Thursday, January 10, 2008

Unsolicited Strategy Suggestions For Starbucks’ CEO

I’ve been following the news about Starbucks founder Howard Schultz taking back the reins as CEO of Starbucks, and the under whelming plan of attack the company has laid out has left me scratching my head a bit.

Tuesday’s edition of The Wall Street Journal quoted Schultz saying he would slow the pace of new store openings in the U.S. (the company had planned to open 1,600 stores) and close some struggling locations, and instead accelerate expansion overseas. Beyond those changes, the only strategic shift mentioned was to improve customer experience at U.S. stores. With their share price down almost 48% from a year ago, I would have expected a more aggressive plan to fuel the growth engine.

I’m all for focusing on the customer experience, but I don’t think that area is where Starbucks needs the help. In my opinion, their stores are still the gold standard, and most of their current customers are extremely loyal. I would suggest the focus for Starbucks ought to be on attracting new people into the tent by taking a harder look at their marketing and menu items.

Now I’m sure Schultz has a lot of people sitting around the table in Seattle figuring out how to right the ship, but based on what I’ve seen so far, I think they are missing some obvious opportunities. Here are my unsolicited suggestions for Starbucks on kick-starting sales and share price:

Ramp Up the Outreach: Much of Starbucks’ meteoric rise was driven purely through word of mouth. Their customers were so passionate, they actively told friends about their experience and once someone sampled the product, they were hooked on the taste and the experience. Now with over 10,000 locations and McDonald’s making a push to grab a larger share of the coffee aficionados, Starbucks will have to work harder to draw new people into the tent. Given the targeted, creative messaging the retailer does in-store, I’d love to see the retailer be more aggressive with email marketing, social media, and other marketing platforms.

Expand The Menu: In the interest of full disclosure, I am not a coffee drinker, but I have still spent a fair amount of time in various Starbucks locations consuming their other offerings. I am a big fan of their breakfast sandwiches, but find their menu around lunch and other day-parts to be a little limited. I think this is a shot for Starbucks to turn the tables on McDonald’s and really ramp up its menu of food offerings and other non-coffee beverages.

In particular, I’ve always thought there was a missed opportunity for Starbucks to become a destination for desserts –think Cheesecake Factory without the long lines. In his letter to customers on the corporate website, Schultz did promise new beverages and products, so it will be interesting to see what they have planned. I would suggest they look closely at Dunkin Donuts, which has consistently done a great job of adding new flavors and then building up excitement around them with promotions and marketing campaigns.

Take Advantage of the Traffic: Starbucks had done a great job of branching into ancillary businesses, with music being the most obvious example. But considering the captive audience they have of devoted customers who spent considerable amounts of hours in their stores, there should be a way to cash in further on that traffic, maybe by branching beyond CDs into books, magazines, etc.

Every retail concept has a saturation point and with a Starbucks on every other block in major metro areas, Starbucks may be running out of room for growth. But considering the revolutionary job they have done in creating a great customer experience and building an extremely loyal customer base, I’m not betting on that just yet.

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