Todd Hollander Market Research

Starbucks would hardly appear to be a company in trouble. In its most recent quarterly earnings report, the $24 billion Seattle-based company reported a 22 percent increase in revenue and an 18 percent increase in net income from the year-ago quarter. Its same-store sales were up 6 percent.

But Starbucks chairman Howard Schultz is questioning whether Starbucks’ drive for growth and efficiency has diluted the customer experience. In a blunt Feb. 14 memo, he warned executives that the chain may be commoditizing its brand and making itself more vulnerable to competition from other coffee shops and fast-food chains. The memo, first leaked to the Starbucks Gossip blog has been reported in the Wall Street Journal, New York Times, CNBC, Bloomberg, and a host of blogs. In it, Schultz wrote:

“Over the past ten years, in order to achieve the growth, development, and scale necessary to go from less than 1,000 stores to 13,000 stores and beyond, we have had to make a series of decisions that, in retrospect, have lead to the watering down of the Starbucks experience, and, what some might call the commoditization of our brand. Many of these decisions were probably right at the time, and on their own merit would not have created the dilution of the experience; but in this case, the sum is much greater and, unfortunately, much more damaging than the individual pieces.”

The authenticity of the memo was confirmed by a posting on the Starbucks web site, which elaborated: “We believe that success is not an entitlement and that it has to be earned every day. We do not embrace the status quo and constantly push for reinvention. This is a consistent, longstanding business philosophy to ensure we provide our customers the uplifting experience they have come to expect.”

The bottom line? The Chairman of one of the world’s most successful and rapidly growing companies has recognized and admitted that sound business decisions can have a detrimental effect on customer perceptions. In Schultz’s words: “This must be eradicated.”

This entry was posted on Thursday, March 1st, 2007 at 3:39 pm and is filed under Customer Satisfaction. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.