Starbucks execs baffled by Wall Street's response to latest earnings report

From this Wall Street Journal story:
** For the first time, there are a few signs that Starbucks's remarkable growth -- which turned a local Seattle coffee shop into a global giant -- may be making it more vulnerable to pressures on consumer spending.
** Recent expansion has brought Starbucks into more small towns, inner cities and spots off the freeway. While that has broadened its customer base, it also may leave the chain more exposed to customers who cut back on extras when gasoline prices climb and credit-card bills mount.
** Its trouble with the labor-intensive Frappuccinos has stoked investor concerns that Starbucks has complicated its menu to the point that the stores suffer. Starbucks has been adding lunch items and hot breakfast sandwiches in some stores and pushing CDs and books. (Read the story at Wall Street Journal)

Comments

While I lost value in my portfolio because of this little fumble, I think it is valuable to prove to ourselves that we are not bullet-proof.

In a lot of ways I agree with our investors that feel we have complicated our menu. Between our increasingly complicated blended line and toasted breakfast sandwiches it has definetly become more of a challenge to move the line quickly enough, and provide that extra level of service that makes my store better that any other coffeeshop or other local SBUX.

One way I have dealt with the sandwich slow down is to deploy one person to be "food expo" and "lobby slider." That crucial position increases speed of the line, provides much better service, and prevents the floater from getting buried and running around like a chicken with it's head cut off. Now, I just have to train my management team to do the same...

Another advantage of the food person is that they will increase our pastry and sandwich sales. Similar to how we call down the line for drink orders, they call the line for pastry and sandwich orders-any beverage orders that come in they call to the floater. Try it out...

If as a company we think outside the box and change deployment to suit each situation, we will prevail, and our customers will come back to our stores more often and bring their friends.

For the sanity of our baristas, I hope the company streamlines our blended menu a bit more...or just give us bigger fridges. I spend more time dealing with that little, tiny, fridge than I do blending stupid drinks.

[Amber Fairweather]

Face it: Starbucks is the "McDonald's" of this decade. This company just has a better marketing team. Are people fools? It's fast food...you wait in line...and the stuff they sell is trash.

I would never invest money Starbucks. It's only a matter of time before this company starts to go down hill. Starbucks doesn't realize that less is more.

[Florida Barista]

Ah the classic and never ending "Starbucks is the McDonalds of coffee" debate.. I'm over it. I know that when I go to work everyday, I don't feel like I'm walking into a 'McDonalds'. I make more money, have a better time, and serve a better product that most McDonalds workers.. But Think what you want Amber.. you go to Dunkin Donuts and drink your chemically processed french vanilla coffee, and I'll stick with my Starbucks, even if it is served fast.

[Lewis Green]

As a former Starbucks partner who worked in the Support Center, one of my responsibilities was to write and develop some of the executive analyst presentations. This was nearly a decade ago, and the story remains the same: food and blended drinks slow the lines down. Dropping them from the menu board is not the answer.

The best store managers solve these issues within the stores. This is a local issue not a Support Center issue, although executive and internal communications might facilitate and communicate the solutions coming out of the stores more effectively.

As for fast food, PLEASE STOP. Starbucks is in no way a fast food emporium--if it were they would put the sandwiches in a self-serve refrigerated unit and blend the drinks in advance.

As for the Analysts' reaction, this, too, is old news. They have throughout the years questioned store and global strategies and operations. And, to date, the naysayers have been wrong. No one can predict the future of any business, but I don't expect Starbucks to go away anytime soon.

[Jon]

I don't know... there are a remarkable number of reasons to say that we are going in a fast food direction. Comparing us to Dunkin isn't a good counter-argument. Wendy's could say they're not fast food compared to McDonald's and use some of the same arguments. If Starbucks is fast food, it's really good fast food. The way to find out is this: go to a non-'Bucks coffee shop that really does coffee well. (For me, that's a half-hour drive.) Try a cappuccino. Does it taste better? Why? Because they're not trying to commoditize drinks and streamline production at the cost of end-product quality. The reason why the competition with barely-specialty Dunkin can be so fierce is because, on the whole, we've lost the ability to compete at the top of the food chain.

Fast food is relative. It doesn't really matter that there are ways to make a cappa that still tastes pretty good if you get used to it. In the company as a whole, we are really losing interest in the potential of our products, and it's a really, really bad thing.

[nickname]

the title of this claim is all wrong.

the execs know exactly why the stock dropped.

stocks and growth are like currency - it's all based on faith and predicitions.

like the support centre worker said, no one has ever had such an aggressive growth plan like starbucks, and no one intially believed anything we said.

so when we say we're gonna grow at 10% per month, even though they scoffed - they saw that it was possible to have double digit comps month over month (year after year), in a market that shouldn't be growing more than 2-5%....and they bought.

so when we do show regular and normal earnings at the market's comps, our stock drops - since our plan (and the stock market's faith) is that we'll grow double that...

it'll bounce right back.

but if you've ever thought about buying, do so now, since when it bounces back to normal earning (for us) then it's gonna skyrocket back up.

[mgr]

Ok, but don't bounce back until after our stock option grant! I would love me some grants set at only $30...

[jabanga]

amber fairweather there were few investments better than starbucks over the last 14 years. however, i do think the company having to commit to open so many stores and keep the price to earnings ratio at a certain level to keep wall street happy has hand-cuffed the company in many ways that will make it impossible to replicate that success. howard shultz, howard behar, and orin smith ran the company with a creative vision that continually surprised wall street and did things wall street didn't think possible over and over again. unfortunately now the company's approach to its investors is very reactive and investor driven and it is starting to take its toll on the way the company does business.

[sbuxmanager]

Lewis Green,

You are wrong. That is the same bull we've been hearing for years at the stores. It's so easy to say that any store that doesn't solve it's speed of service issues is run by a bad store manager. Typical of an SSC partner. Give the stores a load they can't handle and tell them to deal with it and find a solution.
At this point there are too many stores to spread a best practice around quickly enough to solve problems and there are too many store designs for any one or two solutions to work.
Speed of service is a COMPANY issue and needs to be dealt with at the highest levels, because now it's not effecting one or two stores, it's affecting the stock price, and when that happens, you know it's gonna hit the fan.

[JustABarista]

Lewis Green,

I was wondering if the people over at support center or anywhere within corporate have a "test kitchen" to test out how new product integrate or how stores are arranged. I think the biggest problem is store layout,the oldest stores in my district are the easiest ones to work in, plenty of storage up front and pull out tables to make preps, ice machines being out front so you don't have to run and get four buckets of ice every twenty minutes during peak periods, syrups cubbies right over the bar, behind the counter is usually shorter so you don't have to walk so far between the food case and register and between the register and bar. An older store in our district was remodled and they took out the behind the counter storage to put the menu board behind the bar (where it also gets covered in splashes and requires extra cleaning every night), moved all the extra inventory in to an already tiny and crowded back room, elongated the back bar so that a person on the first register has to walk past two other registers and a retail counter display to get to the pastry case, they deepened the bar so you don't just turn around and make a frappuccino anymore, you have to walk over to the cbs, the distance between the closest register and the bar requires the person on that register to walk over and line up all the drinks on the bar instead of being able to just reach over, ice machine was moved to back, there are now three blenders on the cbs, but nobody is fast enough to use all three, so one just sits there, and it's set up so it doesn't "flow". So I'm wondering, do they ever think about this kind of stuff?

[jabanga]

justabarista some of it is just what you are used to. i have worked in the old compact syle stores and the newer style stores and i prefer the newer ones. you are right about the splashes on the menu boards that is annoying. but having the three-bay sink and the sanitizer and no room to breathe at the cold beverage station drives me nuts.

[Boston Starbucks Rebel]

I think in a high volume store it is a good idea to have a larger store because then the partners are not bumping into each other if they remain planted at their primary position. Otherwise it gets very confusing.

[justabarista]

Jabanga,

I agree on the sink, moving that to the back was a good thing. I started in a newer style store and was never used to doing dishes up front, and it does crowd CBS, but I also think there is a much better comprimise between the old and new styles.

[Lewis Green]

Of course the Support Center can be helpful. But what makes Starbucks a great company to work for is that store partners solve problems, not those in Seattle who don't have your experience.

Having slow lines does not necessary mean a bad store manager, but unless store partners create a solution, it is doubtful one will be created. And that is good!

Starbucks in not a top-down company. I hope that in addition to sharing your thoughts at this blog, you have run them back to Seattle, especially regarding store design. If you haven't, you are simply venting and not solving a thing.

[coffeeguy :)]

Don't worry guarantee that Seattle has eyes on the internet.

It's where they get a lot of the more unsaid feedback about the bucks. :)

Honestly I have to thank Lauren for really making me see it but deployment plays a huge factor in this as well.

Store design and deployment are probally without a doubt the best way to combat the lines in the retail level of the company.

thankfully with pumpkin spice and eggnog lattes coming out soon we should see a shift in cold drinks to more espresso drinks. :)

my store is like a closet - i'm trapped in a mall food court. we have the three compartment sink, along with about 3/4 of our CBS along the sides wherever it will fit. we have one rinky dink ice machine that runs out, and we have to stand there for five minutes saying "no iced beverages..." until it drops more. we get more and more creative with the little space - don't get me started on the 85 boxes of juices and puree that have just about ruined everything.

and yet, we're a 50k store...

[Boston Starbucks Rebel]

What to do an emergency? I was wondering about that if there is a city-wide power outage and it seems to be more serious. Should I try to go to the store and see if I can help out there or remain in my home. Some of my friends were working out scenarios from everything such as an alien invasion to attacking zombies. My downstairs would offer the best coverage from such an attack. Also, I know that Big Boylston has a large conference room that could be used as the Boston Starbucks Command Post where all the DM's would coordinate their attempts to stop the alien and/or zombies because we all know they don't like coffee or frappuccinos(r). But really what should we do if there is a real state of emergency?

[jabanga]

your store has an evacution kit with instructions and your store should be having safety and security meetings where it is discussed.

[seattle]

SBUXMANAGER-with all due respect, you are wrong.

I am a Seattle Support Center partner that started in the stores. The first store I ever worked at **barely** (and I mean barely) had enough room for just three of us working at a time (Starbucks owned, but in a grocery store-one of the last of that kind). Eventually they had to open up a DT across the street to handle all the business that we were already handling by ourselves. We didn't have any problems getting it done either-it was one of the best teams I have ever worked on and that's why it worked so well-because of stellar teamwork. Our customers loved us because of it. We probably could have handled it for a much longer period of time too.

So, I know it can be done-and I guess you could call me a "typical" SSC partner.

[javalover]

Why are we bad. Everything is related to cost. Just raise prices like the rest of the country. Everything is going up and cover the high costs lets you run the store right(labor/blenders). Why should every one else raise prices and not us. Coffee is cheeper than gas. Run your body or run your car. Tips R based on ticket price. Raise prices and get more tips.

[nycbearista]

Dunno about tips being connected to prices. last price raise we saw a noticeable drop in tips. they came back up eventually, but mostly because we have so many regulars that we treat really well.

As to the above discussion, deployment and design are top of the list. worked at every store in my district (Upper West Side Manhattan) over the past 2.5 years and the best design is actually one of the smallest stores. Key design factors - orientation of Espresso Bar to CBS, Orientation of Brewers to Registers, Orientation of Pastry Case to Registers, location of sink (arguably most important of all) for rinsing steaming pitchers and blender pitchers.

As to deployment, best practices get you pretty far, and sticking to the book re: staying planted will help enormously, but even more important is great teamwork. our store has a line about 20+ people long, from 6:30ish to 11:00ish. last 2 snapshots were both 100% and 4 stars (damn that 5th star is hard to get in a rush). we vary from 3-4 people on the floor in that time, On a good day with a great team that is working together, we'll make well over 2k before noon. BUT - if something is working (bad attitude, partners not staying planted, laziness, etc) the sales seriously drop - as do tips - and i see customers taking a look at the lines and leaving.

As was said before by someone, it is all about the feeling and tone of your shift, how you run it and how your partners are relating - once did 3 hours of the morning rush with myself and one other partner - lines were incredible but nobody left - because she and I were in the zone, laughing, joking, and involving the customers. I dropped over $900 just out of my til that day.

anyway - nuff said

jonathan

[Boston Starbucks Rebel]

Oh yes, I do confirm that it is about teamwork because if you can communicate with your team of partners non-verbally where everybody knows what is necessary it is possible to do a great job. Sometimes my store was down to four people which means there was one person needing to go on their ten minute break so it was pretty bad during the morning rush.

[sbuxmanager]

Seattle,

That doesn't prove anything other than you worked on a great team way back when there were company owned locations in supermarkets. How long ago was that? Was it long enough ago that there are now 3 times as many types of frappuccinos? 4 times? Was it before there were 3 types of ice tea? Before shakers? Before

[sbuxmanager]

(Sorry I hit the button by accident)

I don't think I need to go on but suffice to say that there are tons of new drinks and at this point, great team or not, your little kiosk in the safeway would not be able to handle the load.
I've worked in several stores and one thing I know is that each store has it's own unique challenges. However, one common theme at every store I've worked at is speed of service. For instance, my last store I improved deployment. So much so that speed of service improved considerably so that sales started going up from negative comps to eventually +20-25%. That of course brought back the service delays. Our customers loved us and thought we did a great job, but we never made speed of service during a morning snapshot.

The problems coming from the office are two-fold: The regional store development teams do not ask any store partners for any input when designing a store. If anyone should have input into a store design (particularly ergonomically and efficiency-wise) it should be the barista who has to deal with it. Secondly, the product development team continually creates new products and doesn't delete enough old ones and they also do not seem to want any input from the stores. When a store partner gets up and says, wait a minute, either this product is too far away from our core business, or this product is too much of a hassle and will cause delays, the response is always, "sorry, deal with it and find a solution." I'm saying, no matter how good your team, sometimes it's just not that simple.

[Boston Starbucks Rebel]

Hi! Does anybody know how the breakfast sandwiches effect deployment and sales. I would think that at high volume stores there would have to be warming partner during the morning rush to coordinate the warming of the sandwiches. Just an idea. Also, I didn't mean necessarily store evacuation but if there is a power loss should partners who live in the vicinity of the store go over to assist closing the store or should they just stay inside their homes and wait for further instructions. I think I would feel safer helping the partners close and evacuate. We could then go to a nearby partner's apartment and playing Cranium.

[BaristaBoy]

My guess (using the past 6-7 years as a guide) is that the stock price will be just over 32 by the end of August, mid-33's at the end of the quarter, and mid-36 by the end of the year.

[Amber Fairweather]

Back to the waiting in line issue. There's nothing wrong with waiting in line, if you are waiting for a quality product. I've noticed a difference in quality over time...I was a customer for five years. I also used to work in a coffee shop. I know for a fact that an emphasis on prepackaged crap deducts the quality of a brand. I know how a good cappuccino should be made. I know what a good cup of coffee should taste like. It isn't made by using milk that has been reheated 3 times for other drinks. I'm telling you: something else will come along and people will not be willing to wait in line to pay $4 for crap. And no, I do not go to Dunkin Doughnuts. Yes, I do commend Starbucks for treating their employees with respect. Now if they would treat their customers with respect.

[Amber Fairweather]

Back to the waiting in line issue. There's nothing wrong with waiting in line, if you are waiting for a quality product. I've noticed a difference in quality over time...I was a customer for five years. I also used to work in a coffee shop. I know for a fact that an emphasis on prepackaged crap deducts the quality of a brand. I know how a good cappuccino should be made. I know what a good cup of coffee should taste like. It isn't made by using milk that has been reheated 3 times for other drinks. I'm telling you: something else will come along and people will not be willing to wait in line to pay $4 for crap. And no, I do not go to Dunkin Doughnuts. Yes, I do commend Starbucks for treating their employees with respect. Now if they would treat their customers with respect.

[Boston Starbucks Rebel]

I never resteam my milk, instead I'll steam some fresh milk for each beverage. I use multiple pitchers. I do not rush through drinks because I know that quality is much more important quantity of drinks. I used to practice for hours on the piano to prefect a few passages and make sure they were perfect instead of playing an entire sonata poorly. A latte is the same thing, a beautiful aria that needs time and years of practice. There is a reason why the regular customers ask me to make their drinks. The other partners ask me my secret. I tell them that if you make a latte, think of it as first latte, last latte, only latte, and therefore it will be my best latte, an existential moment of joy.

:::wiping tear from eye:::

Dude ... that was beautiful.

[Sarah]

Why would you hate getting your pricute taken? You're beautiful!I just had to tell you that every time I come visit, its extra special because Come Away With Me was my wedding song and I have great memories of the song and I don't hear it much anymore.Love your blog!

[Rosa]

"Join the movement. Bring a resbaule travel mug and get a 10 cent discount on any Starbucks beverage, anytime" only 10 cents off your coffee now, bummer, I missed out on the free one I 'spose :(

[Mituo]

questo gioco una figata clvoao !!bella anche la grafical'unica cosa che trovo triste sono le persone che continuano inevitabilmente ha lasciare commenti idioti e antipaticise una console non piace basta non venire su questo forum..ma evidentende nella vita non hanno altro da farepoveretti

[Susan]

Potrebbe anche non essere afttafo male ma voglio aspettare qualche news in pi anche per la trama ed il game play. Comunque devo dire che mi sembra che qualcosa si stia muovendo.