At the Outset

• A market research report indicates – not meeting customer expectations in terms of service

• To increase customer satisfaction, company plans to increase labour force in stores thus increasing speed of service

• However, this cost ($40m) could hit the bottom line

• 3 coffee fanatics – Gerald Baldwin, Gordon Bowker & Ziev Siegel• Specialized in selling ‘arabica’ beans• Create the 3rd home – Home, Office & Starbucks Coffee Shop• By 1992, 140 stores• In 1992, decided to go public & raised $25m

Where it all began…

Benefits of going public

• By 2002, sales climbed at CAGR of 40%• Since IPO, net earnings risen at CAGR of 50%• Now serving 20 million unique customers• 5000 stores around the globe• On an average, it opening 3 new stores a day• Spent almost nothing on advertising:– Focused on point-of-sale branding– Local-store marketing

Store StatisticsFY 1998 FY 1999 FY 2000 FY 2001 FY 2002

Total North America (Stores) 1755 2217 2976 3780 4574Company Operated (%) 92.42 91.93 82.19 78.60 76.43 Licensed Stores (%) 7.58 8.07 17.81 21.40 23.57

Total International (Stores) 131 281 525 929 1312Company Operated (%) 50.38 34.52 32.95 31.75 29.27 Licensed Stores (%) 49.62 65.48 67.05 68.25 70.73

# Total North America: Steady rise in number of Licensed stores# Total International: Steady rise in number of Licensed stores

North America Company Operated Stores (FY2002)Details Average Unit

Average hourly rate with shift supervisors & hourly partners 9 $Total Labour hours per week, average store 360 HoursAvg. weekly store volume 15400 $Avg. Ticket 3.85 $Average daily customer count, per store 570 People

Starbucks Value Proposition

• Creating an ‘experience’• An experience that could weave into the fabric of

their daily life• Their ‘Experiential Branding Strategy’ – Part 1: The Coffee (The Product)– Part 2: Service (Customer Intimacy)– Part 3: The Atmosphere (Ambience)

Channels of distribution

• Philosophy – To reach customers where they work, travel, shop & dine

• Channels– Starbucks Coffee Shops– Specialty Operations (Retail channels)

Product Mix, North America Company-Operated Stores FY2002

Retail Product Mix % of SalesCoffee Beverages 77Food Items 13Whole-Bean Coffees 6Equipment & Accessories 4

Starbucks Partners

• Employees called ‘Partners’• Hourly-wage employees called ‘Baristas’• 60,000 partners worldwide• Partner satisfaction leads to customer satisfaction• Lowest employee turnover rates• Company encourages promotion within its own

ranks

Delivering on Service

• Partners had 2 types of training– Soft Skills• Welcome customer to store, to smile, remember their names etc.

– Hard Skills• Use Cash Register, Mix drinks etc.

‘Just Say Yes’ Policy• Empowered partners to provide best service possible, even if it meant

going beyond company rules• E.g. Customer spills drink & asks for a refill, we give it!• E.g. Customer doesn’t have cash & wants to pay by check, then we

give drink as a free sample• Don’t want to win argument & lose customer

Delivering on Service

• Train Baristas– The complexity of the drink required them to be trained

to make it in a given time– But if a customer walks in & asks for customization then

the barista must be able to finish it soon without hampering other customer orders

• Challenging Role of partners– In early days, easy to strike a conversation with customer

& keep them engaged– But today long queues of customers at the door gives less

time for a customer interaction

Measuring Service Performance

• “Customer Snapshot” – A Mystery Shopper program done 3 times a quarter

– Speed of Service• How long did the customer have to wait? (Goal was to serve in 3 minutes from back

of line to drink in hand)

– Product Quality• Was the order filled accurately?• Was the temperature of the drink within the range?• Was the beverage properly presented?

– Cleanliness• Was the store clean? The counters, the tables, the restrooms?

– Service• Did the partner verbally greet the customer• Did they make eye contact & say thank you?

Customer Snapshot Scores

01-Q3 01-Q4 02-Q1 02-Q2 02-Q3 02-Q4 03-Q190

90.591

91.592

92.593

93.594

94.5

91.5

9392.5

92.1

93.594 94

Service

01-Q3 01-Q4 02-Q1 02-Q2 02-Q3 02-Q4 03-Q189

89.5

90

90.5

91

91.5

92

92.5

93

89.8 89.9

90.891.2

91.692

92.4

Cleanliness

01-Q3 01-Q4 02-Q1 02-Q2 02-Q3 02-Q4 03-Q190

90.5

91

91.5

92

92.5

90.490.2

90.6

91.5

91.2

9291.8

Product Quality

01-Q3 01-Q4 02-Q1 02-Q2 02-Q3 02-Q4 03-Q12.95

33.05

3.13.15

3.23.25

3.33.35

3.33.25

3.23.15

3.1 3.09 3.1

Avg. Wait Time (in minutes.seconds)

Measuring Service Performance

• Parameters of Legendary Service – Initiating conversation with customer– Partners recognizing customer by name or by drink order– Partners being responsive to service problems

• “Legendary Service” – A behaviour that created a memorable experience for the

customer– That inspired the customer to return– That made the customer tell a friend

Legendary Service Scores

01-Q4 02-Q1 02-Q2 02-Q3 02-Q4 03-Q10

10

20

30

40

50

60

70

80

90

100

5*4*3*1 or 2 *

Competition

Store Name No. of Stores No. of States Differentiation Aspects

Caribou 200 9 Core Environment

      Look & feel of an Alaskan Lodge

      Fire Places & Soft Seating

Peet's Coffee & Tea 70 5 Freshest coffee in the market

      Roasting to order (Hand roasting small batches of coffee)

Dunkin Donuts 3700 38 Flavoured coffee, Non coffee alternatives

      Dunkaccino (A coffee & chocolate combo)

CAFFEINATING THE WORLDTwo biggest drivers of company growth

Retail Expansion

Optimistic Growth Plan because:• Coffee consumption was on the rise in US• Specialty coffee, one-third coffee consumption

outside of the home• 8 states in US without Starbucks• Scope for growth in existing markets

Retail Expansion

Strategy• Opening stores in new geographical area while

clustering stores in existing areas.• Resulted in cannibalization but overall sales

increased• Demographics, Competition , real estate• Company’s goal to have 15000 international

stores- UK, Australia, Asia, Japan

Product Innovation

• Introduced at least one new hot beverage every holiday season

• R & D team: Product formulations, focus groups, in-store experiments, market tests

• Drink fit into the ergonomic flow of operations• Importantly- partner acceptance• Most successful innovation- coffee and non-coffee-

based line of Frappuccino beverages

Service Innovation

• Store-value card(SVC)-launched Nov 2001• Prepaid, swipeable smart card- used to pay for

transactions in any starbucks store• Cardholders- visit Starbucks twice as often• Card given as gifts introduced

MARKET RESEARCH FINDINGS

Starbucks’ Brand Meaning

• Little image differrentiation b/w Starbucks and smaller coffee chains

• Starbucks focused primarly on making money and expansion

Brand Meaning:• Everywhere- the trend• Good coffee on the run• Place to meet and move on• On the way to work• Accessible

Changing customer

• New customers- Younger, less educated, lower income

• Less frequent and had different perception of Starbucks brand compared to established customers

• Historical customer profile had expanded e.g.

large Hispanic customers in California

Driving customer satisfaction

• Direct link b/w customer satisfaction and customer loyalty

• Customer satisfaction gap due to service gap b/w scores on key attributes and customer expectations

• Poll results showed that Starbucks needs to have friendly staff, faster service and better offers for loyal customers etc.

Rediscovering The Starbucks Customers

• Relaxing labor-hour controls, add additional 20 hours of labor, per week, per store.

• Need to bring service time down to three-minute level• Increase customer satisfaction and build stronger

long-term relationships• Improve customer throughput• Starbucks- establish connection between satisfying

customers and growing the business

Latte Experience

“We Listen to the customer, Acknowledge their complaint, Take action by solving the problem,

Thank them, and Explain why the problem occurred”

Creating a difference

• Microinteraction• App

THANK YOU