The power of the Brand CEO: Shultz and Starbucks
In this post we look at Howard Shultz of Starbucks to illustrate the power of the Brand CEO: a leader who is the living, breathing embodiment of the brand. This follows the post last week showing how an investment in the “Brand CEO portfolio” created double the return of investing in the FTSE 100 index.
After creating the Brand CEO portfolio investment graph, I thought it would be fun to go back to the post I wrote about Howard Shultz when he returned to Starbucks back in 2008. Starbucks has been the standout share in the portfolio, with a 522% increase in share price since I did the post.
Here is some of the learning on Howard Shultz, updated thanks to an article from Business Insider:
1. Remember what made you famous
In a voice-mail to Starbucks partners back in 2008 Schultz said:
“We will be re-focusing our entire organisation on the Starbucks experience by going back to our heritage and what made us successful in the first place”.
Schultz believed that the rapid expansion of Starbucks means the customer experience has been weakened, allowing competition to catch-up
Update: in 2008 Shultz made the bold decision to close all 7,100 U.S. stores for 3 1/2 hours to retrain its baristas on how to make the perfect espresso. This sent a strong signal to the business about re-connecting with the brand’s roots. It also created valuable PR, with all major news outlets covered the closings (CNN, ABC, NBC, CBS, Fox News).
Starbucks has done all sorts of brand extension since Schultz left. Pre-mixed drinks sold in supermarkets, branded merchandise, a record label etc. As often happens, this has distracted the company from the core business. Schultz is now following through on the direction he gave in his 2007 memo: “Let’s get back to the core. Push for innovation and do the things necessary to once again differentiate Starbucks from all others.”
Update: Some of the ways Starbucks re-focused on the core coffee experience:
– Deliver whole-bean coffee to its stores, and require baristas to grind the beans in the stores
– Throw away any coffee that had been sitting more than 30 minutes
– Remove hot breakfast sandwiches from menu, as aroma from the sandwiches was overpowering the smell of coffee in stores.
– Replaced all of its espresso machines with the Mastrena, a sophisticated Swiss machine
– Scaling back on all the CDs and books that had started to overpower the stores
– Re-hired Arthur Rubinfeld to re-design its stores and “recapture the coffeehouse feel,” with softer colors, more exposed architecture, unique lighting and more strategically-placed furniture.
3. Cutting through the treacle
Another issue Schultz has identified is that the company has become too bureaucratic. Time and again as I work with brand teams this problem of “organisational treacle” comes up: sticky, icky stuff that slows things down. Simplifying structures and cutting down on the ridiculous amount of meetings that take up so much of everyone’s time will help Starbucks, as it would most companies.
Update: In 2008, a simplified supply chain and inventory management system means that nine out of 10 orders are delivered perfectly to stores, versus only three in 2008
In conclusion, Howard Shultz shows the true power of a Brand CEO who can dramatically bring to life the brand, re-focus the business on the core and inspire everyone to deliver against the vision.