Starbucks: It鈥檚 not just about the coffee.
Starbucks’ continued success is not just about the coffee, but about the close alignment between its business and operating models.
Intro
The coffee shop chain that started in 1971, with a small retail location in Seattle and grew to become one of the world鈥檚 most admired companies of all time[1], has actually a surprisingly simple company mission.
鈥淭o inspire and nurture the human spirit 鈥 one person, one cup and one neighborhood at a time.鈥漑2]
At the end of Fiscal Year 2014, Starbucks reported more than 23,000 retail stores in 68 countries and revenues greater than $19 billion.[3] So there is no question about it: Starbucks is creating value, but how are they doing it? Is it simply by following their main goal of providing great coffee or is it more than that?
[4]
More than just coffee
Starbucks鈥 rapid expansion and successful market penetration throughout the globe can actually be attributed to a lot more than just coffee. Its business model relies on this very fact, because if it was just coffee, customers wouldn鈥檛 pay $4 dollars for a cup of coffee and more importantly, they wouldn鈥檛 be repeat customers.[5]
In addition to providing great quality coffee, Starbucks creates value by delivering an amazing experience to its customers, through reliable and friendly service and an amazing in-store experience.
Starbucks鈥 Partners
In order to create this nurturing experience for their customer, Starbucks relies heavily on its more than 200,000 employees. They are probably the most important piece of its business model. The only way to ensure that every store will feel like a comfortable third-place place for customers and that they will get outstanding service is through invested and well-trained employees.
Starbucks figured this out at the very beginning. Howard Schultz understood the important role that employees played in his company and so he decided not to treat them as employees but as 鈥減artners鈥. To make sure they felt like partners, Starbucks actually gave them stock in the company and it was one of the first companies to give benefits to part-time employees.[6]
[7]
Starbucks鈥 Suppliers
Another part of Starbucks鈥 business model is their commitment to quality and consistency of their products. You know what to expect when you walk into a Starbucks and you know that your Caramel Macchiato will taste the same no matter where you are in the world.[8] However, this promise of consistency is no small task and the company accomplishes this not only thanks to its employees, but also through its great relationships with suppliers.
Starbucks has gone to great lengths to foster a good relationship with the suppliers of its more important cost component, coffee. For starters, all the coffee that Starbucks buys is high quality fair trade Arabica coffee beans and for every pound they buy, Starbucks pays a premium that goes directly to the coffee farmers and their communities (e.g. enabling children in Costa Rica to go to secondary school). [9]
Furthermore, the company focuses on building the coffee culture throughout the organization. In Mexico, for example, every corporate employee has to do a two-week in-store barista training program. In other parts of the world, they host barista competitions and the best partners are trained to become 鈥淐offee Masters鈥 (similar to sommeliers but in coffee terms).
[10]
Innovation
[11]
Constant innovation is also something that puts Starbucks in the map and they try to be an innovative company in many different ways. However, their most critical innovations revolve around finding ways to reduce waste and increase their productivity (measured as number of transactions per labor hour).[12]
Their main concern is: 鈥淗ow do we get employees to get more coffees done in less time and with less waste?鈥 And they have addressed this question with a lot of very simple process improvements, such as buying smaller milk cartons, moving the syrups to be in a more easily accessible spot, designing new milk frothing jugs that allowed for faster heating, among others. As a result, Starbucks鈥 productivity increased from 8 transactions per hour to 12 in 2013.
Additionally, Starbucks has introduced other innovations, especially in the customer loyalty and mobile space with the Starbucks Card, Mobile Order and Pay, and Digital Tipping.[13]
Challenges Ahead
Now, I am not saying that they do everything perfectly, they of course have some flaws and make mistakes (for example they haven鈥檛 been successful in entering some international markets such as Italy, France and Spain, among other countries) and they have a lot of challenges ahead. However, they have also been incredibly successful and I think that the main reason for their continued success is the close alignment between their business and operating models.
Sources:
[1] Lorenzetti, Laura. 鈥淔ortune’s World’s Most Admired Companies: Starbucks, where innovation is always brewing鈥 (). October 30, 2014.
[2] Starbucks Corporation. 鈥淐ompany Information鈥 ().
[3] Starbucks Corporation. 鈥淪tarbucks Reports Record Fourth Quarter and Record Fiscal Year 2015 Results鈥 (). October 29, 2015.
[4] Krikorian, Matthew. 鈥淎 Starbucks on every corner: A guide to the SBUX business model鈥 (http://marketrealist.com/2014/01/starbucks-every-corner-guide-sbux-business-model/). January 27, 2014.
[5] Simonds, Lauren. 鈥淪tarbucks: A Model of Success鈥 (http://business.time.com/2013/08/27/starbucks-a-model-of-success/). August 27, 2013.
[6] Larimore, Rachael. 鈥淭he Starbucks Guide to World Domination鈥 (). October 24, 2013.
[7] Starbucks Coffee. 鈥淲hat It’s Like to be a Starbucks Partner鈥 (https://www.youtube.com/watch?v=XnEBixTe4ZI). June 14, 2012.
[8] Curtis, Chloe. 鈥淪tarbucks鈥 New Business Model鈥 (http://themarketmogul.com/starbucks-new-business-model/). October 1, 2015.
[9] Starbucks Coffee. 鈥淲hat Goes Into Making a Starbucks Coffee?鈥 (https://www.youtube.com/watch?v=DHKtKF-e42M). September 1, 2009.
[10] Starbucks Coffee. 鈥淵our Perfect Starbucks Latte鈥 (https://www.youtube.com/watch?v=qrVh4LLLd2s). May 4, 2010.
[11] O’Leary, Noreen. 鈥淪tarbucks Talks Logo Redesign鈥 (http://www.adweek.com/news/advertising-branding/starbucks-talks-logo-redesign-126217). January 5, 2011.
[12] Corey. 鈥淪tarbucks鈥 Productivity Secrets: More to it than Caffeine鈥 ().
[13] Starbucks Corporation. 鈥10 Starbucks Innovations of 2014鈥 (https://news.starbucks.com/news/10-starbucks-innovations-of-2014).
Other Sources:
Henricks, Mark. 鈥淭he Starbucks Business Model鈥 (http://www.entrepreneur.com/article/173256). January 31, 2007.
Starbucks Coffee. 鈥淢aking Your Cup a Perfect Cup鈥 (https://www.youtube.com/watch?v=mdewPUKAhMY). March 12, 2012.
Alejandra – Great submission! As an avid Starbucks drinker, it was so interesting to hear about the background operations that allow for the business model to be so successful. From personal experience, I am always very impressed with Starbuck’s operations running smoothly as the baristas are always very kind and accommodating, and the ordering process is always very quick and easy. As a company that utilizes innovation and technology to improve operational efficiencies, I am curious to see how Starbucks adopts and integrates new consumer facing tech (e.g., Apple Pay) to make the experience even better. While Starbuck’s operations and business models are well aligned, I am worried about some challenges it may face going forward in competing with other smaller coffee shops that may be able maintain more of personalized, less corporate culture. It will be interesting to see how Starbucks will adapt its operations to combat these challenges in the future.
Definitely agree that the close alignment between the company鈥檚 business and operating models is certainly one of the reasons it has remained successful for many years. As you鈥檝e also mentioned, providing the best customer experience begins with taking care of its employees which Starbucks has been very well known for.
Interestingly, I went to a Starbucks in Boston a few weeks ago that provided no seating arrangements at all. It felt a bit unusual, since to me, the idea of Starbucks isn鈥檛 just about buying a cup of coffee, but it鈥檚 also about the environment and experience within the store. Do you think if they continue to expand in such a way (offering only to-go items), that would deviate them from their business model and turn them into just another coffeeshop?