Starbuck case response

Sinesta Nabors

Bus 109/Dis 031

June 5, 2017

Starbucks Coffee Company: Transformation and Renewal

1. Look at the 7 “Big Moves” Starbucks undertook as parts of its transformation.

2. Who are the stakeholders (there may be more than one) for each move?

3. Why are these stakeholders important to the company? •

4. Pick one internal challenge that affected Howard Schultz’s planned transformation of Starbucks.

5. How did the company overcome this?

6. Pick one external challenge that affected the transformation.

7. How did the company overcome this? •

Based on the case and your textbook, how would you characterize Howard Schultz’s leadership style? Is it effective? Why/why not?

1. Dear Shareholders,

In my letter to you two years ago, I expressed concern over challenges confronting our business of a breadth and magnitude unlike anything I had ever seen before. For the first time, we were beginning to see traffic in our U.S. stores slow. Strong competitors were entering our business. And perhaps most troublesome, where in the past Starbucks had always been forward-thinking and nimble in its decision-making and execution, like many fast-growing companies before us, we had allowed our success to make us complacent.

As I returned to the role of president and chief executive officer, it was obvious to me, and to our leadership team, that Starbucks needed nothing less than a full-fledged transformation to return to profitable growth. Since then, we have worked through the multitude of challenges required to revitalize our brand and transform our company—all in the face of the worst global economic environment of our generation.

Today, I am pleased to report that we have made and continue to make significant progress in transforming Starbucks and returning the company to sustainable, profitable growth while preserving our values and guiding principles.

Our Transformation Journey

Our blueprint for change was the transformation agenda: improving the state of our business through better training, tools and products; renewing our attention to store-level economics and operating efficiency; reigniting our emotional attachment with customers; and realigning Starbucks organization for the long term. In fiscal 2009, the seeds of our transformation began to take root.

Disciplined Operations

We applied rigor and discipline to all areas of the business and put sharp focus on unit economics. We focused on operational excellence—from supply chain to back-end IT systems to store operations. We also developed a better go-to- market engine, with stronger creative execution and more effective channels to reach our customers. Together, these efforts are enabling us to make better- informed decisions—and to bring products and initiatives to market faster and more cost effectively. At the same time, we took steps to permanently improve our cost structure, which resulted in removing $580 million in costs from the business in fiscal 2009 alone.

But it was clear to us that cost reductions and improved operating efficiencies alone were not enough. True transformation would require us to improve our customer experience, and to once again aggressively differentiate and innovate.

Innovating for a Better Customer Experience

In conjunction with our focus on operations, we made significant investments to improve the customer experience in our stores. Our store partners have made measurable improvements in service, beverage quality and store condition. As a result, over the past fiscal year, our already high customer satisfaction scores have increased a full 10 percentage points. For this, I applaud our store partners all over the world, who define the Starbucks Experience one cup at a time, every day.

As consumer trends evolved in the face of the weakening global economy, we responded quickly with relevant innovation in our loyalty card program and with compelling value offerings and innovative food pairings. We elevated and reaffirmed our leadership in coffee quality, evolving our sustainable sourcing, roasting and blending approaches. We also renewed our commitment to espresso excellence, ensuring that we are providing the highest-quality handcrafted, customized beverages to suit every customer’s taste. The results have validated our focus. Sales of Starbucks® Anniversary Blend coffee exceeded those of any year since it launched in 1996. Our partnership with (RED)™ continues to outperform expectations, generating enough money during its first year to buy more than seven million daily doses of medicine to help fight AIDS in Africa. Our decision to offer both Pike Place Roast™ and a bolder roast profile with fresher brew times has been extremely well received by our core customers. And our seasonal beverages such as Pumpkin Spice Latte and Caramel Brulée Latte were customer favorites this holiday season.

As consumers have increasingly requested healthier food choices, we responded by offering new products with whole grains and other wholesome ingredients. We also thoroughly revamped our food offerings: simplifying recipes and taking out artificial trans fat, high-fructose corn syrup and artificial flavors and dyes. Customers will continue to see improved choices and an expanded menu of healthier food choices in the months and year ahead.

We applied technology to revolutionize the way we communicate with consumers through social and digital media. Starbucks has been named the most engaged consumer brand, using communities such as Facebook, Twitter and My Starbucks Idea to connect with our customers outside the store environment. We are in constant dialogue with our customers, allowing us to understand their needs and stay top-of-mind in this increasingly competitive retail environment. We also launched popular iPhone applications to help customers find our stores, determine nutrition information and reload their Starbucks Cards.

In fiscal 2009, we unveiled a bold and innovative store design approach, with new concepts in Seattle, Paris and London—all enthusiastically received. All newly constructed company-operated stores worldwide will be LEED®-certified beginning this calendar year, moving us closer to our goal of significantly reducing our environmental footprint. This initiative, coupled with locally relevant store designs and renovations, is helping us form deep and long-lasting connections with customers in their own neighborhoods.

Finally, we stayed true to who we are and our mission to inspire and nurture the human spirit—one person, one cup and one neighborhood at a time. For our partners, despite economic pressure, we continued to offer health care benefits to eligible full- and part-time partners, something we have done for over 20 years. We were also proud to be able to contribute a match under our 401(k) program this year—another benefit that many companies retreated from in 2009.

We reaffirmed our commitment to doing business responsibly. This year we became the world’s largest purchaser of Fair Trade Certified™ coffee and partnered with Conservation International to address climate change in coffee-growing regions. And we continued to give back to the communities we serve through volunteer activities and community programs. These efforts are also good business, as consumers increasingly want to build relationships with companies that share their values.

Our Path Forward

With our progress over the past two years, we are now in a position to take advantage of the global opportunity for Starbucks. Improvements in the U.S. business will allow us to pursue disciplined new store growth internationally. While Starbucks now operates in more than 50 countries (we added Portugal, Bulgaria and Poland in fiscal 2009), we are still in the early stages of international growth. We expect future growth for Starbucks to come from deeper expansion in markets where we already have a strong presence, such as the UK, Canada and Japan. Our progress in China continues, and we believe it will one day be the largest market for Starbucks outside the U.S.

As part of our international strategy, we will also seize opportunities to move beyond our retail stores. Extending our profitable global consumer products group allows us to reach more customers in more places, and we plan to grow this business at an accelerated pace around the world. We see significant runway for CPG to grow, and we will be poised to capture that opportunity with an evolution of our distribution structure and with an increasing variety of offerings in the grocery channel.

Our future lies in our ability to innovate, to be forward-thinking and nimble. In fiscal 2009, we wrote a new playbook for just that with the launch of Starbucks VIA™ Ready Brew. We have been extremely excited to see our customers in North America embrace this 100 percent natural roasted soluble coffee that maintains the high standards of quality and taste of freshly brewed Starbucks® coffee. This is a substantial new global growth platform within our core business, representing the first significant innovation in more than 50 years in the $21 billion global instant coffee category. Starbucks VIA™ also gives customers an easy and affordable single-serve option at home and on-the-go. We look forward to extending the product internationally—both in our stores and in grocery channels—in fiscal 2010.

Another growth vehicle will be Seattle’s Best Coffee. Our research tells us we can aggressively position SBC with new customers, and we plan to create compelling franchising and distribution opportunities in 2010. We have ambitious goals for the brand and look forward to making some big moves in the coming months.

I am incredibly proud of the loyalty, commitment, passion and tireless efforts of our partners all over the world. Because of them we have been able to successfully navigate some formidable and dangerous headwinds, and to emerge a better and stronger company than we have ever been—ideally positioned to grow and capitalize on global opportunities in the years ahead. I am as optimistic about Starbucks future as I have ever been.

In closing, I would like to offer my heartfelt thanks to everyone who touches Starbucks. To our people, who stepped up to the challenge of delivering an exceptional customer experience, to the farmers and suppliers who grow our coffee, to our business partners around the world, to our shareholders for their continued support, and ultimately to our customers—for inviting us into their lives and for giving us the opportunity to earn their loyalty and trust every day.

Warm regards,

Howard Schultz chairman, president and chief executive office