Starbucks: Survival of the Most Innovative

The now-infamous leaked Starbucks memo from Chairman Howard Schultz, in which he deplored the growing commoditization of the Starbucks brand, is continuing to generate commentary on the official Starbucks Gossip blog. (The latest post, linking to TIME Magazine's take on the Starbucks memo, has already resulted in 30 comments in less than 24 hours) It's almost as if the Starbucks emperor has had no clothes for the past two years, but now people are finally emboldened to say something. In the memo, Schultz let it be known that the "coffee experience" has been deteriorating at Starbucks stores, and essentially warned that some customers might view the store as nothing more than a lame fast-food store (25% of stores now have take-out windows!) with over-priced coffee.

If business is truly the survival of the most innovative (as we like to believe on the Endless Innovation blog), it will be interesting to see how Starbucks responds to the growing threat from the likes of McDonald's and Dunkin' Donuts. As Schultz explains, all it requires is a return to what made Starbucks special in the first place -- friendly store designs, in-store coffee grinding and greater interaction with customers. Frankly, though, I don't know if that's possible, given the company's stated desire to triple its worldwide penetration to 40,000 stores from a current level of 13,000. The company is facing two very different pressures -- customers want the stores to be friendly and personalized, while the Wall Street investor complex wants lots of growth as quickly as possible.

While much of the Starbucks expansion will likely occur overseas in high-growth markets like China, it seems to me that Starbucks will have to "evolve" into a different type of store in order to succeed within the U.S. market. The company has already evolved from "coffee boutique" to "neighborhood hangout" to "upscale fast-food chain." What is the next evolutionary step for Starbucks?

[image: A Starbucks store in NYC]

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