CRO POV: Coffee Giant Sends Out Wake-Up Call

Starbucks CEO’s highly caffeinated brand of brand defense

By Jay Whitehead

This past week, Starbucks Chairman Howard Schultz fired off a memo to employees saying that the brand was being “watered down” by such things as automatic espresso makers and cookie-cutter store designs. Schultz’s perception is that in growing from 1,100 stores in 1997 to more than 13,100 today, the company’s coffee-house mystique has been commoditized. The memo, first reported on StarbucksGossip.com, made national headlines.

Of course, the fact that Dunkin’ Donuts—running that “it’s Fritalian” commercial—has stolen a bit of market share has to be alarming to the guy who essentially invented high-end coffee retailing in the U.S. Ten years ago, nobody would have thought that Dunkin’s weak American java—a drink specifically designed to wash down glazed raised gut bombs—could possibly compete with Starbucks’ high-test brews. Yes, Schultz has reason to be miffed and concerned. (Disclosure: Starbucks is a corporate member of The CRO.)

The chain’s founder acknowledges that the financially driven efficiencies necessary to grow so quickly have largely been to blame for the brand leakage. But don’t blame the accountants and efficiency consultants. They are just doing their jobs.

The real point that Howard Schultz’s memo brings home is the passion that the founder has for his brand. Any erosion of the mark’s romance makes the Chairman crazy. And it’s that deep commitment that will keep Starbucks from running off the tracks on the corporate responsibility side as well.

Cups and napkins from recycled paper content, socially conscious supplier selection, green energy usage, fair-trade practices, progressive HR policies including full health benefits for employees, giving back to communities in which it operates and highly transparent corporate governance all add up to a corporate responsibility profile that puts Starbucks in the top-tier of companies (and on the CRO 100 Best Corporate Citizens list). And with Schultz’s fiery commitment, Starbucks’ corporate responsibility leadership will continue.

In his alarming note, Schultz said Starbucks’ “current state of affairs” had allowed competitors “to position themselves in a way that creates awareness, trial and loyalty of people who previously have been Starbucks customers. This must be eradicated.”

Current CEO Jim Donald, to whom Schultz apparently wrote his wake-up memo, is the man charged with walking in Schultz’s brand-manic footsteps. The memo reminds me of one immutable law of business life: Comfort breeds complacency. Every one of us needs to be woken up periodically. Perhaps those of us who are chronically and habitually uncomfortable (which includes me) appreciate a good loud nasty wake-up call more than others.

I can only applaud Schultz for throwing a grenade. The memo’s impact—hey, it made The Wall Street Journal—reminds us all that our brands are only as good as the people taking care of them. And when the caretakers fall asleep, all sorts of bad stuff starts happening.