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Posts Tagged ‘Starbucks’

Starbucks Baristas Told “Two Drinks at a Time”

October 13th, 2010 Comments off

Starbucks continues to tweak policies and procedures for its employees to heighten the quality of its coffee while still efficiently using the time available to employees.  Last year, there was an article about the time-and-motion studies that were being undertaken by the coffee giant to squeeze extra seconds out of the preparation of each cup of joe, but an article today seems to put the brakes on that by outlining a new poliicy that requires more specialized work such as steaming milk for each drink individually and never working on more than one drink at a time. 

The new methods have “doubled the amount of time it takes to make drinks in some cases,” according to Erik Forman, a Starbucks barista in Bloomington, Minn., who says his store began making drinks under the new guidelines last week. Longer lines have resulted, says Mr. Forman, who is a member of the IWW Starbucks Workers Union.

Startbucks insists that eventually these kinds of policies will actually speed up the process of making drinks, but the employees quoted seem to the the opposite will be true. 

Starbucks insists the new procedures will eventually hasten the way drinks are made and lead to fresher, hotter drinks. Steaming milk for individual drinks, for example, “ensures the quality of the beverage in taste, temperature and appearance,” the company documents state, while focusing on just two drinks at a time “reduces possibility for errors.”

Instead of focusing on these changes in terms of time savings, if I were Starbucks I would put all of the focus on increased quality.  If people want fast coffee there are plenty of outlets for that (like McDonalds) but Starbucks should focus on differentiating itself to again be the town gathering place that just happens to serve coffee as well.  Their stores should cater to the “experience” rather than the product.  In other words, the experience should be the product. 

Over the last few years, Starbucks has been applying to the coffee counter the kind of “lean” manufacturing techniques car makers have long used as a way to streamline production, eliminate wasteful activity and speed up service. The company has deployed a “lean team” to study every move its baristas make in order to shave seconds off each order.

That team discovered that many stores kept beans below the counter, leading baristas to waste time bending over to scoop beans, so those stores ended up storing the beans in bins on the top of the counter. To boost the freshness of the coffee and to bring back some of the “theater” that had been lost, the baristas also started grinding beans for each batch of coffee, instead of grinding the day’s beans in the morning.

While they seem to be trying to focus on the quality and atmosphere, I thnk they risk confusing people as to where they fit into the marketplace by also discussing the time it takes to make each drink.  The article from last year (linked above) indicated a desire to go in that quality-focused direction. and today’s article mentions it too, but I’m not sure it offsets the dissatisfaction from the employees quoted in the article.  Of all the parties that need to be convinced that this is the right move, I’d say the #1 group is the employees.  Without their buy-in with the new policy it is likely to be ignored or followed in such a way that employees (and eventually customers) are dissatisfied.

At Starbucks, Baristas Told No More Than Two Drinks. Julie Jargon. Wall Street Journal. (Eastern edition). New York, N.Y.: Oct 13, 2010. pg. B.1

How Tim Hortons will take over the world

September 24th, 2010 Comments off

This is a great article that highlights a lot of the topics we cover in class.  It is quite long, but worth your time if you have 15-20 minutes to read and think about a variety of things including:

  • The strategic decision made by Tim Hortons to take control of coffee roasting by moving that operation in-house.  Like we discussed in the early chapter of the Blocher textbook, sometimes controlling quality (probably the biggest factor for this company), delivery schedules, etc. necessitates a move in-house even when it may cost more.

If you were a Tim Hortons devotee back then, you might have noticed that the coffee in, say, Halifax didn’t taste quite the same as it did in the chain’s spiritual home base of Hamilton. That’s because the chain bought its coffee from third-party roasters. Then-CEO Paul House decided the company needed to take control of the consistency of its brew, and to that end built a lab at the firm’s Oakville HQ.

  • The tweaks necessary when a successful company moves to new markets.  In Canada, Tim Hortons is the king of the market.  The article references, though, difference between Western Canada and Eastern Canada and then spends a lot of time looking at ways that they are trying to crack the American market as they expand into new areas in the East & Midwest.

In 2008, Tim Hortons undertook what David Clanachan, Tim Hortons’ jovial head of U.S. and international operations, calls “a deep dive,” surveying tens of thousands of people about what would get them through the door of a Tim Hortons. The company built a full-sized model store in a warehouse in Oakville, spending months testing and refining the concept before rolling it up, so to speak, to the gates of Troy.

The result is a cross between the likes of Starbucks and the Tim’s Canadians know. “Not that I’m gonna hang around, write poetry and sing songs,” says Clanachan, “but I am gonna feel comfortable.”

  • The focus on quality as a competitive advantage as highlighted by the frequent “cupping” sessions that even involve some senior executives.  The management team realizes that without quality, Tim Hortons has no competitive advantage:

Consistency is key—both Schroeder and West never tire of that axiom. Achieving it is tricky, since coffee from a particular mountainside will not taste the same from season to season. Flavours change depending on the weather: too much rain or too little, more sun or less. The mercurial nature of the bean means that Tim’s coffee team is constantly revising the secret blend to maintain its trademark flavour.

  • The breakeven-point ramifications of the “Always Fresh” program where the cost of individual products (the article mentions donuts) is higher on a per-unit basis, but the hope was that the benefits of not running out of goods and with not having to discard stale product would offset this.  It seems like that hasn’t happened, at least in the eyes of some franchisees.

For 37 years, standard Tim Hortons stores were equipped with in-store kitchens, where staff bakers produced batches of fresh, hot doughnuts twice a day. Shortly after Joyce sold his Tim Hortons stake in 2001, the company brokered a deal with Ireland’s IAWS Group to build the $75-million Maidstone facility. Then-CEO House promised franchisees that the conversion—which cost store owners between $35,000 and $50,000—would boost their bottom line. Instead of letting unsold doughnuts go stale during downtimes, operators would be able to zap new batches as needed, in a glorified microwave oven. Voilà—“fresh-baked” in two minutes. And though the cost of producing one doughnut would change from eight or nine cents to 12 cents, that increase would be offset by a reduction in operating costs—no highly paid bakers on the payroll, less discarded product.

  • The value-chain relationships between Tim Hortons and its franchisees.  There are pending lawsuits between the parties and it is interesting that two groups that are so dependent on each other find themselves locked in these kinds of battles.

Still, it’s clear some franchisees have become disillusioned with Always Fresh. Arch Jollymore, a former high-ranking executive at Tim Hortons (and Joyce’s cousin), is seeking certification of a class-action lawsuit against the company. At issue: the impact of the Always Fresh conversion on franchisee margins. Jollymore and his wife, Anne (who owns a store in Burlington in her own right), are alleging breach of contract, negligent misrepresentation, and breach of the duty of good faith and fair dealing. They are seeking damages of $1.95 billion.

  • The decision to centralize or decentralize decision-making.  Most franchise systems rely on strict centralization with standard signage, colors, marketing,etc.  Tim Hortons is selectively decentralizing certain things:

De Nardo leads a tour of Riese’s four other Tim Hortons counters at Penn Station, proudly pointing out the New York-only promotions—the only instance of non-standard advertising allowed in the chain. “It’s the New York mentality. We like to be a little on the edge.” Whenever he can, he steers clear of earnest in favour of funny. “Hell,” he says, “it’s doughnuts and coffee.” Hence Tea and Timbits (T&T—it’s dynamite!) and $5 dozens after 5. “And for New Yorkers, $5 is basically free.”

  • The impact of sourcing raw materials globally and the potential cost changes due to weather in parts of the world where coffee is grown:

“Central and South America are coming off the worst crop in 44 years,” West says as he slaps a sack of beans. And Colombia was deluged with rain for 16 months straight, diminishing crops. That has helped drive standard-grade coffee to a 12-year high of $1.75 (U.S.) per pound. The top-quality beans Tim Hortons buys—West says they compete with Starbucks for the finest Arabica beans on the market—are much pricier.

To read more (and please do!), visit this link: How Tim Hortons will take over the world – The Globe and Mail.

Starbucks at loggerheads with the taxman

August 9th, 2010 Comments off

Starbucks is getting some press today as a company that is having to justify transfer pricing.  As I’ve mentioned several times on this blog as well as in class, the tax authorities around the globe are increasingly starved for revenue and this type of thing, founded or not, is sure to continue.  There is just too much wiggle room for companies to use transfer pricing methods to escape taxes and in so many cases without an external market it can be impossible to defend a particular price regardless of how vaild/realistic it might be.

In a note to its annual British accounts for the year ending September 27, 2009, Starbucks said: “The company is in discussion with HM Revenue & Customs regarding its transfer pricing policy.”

Read more at:

Starbucks at loggerheads with the taxman – Accountancy Age.

How a small coffee shop took on the big guys

July 30th, 2010 Comments off

Here is a short case study written by a professor from the University of Manitoba about a small coffee shop in Winnipeg that has successfully positioned themselves in the very competitive market of selling coffee drinks.  Even in an arena filled with competitors from Starbucks to Tim Hortons to McDonalad’s, this one-location operation has managed to succeed through careful application and execution of their well-defined strategy.

Mr. Iafolla and Mr. Paquette have sought to define and defend their turf by doing what the big guys can’t, or at least can’t do as easily – began to differentiate themselves two years ago by offering an array of dishes that score heavy on the ‘home made’ element. Sales have increased every month since they were introduced.

Whether its offering home made soups, such as their special Hungarian mushroom or West African peanut, or specialty baked products, Daily Grind Coffee has sought and found a way to differentiate itself by offering something different and desirable. The efforts have met with approval from customers and local organizations.

Read more details about this business and their competitive environment at this link:  How a small coffee shop took on the big guys – The Globe and Mail.

Starbucks to Position Seattle’s Best to Compete Outside Coffee Shops

June 4th, 2010 Comments off

I’m backlogged on items I’ve wanted to post but just haven’t had time so expect a flurry of items the next couple days (if all works according to plan).

The first items if from a couple weeks ago and looks at the strategy Starbucks is using to expand its presence in many different areas without using (or damaging?) their premium Starbucks brand.  Instead they are going to position their Seattle’s Best brand as a player in supermarkets, fast-food outlets, convenience stores, and vending machines.

The article likens this to the strategy implemented successfully by Gap when they rolled out Old Navy.  Time will tell whether or not Starbucks is successful but at the very least it should answer critics that felt that they got lazy a couple years ago.  Fresh ideas at least show that Starbucks is trying some things out, which is something they have been criticized for not doing the past few years.

In a counterattack against its lower-priced fast-food rivals, Starbucks Corp. plans to roll out a second coffee brand.By autumn, Seattle’s Best Coffee—a former competitor Starbucks acquired seven years ago—will be sold in about 30,000 fast-food outlets, supermarkets and coffee houses, the company said. Currently, Seattle’s Best coffee and coffee beans are sold in the chain’s own shops inside nearly 500 Borders bookstores, as well as in about 2,500 supermarkets.

Corporate News: Starbucks  Targets Regular Joes — Firm to Offer Second Coffee Brand — Its Seattle’s Best — in Fast-Food Outlets, Supermarkets, Machines. Kevin Helliker. Wall Street Journal. (Eastern edition). New York, N.Y.: May 12, 2010. pg. B.3

Starbucks “Lean” Movement is Not Related to Skim Milk

August 3rd, 2009 Comments off

The Japanese concept of “lean manufacturing” has made it to Starbucks.  The coffee-shop company is doing all it can to outlast the economic difficulties presented by the general state of the economy as well as sharper competition from the likes of McDonald’s, where these same kinds of techniques have been in place for some time.  Recall that in Chapter 10 we mentioned “time-and-motion studies” in relation to the determining how costs behave.  Once the behavior is understood, measures can be taken to reduce the costs where possible.

Latest Starbucks Buzzword: ‘Lean’ Japanese Techniques. Julie Jargon. Wall Street Journal. (Eastern edition). New York, N.Y.: Aug 4, 2009. pg. A.1

Starbucks vs. McDonald’s

May 14th, 2009 Comments off

Starbucks, in an effort to weather the prolonged economic downturn, is seeking to now appeal to cost-conscious consumers.  I’m not sure that the back-and-forth between being a high-end “experience” vs. a low-cost cup of joe is going to really do them any good.  It seems like it might just confuse customers and they may lose the high-end folks and fail to convince others that their prices are low.

The Seattle-based company is training its baristas to tell customers that the average price of a Starbucks beverage is less than $3, and that 90% of Starbucks drinks cost under $4.

Corporate News: Starbucks Plays Common Joe — Coffee Empire Seeks to Seem Less Expensive in Recession. Janet Adamy. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 9, 2009. pg. B.3

The article above was from February.  More recently things have heated up in the “coffee wars” with McDonald’s seeking to strike when the poor economy favors a cost leadership strategy even more than when times are good.

Corporate News: As Profit Cools, Starbucks Plans Price Campaign. Julie Jargon. Wall Street Journal. (Eastern edition). New York, N.Y.: Apr 30, 2009. pg. B.3

Starbucks Ads Urge Consumers Not to Switch to Cheaper Coffee.  Julie Jargon.  WSJ.com.  May 1, 2009

Corporate News: New Ads Will Stir Up Coffee Wars — As Starbucks Touts ‘Perfect’ Cup, McDonald’s Promises an Affordable Lift. Julie Jargon. Wall Street Journal. (Eastern edition). New York, N.Y.: May 4, 2009. pg. B.7

In short, it is very interesting to see two powerhouse companies tweak their market position to try to capture market share and profits.  I think Starbucks has the most to lose here because just two years ago (as evidenced by some other articles I posted from 2007) they were seeking to reconnect with consumers that don’t just want coffee, but that want an “experience” with their coffee.

This recent goal of competing on price and what appears to be “coming down to the level” of McDonald’s may harm the earlier strategy.  It may work in the short term when the economy is in rough shape, but long-term the premium customers may go elsewhere.  Although where they would go remains a mystery since Dunkin Donuts is the other big player in the coffee market and they compete on price as well.  It should be interesting to watch how this plays out.

Starbucks and Product Differentiation

May 14th, 2009 Comments off

At class on this week we had a discussion about the struggles Starbucks is having of late.  In their quest to grow, Starbucks gave up some of what made the “Starbucks experience” special and their products, therefore, became less differentiated from the competition in pursuit of more market share and sales.  The last few years have been especially difficult for them including the closure of hundreds of stores and now they find themselves exposed to attack by McDonald’s, something that would have seemed unthinkable only a few years ago.

Here are some articles I dug up from a couple years ago that chronicle the beginning of the realization by the executives of Starbucks that drastic measures were in order, including a memo written by Chairman Howard Schultz sent to his employees entitled “The Commoditization of the Starbucks Experience.”  The one titled “No Romance Please…” is actually a letter to the editor and I’m guessing the guy that wrote it is the kind of customer McDonald’s is targeting these days, although recently Starbucks has attempted to persuade people that they aren’t as costly as people think they are.  I’ll post some of those kinds of articles later.

As always, you will need to use your NetDirect login ID and password to access the items at at ProQuest (use the ProQuest/tinurl.com links if the WSJ links require you to login and you don’t have a WSJ subscription).

Starbucks Chairman Says Trouble May Be Brewing; Brand Could Be Compromised, Schultz’s Blunt Memo Warns; ‘Time to Get Back to the Core’. Janet Adamy. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 24, 2007. pg. A.4

Text of Starbucks Memo; Online edition. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 25, 2007.

Starbucks Stirred to Refocus on Coffee; Strategy Sharpens As Chairman Sends A Wake-Up Memo. Janet Adamy. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 26, 2007. pg. A.12

No Romance, Please, Just the Coffee…and Quickly. Wall Street Journal. (Eastern edition). New York, N.Y.: Mar 3, 2007. pg. A.5

Tall Order for Starbucks; Investors Seek Reassurance on Brand’s Buzz as Competition Circles. Janet Adamy. Wall Street Journal. (Eastern edition). New York, N.Y.: Mar 21, 2007. pg. C.1