After returning from Italy in 1983, Howard Schultz purchased Starbucks Coffee and was determined to bring the charm of the Italian coffeehouse experience to America. His dream: to make Starbucks known as the “third place.” There’s work, there’s home, and there’s Starbucks. A place to go, sit and relax, and enjoy an espresso or a latte with friends. Starbucks became a global brand built on a culture of caring; caring for its employees and caring for its customers. Shultz knew that the customer experience and culture would build his empire—and his dream worked. In 2000, Shultz, happy with the direction and success of Starbucks, retired as CEO.
From 2000 to 2008, as Starbucks entered an aggressive growth plan—expanding from 3,500 to nearly 16,000 stores—the quality of the customer experience, and its coffee, deteriorated. This aggressive growth strategy led to a breakdown of its core culture and cannibalized its market. In 2008, Shultz returned as CEO to bring back the passion that made Starbucks a household brand.
Shortly after returning, Shultz announced the closing of 600 stores, admitting that growth for the sole purpose of expanding is not a sustainable strategy. In a memo to key personnel, Shultz stated, “Stores no longer have the soul of the past and reflect a chain of stores vs. the warm feeling of a neighborhood store.” His “third place” was in jeopardy of becoming an ordinary chain establishment. With a focus on employees, culture, and the customer experience, Shultz rebuilt the brand. Starbucks became great again—and for the second time, Howard Schultz retired as CEO in December 2016.
Today, Starbucks is once again in trouble. Schultz is returning as CEO for a third time. His company faces disgruntled employees seeking to unionize, rising costs, and global challenges. Again, profit and growth won out over what made the Starbucks brand great: a workplace that inspired its employees to work together with a common purpose to build relationships with its customers. Like so many companies that listen to Wall Street more than Main Street, Starbucks lost its way.
Over the years, technology, production goals, and growth plans would all contribute to the struggles at Starbucks. The barista position was once the key component in creating the customer experience. Asking for the customer’s name and engaging in conversation made strong relationships with their core customer base. This relationship-based approach created repeat business and a focus away from price.
In recent years, Starbucks has expanded its menu, increased its online ordering, and added a new plan to decrease the time a barista spends with customers to increase the number of drinks prepared per hour. This limits the time a barista has to fully engage the customer. Sadly, this has led to a decline in the customer experience. This also led to a decline in the employee experience, causing many baristas to turn to unionization to voice their unhappiness with the workplace.
Schultz is in a tough position. In recent statements, he sounds like he has his priorities straight. On his first day back as CEO in early April 2022, he suspended billions of dollars in share repurchases. He said his immediate focus would be on the cafes, customers, and employees rather than the stock market. Wall Street responded with a 3.7 percent drop in share price.
During a forum at the company’s headquarters, Shultz addressed employees and said the company’s best days are ahead. He admitted that the company hadn’t done enough in recent years, and he took responsibility for that, saying, “I promise to do better.”
It’s too early to tell if Shultz can once again bring back Starbucks. However, the struggles at Starbucks are essential lessons for shop owners. The first key takeaway is the leadership of Howard Schultz. Every company needs a great leader. The leader sets the company's tone, establishes the culture, and must ensure the company's success. The leader must also take responsibility when things go wrong and not blame others. Shultz, with his early actions, is doing this. He is also putting people before profit. His focus on employees and the customer is aligned with his “third place” strategy and realigning the core values that originally built Starbucks into a highly successful global brand.
Perhaps the biggest lesson is recognizing that it will not take a brand-new, high-tech, complex strategy for Shultz to succeed. We need only look at what happened at Starbucks to know what it will take to bring back the company. And that’s a focus on people first. When we take our eye off what’s best for the employees and the customers, nothing in business is sustainable.
