How to Reenergize Starbucks

Howard Schultz is back in charge, but the coffee chain is running low on steam. We asked experts how they would perk up the ailing giant

by Matt Vella

Getty Images

A languishing Starbucks (SBUX) could use a shot of espresso. The once amped-up chain of coffee stores has been stumbling. Its battered stock value was nearly halved in 2007; earlier this year it weathered a corporate shakeup which, along with a slew of other management changes, saw Chairman Howard Schultz take back the reins from ousted CEO James Donald.

On Mar. 19, Schultz will unveil a detailed rescue plan at the company's annual shareholder meeting. After his now infamous memo (BusinessWeek.com, 2/23/07) criticizing the "commoditization" of the brand was leaked in February, 2007, Schultz has been doing his best to rally his troops with a series of Churchillian communications, the tone of which underscore the company's turmoil. In a Feb. 4 address, for instance, he wrote emphatically, "We will not be deterred from our course—we are and will be a great, enduring company known for inspiring and nurturing the human spirit."

Practical introductions could range from new stores to new drinks (in some markets, $1 cups of coffee are already being tested, while other stores are peddling ultra-premium "fresh pressed" coffee). BusinessWeek canvassed a broad range of market analysts, branding experts, and innovation consultants to assess the potential elements of a new Starbucks game plan.

Refocus on the Experience

First and foremost: the stores. Almost all those surveyed agree with Schultz that the Starbucks experience has been significantly downgraded as a consequence of its rapid expansion. Starbucks once excelled at introducing the hip, neighborhood coffeehouse vibe into disparate markets. But as company executives shifted the focus to improving profitability, comfy couches were out; promotional music stands and racks of coffee-related knickknacks were in. "Starbucks really needs to refocus on the luxury coffee experience; the smells, the sounds," says Dean Crutchfield, a senior vice-president of marketing at Wolff Olins, a branding firm with offices in New York and London. "And they could mix up the retail presence to be less cookie-cutter, perhaps using a modular system of bars and furniture. A different store design could give different locales their own sense of richness."

Andrew Zolli, founder of the Brooklyn (N.Y.) innovation firm Z + Partners, agrees, noting the company needs to "embrace a radical localism." Zolli says while there are thousands of "local Starbucks, most stores aren't embedded in the local culture." Zolli continues that the company could improve bland stores by actively supporting local groups and encouraging more community events. And Thomas Pridham, senior vice-president of the San Diego-based Service & Support Professionals Assn., an industry trade group, thinks the company should make more of its existing support of numerous fair trade and charity programs.

On Jan. 30, Schultz, who oversaw the hip chain's transformation into an organization with some 15,000 cafés worldwide, did confirm the company would respond to falling customer visits in the U.S. by opening fewer new shops this year and closing 100 unspecified, underperforming locations. That means around three stores will open every day this year—last year it was five. Executives also forecast downbeat annual profits below analyst expectations, saying they would stop giving same-store sales numbers for the rest of 2008 and halt annual earnings forecasts in 2009 in an effort to insulate Starbucks' stock price as growth continues to slow.