How starbucks became a leader in its business: towards lessons for Botswana

Correspondent | Friday July 24, 2015 11:06

What can entrepreneurs in Botswana learn from Starbucks?vTo begin with, start small. Starbucks had humble beginnings. Success did not come overnight. Starbucks was founded in Seattle in 1971 and Howard Schultz bought the company in 1987 (when it only sold roasted whole coffee beans and was a very small operation).  Schultz is President and CEO and transformed the firm to what it is today.

What is Starbucks’ strategy for success? Its strategy (conceived by Schultz) is to offer customers the “Starbucks experience”, which means superior customer service, a ‘community experience’ (based on the Italian café model), a friendly ambience in its stores, and it empowers customers to drive change (especially in terms of customisation, peer-to-peer marketing and consumer awareness). Moreover, Starbucks seeks brand loyalty and offers perks to frequent customers.

What else? To promote efficiency, speed-up service, contribute to higher profits and interface with customers here are five examples of how it complements the “Starbucks experience”. First, through the use of automatic espresso machines (for fast and efficient service); second, it offers prepaid Starbucks cards (that cut transaction times in half); third, customers can pre-order and pre-pay for beverages and food/pastries via phone or on the Starbucks Express web site; fourth, it offers free high-speed wireless internet service; and fifth, Starbucks offers custom-made drinks (part of its “Secret Menu”). Currently, Starbucks is partnering with Spotify to stream music in its stores beginning this fall. And sooner rather than later, beer and wine may be introduced in its stores where permitted. It is constantly innovating. 

Is there a downside? As I have been a frequent customer of Starbucks for over ten years, here is my benign critique of Starbucks based on first-hand knowledge. The “Starbucks experience” is superficially very good (and sometimes it’s stellar), but systematic flaws eventually surface at various levels of its operations - for example, in terms of human resources, product mix/product quality and customer service (it’s strength). 

While Starbucks supposedly has one of the lowest staff-turnover rates in the fast food business globally, my personal experience suggests that their turnover rate is actually high, as many of its low-paid baristas are either students or temporary or part-time employees, waiting for the right opportunity to move on to greener pastures. With respect to product-mix and quality, it is definitely mediocre, especially given the high prices they charge. While customer service is stellar in most cases, much depends on whether you are a frequent customer to the same store. New baristas almost always fail to deliver the ‘Starbucks experience’. One definitely doesn’t go to Starbucks for value-for-money!

Despite these flaws, Starbucks is the envy of its competitors. Except for 2008-2009 (the financial and economic crisis period), Starbucks’ global revenue has continued to rise year after year, with good returns for shareholders. It’s hard to reject a strong business model. And even with the saturated coffee market in large cities in many countries, there is potential for growth overseas, including in sub-Saharan Africa (esp. Botswana and South Africa).

A friend of mine asked me “so what’s the key economics or business lesson”.  There are two: if you believe that humans are rational beings, then you might say that that there is a rational trade-off: customers will overlook the inflated prices and mediocre quality of its products to enjoy the “Starbucks experience”. Behavioral economists will instead say that humans are not always rational in their behavior; in other words, we are almost always ‘irrational’ (or ‘misbehave’) and therefore we miscalculate. Our behavior in showing extreme loyalty to a brand name such as Starbucks is exemplary of such behavior.

   In short, Botswana, despite its small market size, can learn ten lessons for success based on the Starbucks case.  Next week, I’ll gladly outline the ten secrets for success in the coffee+cafe business.

*Michael Chibba

Writer, Public Speaker, IB & Development Expert, Economist/Social Scientist, Teacher/Lecturer, Stakeholder Relations

Chibba.Mike@gmail.com

or  mchibba_cidc@bell.net