens of thousands of points of distribution, real estate, systems and capital allocation start driving the bus. The front line operators live on the traditions of excellence that built the business. They erect bulwarks of resistance to change that delay the erosion of their importance to the business model.

What happens at the counter dictates long term success

Operators suffer when they have to face customers in buildings that are deteriorating, or with too few co-workers to properly serve, or having to serve product they know has been "improved" to a state of mediocrity.

There is an alternative. High standards, disciplined reinvestment, and a real sense of the importance of front line people. The latter is the most difficult attribute to nurture. It, unlike sincerity, can't be faked. Starbucks has always valued its people, above all else. And it continues, in the Starbucks tradition.  That is the delicate thread that will hold the concept together, that will enable the company to imbue partners with a legitimate sense of ownership, that will enable growth in the brutal QSR industry.      

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