What Would You Do? Case Assignment #1 STA-i3L;Ls.ixz'r Seattle Washttigtori. Twenty- years ago, if ¦ou said, "Give me a venti, vanilla. nonfat gaffe, no room, three Splendas," people would ha\ e thought you were speaking a foreign language. And you would have been because Starbucks Was just getting started, h began with 4 stores in Seattle in 1087, and tkxlay them arc over XXXXXXXXXXstores in 40 different countries, That means Starbucks has opened an meratte of s new• stores per day' unfortunatek, \\jib profits n a thing of the past. Starbucks has SOO stores and laid off -25,000 workers, Starbucks clearly overexpanded. providing fodder for late-night TV comedians who have cracked jokes about Starbucks opening new stores inside existilv, stkr.s, ,'Itstomer Leslie tiller said, "Starbucks was stupid. They put them right next to each other." Because managers f:„-. on opening new stores for new customers, they paid less attention to existing stores where sarne-store sales dropped 'c•¦ pereent, While that doesn't seem like much, Starbucks has to lose only 6 to S customers per store per day to see a _'creent drop in a store's sales. In other woods, small changes in customer buying, habits make a big difference in Starlit :.',, th and mlitability. Consumers are stretching their dollars, winch means Starbucks is fighting the perception--some would say reality-- that Starbucks is a luxury. McDonald's coffee is undoubtedly cheaper, but Starbucks points out that half of its coffee drinks are less than 3 dollars, while one-third are less than =dollars. Morro\ er. Starbucks coffee is actually less expensive than Dunkin' Donuts coffee :tiler adjusting for the small serving sizes at Dunkin' Donuts, Most consumers, however, don't see it that way. Graduate student Amy Osbourne has cut her monthly Starbucks budget front $60 to $30. Said Osboume, hmen't been going as often. I've been makin,g my tea at home," When Starbucks' board of directors fired CEO James Donald, it asked founder Howard Schultz to take charge again. Even though he had stepped down as CEO to become the board's chair in 2000, he stayed involved in such operational details as deciding the color of holiday cups. Schultz has always been a detail-oriented, hands-on boss, a perfectionist who demands a lot of last-minute changes_ When Starbucks launched its new Pike Place Roast coffi.vs he selected the logo and then had it redesigned right before going to market. He even rewrote the press mlease. Schultz is revered at Starbucks and workers sometimes applaud when he enters meeting rooms or stores. He is such a legend within the company that -What will Howard think?" drives [Walt all decisions, Not surprisingly, that creates a tremendous amount of anxiety among managers and employees. Schultz recognizes that this isn't a good thing. Said Schulz, "it's not healthy for the organization if every one's waiting for me to tell them what to do" Still, Stanley Hainsworth. who w as a \ tce president under Schultz, would ha\ e to tell people, -You're not meeting with the king." Said Hainsworth, "A lot of people were nervous, so if Howard asked them what they thought. they would tell hint that he wanted to hear." Schultz's return has unforttmately not yet produced a turnaround in sales or profits. Shultz, who is feeling the pressure. told employees. "We have to defend our position; we have lots of companies small and large who want to take a piece of our business away
Questions 1. S. w hat dot's Starbucks need to do to return to growth and profitability? Should it lower prices Should it expand its menu? What should be its strategy? 2 Vs founder, Schultz brought enormous success to Starbucks, But is he the right leader for Starbucks no\O Should he continue as CEO? Is he meeting his basic responsibilities as Starbucks' top manager? What key mistakes is he making? Finally, how should Starbucks counter its new competition, NICD011ald'S and Dunkin' Donuts? If you were CEO of St tacks, what would you do? Sources: "Is the Global Domination of Starbucks Fireany on the W ane?" Be is =e t1 zoos, 1; J. Adam¦r, "Schultz's Second Act belts of Starbucks lownse- He faces Now Pr'''-'1orc: Pt3tz erns a Stake: rOw 117e; 9/reet Jourikri. l t M-3, 2003. Al: M. Barbaro and A. Martin, "thertaul, Make It a Venti: The No, Fork Times, 30 Jam' N.M., Cl: E. CImpbell, AilukIrth, and A. Jennings, "Averkge Joe Figured Out the Problem a While :ego." The Boston Gltiv, 3 A4 2008, El; P. McNamara and B. Hotchlitmvt. "Not So Grande for Starbuck. Java Giant's Bean Counters to Close O00 Stores." New York Doii:v Vim. 2 Jul 2008, ec D. Mitchell ss&att'u&s F Existential Crisis in Downturn," The Wasinvttvi Past, 2:2 Mardi 2009, G01,