The news that Howard Schultz would be leaving Starbucks left some in shock and awe. Would the company survive? Is Starbucks even Starbucks without the industry visionary not running the show from the top of the pyramid? If you take a look at the cratering stock price, one would say the markets are reflecting this same sentiment. But let’s get real. Starbucks is making a pivotal move in leadership to not only bring the company forward for the next 10 years but for long to come.
A recent posting I read from Herb Greenberg, a Partner at Pacific Square Research, drew a line in the sand with the question, “Did local coffee shops win? Did they finally put the dent into Starbucks profit margins that they needed to shift their priorities?”
Really interesting questions, which definitely made me think and ultimately write this post. So let’s get down to the real questions.
Did local coffee shops win?
Eh, that’s a hard one to answer because local coffee shops are very regionalized in competition and for the ability for all of these regions, markets, and segments to be all performing better than Starbucks on a unified front, difficult. But I do think the rise in local coffee shops has been driven by an almost “If I’m local, I’m going to my local coffee shop.” Which is a thought process that I also encompass, for the most part. There are still times when I need to power through something and the local coffee shops aren’t a viable option, so I go to the jolly green mermaid, and I’m completely fine with that. I still love Starbucks, I love my local shops, and I love coffee. Each one has a different pull and twist to it.
But the end result, local coffee shops may be extremely competitive to Starbucks in certain markets, but I’d counter this with a look at Walmart illustration. (Note: I’m not comparing quality of Starbucks to Walmart. That’s completely unfair and untrue.) To nobody but the lucky people that call Arkansas home, would Walmart be considered “local”. Yet it competes with many many local establishments. It has the brand recognition, that if I’m in another city and need something, I know if Walmart can have it for me. Yea I’d love to spend an hour at a local grocery store trying to find the right item and enjoying the atmosphere, but that’s not my need at the moment. I want the item, I know the brand, I know it’s consistent. That’s Starbuck, but at a much richer level because it’s playing with our taste and senses.
Is Starbucks in trouble now?
No. Let me repeat this immediately so there isn’t any confusion on my response to this. No, I 100% believe Starbucks is not in trouble and this leadership shake-up may be one of the most significant pivots the company has ever made. Let’s get real, this is huge. The visionary CEO that in essence created the premium coffee industry is stepping down from the leadership post to develop another industry of Starbucks.
The Upper Premium Coffee Industry. (If there is a better name for this, let me know in the responses. But for now, I’ll go with this.) Their current offering in the premium coffee industry is successful, it’s expanded to nearly every pivotal industry around the world under the watchful eye of Howard. This allows the Kevin Johnson (incoming CEO) the opportunity to expand at even greater depths in markets they are operating successfully in with a relatively proven ground plan, thanks to Howard. But this privilege and change allows Schultz to get his down and dirty in this Upper-Premium offering from Starbucks that will allow Starbucks to more directly compete with the local coffee shops.
Take a look at McDonald's around the world. These McDonalds are not the McDonalds of the United States. (They have even started shifting some of the USA ones, but on a much smaller scale.) The McDonalds around the world are completely different, their menu offerings are upper-scale, their product line is significantly different and developing a completely different market of individuals.
When I look at these transformations, THAT is what I see in this movement at Starbucks. They are working on developing a completely different atmosphere, product-line, and overall change in its offerings. This allows Howard Schultz to look at the Upper-Premium coffee industry, understand it, test it, and expand it to the level that makes sense.
In my opinion, this leadership shake-up is massively important to Starbucks long-term success. I’m excited to see what comes of the changes and the potential offerings in the upcoming years. Who knows, in 5 years, I might even be writing this in a Upper-Premium Starbucks versus the lovely local coffee shop I’m writing in right now.