Is Starbucks Losing Its Golden Touch?

Starbucks' Crisis and Transformation: From Financial Meltdown to Pandemic Challenges

After more than a decade of rapid development, Starbucks has once again found itself in trouble. Since Howard Schultz's return to Starbucks this April, the veteran executive's series of moves have left many observers exclaiming: Starbucks is falling from its pedestal.

Layoffs, store closures, and selling regional business operations - these decisions might seem "crazy" to others, but this isn't the first time Howard has made such moves. As for why he's making these decisions now, we can reference a Cantonese saying: "轿唔怕旧，至紧要受" (It doesn't matter if the method is old, as long as it works). More than a decade ago during the financial tsunami, he already used the same approach to successfully save Starbucks.

The 2008 Financial Crisis: A Dark Moment

During the darkest moments of the 2008 financial tsunami, the global economy was severely impacted, and Starbucks was no exception. Before this financial crisis erupted, Starbucks had been aggressively expanding in global markets, even creating new business models in the music and entertainment industries, but this also meant their business focus had become diluted.

At that time, Starbucks conducted brand positioning and business development by observing consumer lifestyles. (Lifestyle research refers to exploring behaviors that cannot be explained by demographic variables of target consumers, understanding consumption motivations and value demands, and grasping the consumer perspective of their own products and services. Through in-depth research on target consumers' lifestyles, accurately capturing their core characteristics to better formulate product positioning and marketing communication strategies.)

Because Starbucks had developed various types of businesses to attract different consumer segments, the problems Starbucks faced after the financial crisis became more complex. The brand no longer resonated with consumers, and during the financial tsunami, Starbucks closed hundreds of stores, with its stock price being cut in half within 18 months.

Howard's Transformation Strategy

Amidst this turbulent recession, Howard made the decision to reshape the corporate culture, redesign the brand's value proposition, and return to its roots, focusing wholeheartedly on customers and community.

Although Starbucks had already successfully expanded to become the world's largest coffee chain and had developed various types of businesses by observing consumer lifestyles, most of Starbucks' partners were unclear about what customers needed, and therefore couldn't provide customers with a better in-store experience.

To address this, Starbucks launched an initiative called "My Starbucks Idea," encouraging customers to directly provide feedback and suggestions to Starbucks headquarters. Starbucks ultimately adopted the 100 most frequent customer feedback and suggestions, incorporating them into the core business model.

Among these, customization and environmental space needs became the most important focus for Starbucks in the following year. At the same time, Starbucks also established many long-term societal benefit goals, such as ethical sourcing.

The Partner-Centric Approach

During the financial tsunami transformation period, Starbucks treated all employees as partners. Howard also publicly stated: "Partners are always Starbucks' most important asset." It was precisely because of genuine concern for the feelings of customers and partners that during this financial crisis, with the joint maintenance of partners, a brand new "third space" consumption and dining experience was presented to customers.

In addition, Starbucks focused on coffee bean procurement, establishing transparent supply chains and support initiatives through direct procurement methods, improving coffee farmers' cultivation and production, and achieving mutually beneficial and virtuous cycle relationships.

It was precisely because of this transformation that Starbucks achieved very stable and rapid growth in the following decade. Operating in a virtuous cycle environment from supply chain to production chain to consumption chain, it weathered its darkest moments. The outside world once said that "consumers" saved Starbucks, but in reality, it was the partners who saved Starbucks. Without a solid foundation, there would be no good service, and without a good consumption experience, more consumers would not be attracted.

The Pandemic Challenge: A New Crisis

And now with this pandemic, Howard has used the same approach to reshape corporate culture, but this time with greater focus on store partners. Due to the pandemic, many partners have been affected to varying degrees physically and mentally. Coupled with economic damage, many partners have many complaints about salary benefits and work intensity, leading to unionization actions against the company, which has also affected subsequent customer in-store experiences.

Therefore, in his latest open letter on the official website, Howard stated that the company has recently understood partners' thoughts, operations, and stories through meetings, surveys, open forums, and management levels, and has reformulated the "relationship with partners" plan, expressing the need to provide partners with opportunities for development and progress; provide more benefit policies; jointly create a safe and enthusiastic work environment; and share rights, responsibilities, and success.

The purpose of the plan is to enhance partners' sense of belonging while ensuring store safety, and to jointly create a dining environment that connects with customers, is welcoming, and safe.

Current Challenges and Future Direction

Currently, Starbucks is in trouble because of several years of rapid brand expansion, which has neglected many partners' feelings and experiences, leading to accumulated problems that have not been resolved in time.

Therefore, Howard's first action after returning was to remove some of the "evil roots," then by promising to ensure partners' physical and mental health and work environment safety + improving salary benefits, to re-solidify the foundation. Then, according to the development trends of the general environment, work together with partners again to provide customers with services and dining experiences more suitable for today's world.

Every transformation of Starbucks will have a transition period. Nothing can succeed in one step, and adjustments inevitably have both advantages and disadvantages.

Image source: Starbucks official website

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