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Starbucks Transformational Agenda

Since I have lots of HMOs (hot marketing opinions) about Starbucks, reckon I should share my take on today’s major goings-on with the company. Since there’s lots to talk about, I’ve arranged my thoughts in a “WHAT | SO WHAT | WHAT TO THINK” format. ** WARNING … LONG POST ** WHAT? At its 2008…

Since I have lots of HMOs (hot marketing opinions) about Starbucks, reckon I should share my take on today’s major goings-on with the company. Since there’s lots to talk about, I’ve arranged my thoughts in a “WHAT | SO WHAT | WHAT TO THINK” format.

** WARNING … LONG POST **


WHAT?
At its 2008 Shareholders Meeting, Starbucks announced six initiatives designed to: (a) improve the current state of its U.S. business, (b) reignite the emotional connection with customers, and (c) invest for long-term success.

The six initiatives are:
1 | New Espresso Machines
2 | Ethically-Sourced Coffees
3 | A Social Media Strategy
4 | A Customer Rewards Program
5 | Improved Brewed Coffee
6 | Acquisition of the Clover Brewing machine


SO WHAT?
1 | New Espresso Machines
Starbucks will phase out its current automated espresso machine, known as the Verisimo, for a higher-quality automated machine. The new Mastrena machine is also an automated machine, but Starbucks believes the quality of espresso and steamed milk is superior to that of their current machine. Starbucks plans to have the Mastreno in 30% of U.S. locations by the end of 2008 and in 70% of U.S. locations by 2010.

2 | Ethically Sourced Coffees
Starbucks will further its relationship with Conservation International in a variety of ways. Customers will notice this relationship with a certification seal on select coffees judged to have been grown and sourced using stringent standards. By the end of 2009, every Starbucks espresso drink prepared around the world will be used with coffee beans certified by Conservation International as being ethically grown and sourced.

3 | Social Media Strategy
Starbucks is following the lead of companies like Dell by introducing a website where customers can submit their ideas on how Starbucks can improve its business. MyStarbucksIdea.com is the company’s first meaningful foray into social media. Howard Schultz will blog here and 48 Starbucks employees will be assigned to engage in conversations with customers on the website.

4 | Customer Rewards Program
Customers with registered Starbucks Cards will able to receive free syrups and free milk options (soy, half & half) when they order espresso drinks. In other words, customers using their registered Starbucks Card will only have to pay for a Grande Latte when they order a Grande Extra Vanilla Light Hazelnut Soy Latte. (The free modifiers do not include shots of espresso.)

Additionally, Starbucks Card customers will also receive 2-hours of free daily in-store wi-fi, free refills on brewed coffee, and a free 12-oz. beverage (espresso, coffee, or Frappuccino) when they buy a pound of whole bean coffee. These are only the initial rewards Starbucks Card holders are set to receive in April. The company plans to add-on more rewards in the months to come.

5 | Improved Brewed Coffee
Starbucks is changing its policies for brewing coffee in-store. They will be brewing in smaller batches and reducing the hold time for brewed coffee from 60-minutes to 30-minutes. Plus, the company will no longer rely on pre-packaged ground coffee filter packs and instead, grind whole bean coffees in-store to brew as drip coffee. A new blend, Pike Place Roast, will be introduced and brewed as an everyday coffee.

6 | Acquisition of the Clover Brewing machine
Coffee geeks rave about the Clover Brewer and high-end coffee shops have been using the Clover Brewer to brew richer, more flavorful coffee. Starbucks has been selling brewed coffee using the Clover Brewer in selected locations in Seattle and Boston. Results of the test have been promising. So promising, Starbucks is acquiring the Coffee Equipment Company, makers of the Clover Brewer. Starbucks has plans to rollout the Clover Brewer to a limited number of locations.

UPDATE: to watch the Clover Brewer in action, click here.


WHAT TO THINK?
We were promised to learn of transformational initiatives that would reverse the negatives trends impacting the company. We learned of six initiatives. I’m not sure how transformational these initiatives will be.

Let’s judge these transformational initiatives against the objectives Starbucks outlined at the Shareholders Meetings. Will these six ideas (a) improve the current state of its US business, (b) reignite the emotional connection with customers, and (c) invest for long-term success.

1 | New Espresso Machines
The introduction of the Mastrena espresso machine is clearly an investment for long-term success. Starbucks says they will roll-out this new machine to 30% of its U.S. locations by year’s end. We’re talking over 2,000 locations—that’s highly aggressive. Given all the issues of production, distribution, installation, and employee training, Starbucks will be fortunate to have the Mastrena espresso machine in 1,000 locations by year’s end.

Expect this new espresso machine to have little financial impact on Starbucks business in 2008. As for reigniting the emotional connection with customers … that’s hard to measure. Let’s just say friendlier Starbucks baristas will reignite the emotional connection with customers more than an espresso machine ever could.

2 | Ethically Sourced Coffees
It’ll be 2009, when espresso drinks are made with Conservation International certified coffees, before this initiative can improve Starbucks U.S. business. With customers that value environmental issues and origin country matters, this initiative will help to build a stronger emotional connection with them. I’m not sure how many Starbucks customers are emotionally-tied to such issues. However, any activity designed to be friendlier to the environment and to coffee origin countries will be a good long-term investment.

3 | Social Media Strategy
Hmm … I applaud Starbucks for diving into the social media waters. (Really, I do.) I’m just concerned they haven’t done their homework. Chris Bruzzo, Starbucks chief technology officer, made the following statement when introducing the MyStarbucksIdea.com website, “I am not aware of another organization that is investing in making this kind of a commitment to integrate customers and their ideas and their insights into the products and experiences that they develop.”

So we are to believe Starbucks is unaware of Dell’s social media activities with Direct2Dell and more importantly, IdeaStorm. Starbucks can learn a lot from what Dell has done and is doing with social media to better connect with customers.

This marks a major cultural shift within the company. Starbucks has never participated in the online conversational media. It’s not like they can flip the switch to on. Its not that easy. (Just ask Dell.)

Time will tell if Starbucks customers are engaged by this online activity. Time will also tell if Starbucks corporate culture will adapt to social media and when (or if) Starbucks will implement customer ideas. Right now the most popular customer generated idea is for the company to implement a Buy 9 Drinks Get 1 Free punch card. That’s a marketing activity the company abolished a long time ago. How will Starbucks respond now?

4 | A Customer Rewards Program
Clearly, Starbucks is seeking to drive sales by getting current customers to buy more, more often. Offering Starbucks Card customers free syrups and free refills is just the first step in what looks to be a more involved “loyalty program.” This has the potential to drive sales in 2008 and to reignite the connection with customers. The future is a different story. Once Starbucks heads down the path of offering customers discounts, they will have a hard time ever reversing course.

5 | Improved Brewed Coffee
The vast majority of beverage sales at Starbucks, as measured by total dollars, come from espresso drinks, not brewed coffee. Improving their brewed coffee policies is a positive move that the company should have made years ago. Will these changes, including the introduction of Pike Place Roast as an everyday coffee, move the sales needle? No. Improve the emotional connection with customers? No. Be a sound investment for the future? Yes.

6 | Acquisition of the Clover Brewing machine
These new high-end brewers will only impact a small number of stores. Since these brewers make single cups of coffee on-demand, volume selling of drip coffee will not be possible. The Clover brewer will not have an immediate impact on sales in 2008. It does have the potential to impact the future business of Starbucks. Because this appeals to only coffee connoisseurs, I’m not convinced the typical Starbucks customer will care.


Where do we stand? Let’s take a look at the Transformational Agenda Scorecard…
Sbux_scorecard_2

It appears these six initiatives will have an impact on the long-term Starbucks business, but the short-term impact is minimal. That’s my take. What’s yours?

And yes, I do need to get a life.