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Did Starbucks Outgrow Its Cozy Essence?

Stocks in this article: SBUX

This is a remarkable e-mail. First, Schultz talks about the devastating eff ect of the creeping dilution of the Starbucks brand -- several small steps taken in the interests of efficiency and productivity that diluted the brand and the customer experience. This is an important point. Several productivity enhancements were made by Schultz's successors and perhaps no one of them alone would have diluted the brand but, when added together they had enormous and, for Schultz, adverse consequences.

With the ambitious growth agenda implemented by Donald, it is unclear whether anyone seriously considered the impact of such growth on the customer experience. Where were the critical inquiry, the constructive debate, and the constructive dissent? Were Donald and Coles caught up in scoring high quarterly earnings numbers? Did Starbucks consider or debate the risks of growth? Failing to consider these questions about the consequences of growth is risky if an organization wants to avoid diluting the customer experience that made them successful to begin with.

In his e-mail, Schultz implies that the rapid growth-dilution of the Starbucks customer emotional experience made it easier for competitors, such as Dunkin' Donuts and McDonald's, to make inroads against Starbucks. Schultz's e-mail raises other issues as well: Why did Schultz put his concerns into an e-mail that could be widely distributed rather than, as chairman of the board, have a heart-to-heart with his management team?

Second, he does not talk about the potential cannibalization of its existing stores that would likely result from the significant new openings. Last, Schultz was concerned that by its rapid growth Starbucks had lost its essence of who it was, which drove its customer value proposition and competitive differentiator. The drive for operating efficiencies and store opening efficiencies trumped the sight, aroma and feel of coffee. Did Starbucks lose its essence?

Edward D. Hess is a Professor of Business Administration and Batten Executive-in-Residence at the Darden Graduate School of Business at the University of Virginia. He teaches MBA and Executive Education courses on corporate growth and has written eight books, numerous articles, and more than forty Darden case studies on the topic. His commentary has appeared in more than one hundred media outlets, including Fortune magazine, the Financial Times, CNBC, Fox Business News, businessweek.com, Forbes.com, Wallstreetcheatsheet.com, among others. For more information or to contact Professor Hess, please visit www.EDHLTD.com.

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