Case Study: The Starbucks Come Back story: Losing their focus, only to regain it!!!

In 2003, Starbucks was on their first peak of their climb. It’s very likely that the corporate ego was also peaking. “We can do anything”. But, just as they hit that peak, somehow their corporate arrogance got the best of them and they decided they are bigger than “just coffee”, so they created their own recording company, which successfully won 8 Grammy’s 2 years later. In 2006, Starbucks launched their first movie, then started partnership with William Morris to scout for music, books, films and finally Starbucks opened their own “entertainment” office in LA. I remember when, a few agency folks marvelling and trying to convince me to follow the Starbucks lead. The whole idea was that Starbucks had the potential to be the “third place” in people’s lives: Home, Office and Starbucks. The music and movies were all part of bringing that to life for Starbucks. Marketing academics were writing about it and gushing over it. That’s ok as an idea in theory, but in terms of managing a culture, Starbucks had a very hard time staying focused on what they did best: make a great cup of coffee.

By 2008, the lack of focus caught up with them. The most loyal consumers of Starbucks were seeing cracks in the service and quality and began choosing local establishments, who were solely focused on making a great cup of coffee. Starbucks cut 18,000 jobs, closed 977 stores and same store sales were down 7%. Stock price falls to $7.83, down from $39.63 in 2008. Yikes.

The Starbucks brand was in complete free fall. I remember doing a speech, right at the height of the Starbucks collapse and very few people considered it a beloved brand. I was almost in shock. And, about half the room figured it wouldn’t be around in 10 years. People were seriously starting to wonder “is this the next Benetton?” (the brand that drank and believed in their own Kool Aid)

In 2009, Starbucks re-focused on what they do best: COFFEE. They had no choice. Every turnaround story has to start with “so what do we do best?” and then eliminate everything else. They closed every store for a day of re-training the barista. A brilliant move to tell most loyal consumers: “we know we messed up, but we’re going to get it back”. But more importantly, it told the culture of Starbucks that the most important thing we do is make a great cup of coffee. That barista is essential to our brand. It all starts with that. Starbucks began to innovate, but again it was focused going deeper around their COFFEE, with broader line of coffee, pastries, accessories sandwiches. No more movies or music. All of a sudden, they were focused.

Following the comeback story, by 2014, Starbucks sales are up 58% versus 2009, five-year 10% CAGR. Gross Margins are back up to healthy 55% range from a low of 28%. The current Starbucks stock price at $75, a $10K investment back in 08 would get you $95,800 today. The crucial lesson for Starbucks is the lack of focus cost them dearly in providing what it was that made them famous: a great cup of coffee. Yes, they can be that third place in people's lives….as long as the coffee is good.

Focus is essential to Strategy

The only way to win in strategy is when your gains exceed your effort—you to get more, than you put in. That starts with focus. Every Brand has limited resources (financial, time, effort and alliances) against endless opportunistic choices to make (target, message, strategy and activities). Strategy starts with making a choice, where you will apply your limited resources, against the pressure points you know you can win and breakthrough, so that you can gain something bigger than the point itself.

Focus makes you matter most to those who care the most. Don’t blindly target consumers: target the most motivated. Focusing your limited resources on those consumers with the highest motivation and propensity to buy what you are selling will deliver the highest return on investment. In a competitive category, no one brand can do it all: brands must be better, different or cheaper to survive. Giving the consumer too many messages will confuse them as to what makes your brand unique. Trying to be everything to everyone is the recipe for being nothing. Return on Effort (ROE) is a great tool for focusing your activity. Doing a laundry list of activity spreads your resources so thin that everything you do is “ok” and nothing is “great”. And in a crowded and fast economy, “ok” never breaks through enough to get the early win and find that tipping point to open up the gateway to even bigger success.

When you focus, 5 things happen to your Brand.

1. Better Return on Investment (ROI): With all the resources against one strategy, one target, one message, you’ll be able to move consumers enough to drive sales or push other key performance indicators in the right direction.
2. Better Return on Effort (ROE): It’s about getting more back than you put into the effort. Working smart helps make the most out of your people resources.
3. Stronger Reputation: When you only do one thing, you naturally start to become associated with that one thing—externally and even internally. Reputation is a power you can push to find deeper wins.
4. More Competitive: As your reputation grows, you begin to own that one thing and you can better defend that positioning territory. You can expose the weakness of your competitors, attract new consumers as well as push internally (R&D, service, sales) to rally behind the newly created reputation.
5. Bigger and Better P&L: As the focused effort drives results, it opens up the P&L with higher sales and profits. People with money invest where they see return.

Focus starts with knowing what you do best and stick with it

At Beloved Brands, we run a Brand Leadership Center to train marketers in all aspects of marketing from strategic thinking, analysis, writing brand plans, creative briefs and reports, judging advertising and media. To read more on strategy, here is a workshop on HOW TO THINK STRATEGICALLY, click on the Powerpoint presentation below:

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We offer Brand Coaching, where we promise to make your Brand better by listening to the issues, providing advice that challenges you, and coaching you along a strategic pathway to reaching your Brand’s full potential. For our Brand Leader Training, we promise to make your team of Brand Leaders better, by teaching sound marketing fundamentals and challenging to push for greatness so that they can unleash their full potential. Feel free to add me on Linked In, or follow me on Twitter at @belovedbrands If you need to contact me, email me at graham@beloved-brands.com or phone me at 416 885 3911