Starbucks: Is A "Transformation" Necessary?

Includes: MCD, SBUX
by: Todd Sullivan

In a press release, Starbucks (NASDAQ:SBUX) announced it will disclose "transformational initiatives" at its annual meeting next Wednesday. My first thought when I read this was: Is it necessary? Hadn't they done just fine up until this point? Didn't the chain get itself into trouble, in all actuality, when it tried to "transform" away from what it did best?

What should it announce then? Here are some directional ideas:

  1. If you are going to claim to be "upscale" or "premium", then you have to act like it. The only thing upscale about the Starbucks experience in many locations is the price. Get rid of all the junk for sale that makes me feel claustrophobic when I try to maneuver myself to the counter. Expand locations to give us more seating. If I have to wait to get my drink made, please ask me to go sit down and then bring it to me. Also, I should not have to clean off the table when I sit down at it. These are not real big things, they are basic, and McDonald's (NYSE:MCD) currently does them. Yet location after location of Starbucks ignores these. You are not doing me a favor by letting me drink coffee there.
  2. Shrink the menu. Do fewer things very well rather than plenty of mediocre offerings. There is a large variation in the same drink from location to location. That may have changed after the recent "training", but with new baristas being hired everyday, the unwieldy menu can only lead to mistakes and more unhappy customers.
  3. Organic: Everything sold at the stores should be organic. The population is drifting that way in its food choices and Starbucks ought to be a leader here. This also goes with the "acting upscale" theme.
  4. Be Nice: If I order a "large" do not correct me and say "it is called a vente". Just smile and give me a large.
  5. Kids. Your stores could not be more kid unfriendly if you tried. Everything for sale is waist height, which means any kid under 6 will look at it, touch it and possibly break or try to eat it. I am not saying put a jungle gym in, what I am saying is that less people with children will avoid the locations if they do not fear the damage their children may cause.
  6. Price: You are at the top.

None of these are a magic bullet, but when taken together and enacted, they will begin to change some of the negative sentiment that has built up out there towards the chain. Many of these things were all done years ago, but Starbucks drifted away from them in an effort to maximize dollar per square foot. In all reality, by drifting from their core, they alienated many people.

Disclosure: Long MCD.