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GoodBusiness Monday: Howard Schultz, Business Innovation Challenge, and Links

 

business innovation, business tradeskill

Starbucks and Stumptown are racing to bring the best coffee to you!

Our leadoff this morning is Howard Schultz, the CEO of Starbucks Coffee. In 1987 Howard bought a Seattle, Washington chain of 6 specialty coffee stores that had just begun selling espresso.  Today, Starbucks has over 21,000 coffee shops in 65 countries.  Howard Schulz tells the  story in two books:  “Pour Your Heart into It” (1999) and “Onward: How Starbucks Fought for its Life Without Losing its Soul”.

When I first discovered in the early 1980s the Italian espresso bars in my trip to Italy, the vision was to re-create that for America – a third place that had not existed before. Starbucks re-created that in America in our own image; a place to go other than home or work. We also created an industry that did not exist: specialty coffee.

Starbucks is not an advertiser; people think we are a great marketing company, but in fact we spend very little money on marketing and more money on training our people than advertising.

(The first coffee shop in Italy was opened in the late 1500’s in San Marco square in Venice.  Starbucks hasn’t opened a store in Italy.  But the story of how Howard Schultz brought Starbucks to every other place in the world is fascinating.)

Our First Business Innovation Challenge: Stumptown Roasters vs. Starbucks Coffee

So what what should you do when the world’s best-known brand for specialty coffee comes gunning for your small business pride and joy?  You’re Duane Sorensen, you founded Stumptown Roasters, and 15 years of work and sweat are on the line.  Now what?

Today we’re introducing the Business Innovation Challenge.  For the last year we’ve talked about GoodBusiness skills; now it’s time to put your skills to the test.  Our inaugural  challenge pits Stumptown Roasters against Starbucks Coffee.  Both are real companies, and this is a business problem right from today’s business news.

Stumptown Roasters (wikipedia profile) started up in 1999 in Portland Oregon, that most receptive microclimate for artisanal business.  Here’s their story and their goal.

In November of 1999, Duane Sorenson opened Stumptown Coffee Roasters on Southeast Division, the name a nod to (Portland Oregon’s) historic logging legacy. In between roasting, traveling to source and pulling shots of espresso, Duane began delivering coffee to wholesale customers out of his Ford Pinto wagon–the first Stumptown “Delivery” vehicle. He quickly became known for his inexhaustible passion for exceptional coffee, and what became a concept of sourcing, roasting and brewing that would change the coffee industry completely. Sorenson’s plan was a bold one: find the best beans in the world—scouring the planet if need be—pay a living wage to the farmers who harvest them, and raise the level of discourse and expectations that surround a cup of coffee.

From Stumptown’s web site.

Starbucks Coffee (wikipedia profile) grew from 6 Seattle coffee shops to a worldwide chain of coffee stores and a universally recognized brand.  It wasn’t easy, though, and Starbucks nearly lost its way in in the mid-2000’s.  Howard Schultz returned as repeat CEO of the company he’d built, with the challenge of returning Starbucks to its cultural roots as a people-based service company serving coffee.  Now, with culture firmly re-established and growth restored, Starbucks wants to move upscale.

The battleground is a natural resource called single origin coffees.  Unlike the varieties that we buy and drink every day, single origin coffees are grown in only in pecific places… sometimes just a single parcel of a coffee plantation.  Even so, the quality of the coffee varies with season and the rains.  And the best beans of the best crop might amount to only 60 or so bags of coffee.

These very special beans get the most careful attention as they’re roasted. That’s why a single origin coffee can sell at retail for as much as $45 for less than a pound (less than half a kilo).  When ground and brewed with a consummate barista’s skills, the price per cup might range from $4 to $7.

Single origin coffee purveyors start their supply chain at the source.  Here’s Stumptown’s description of their Direct Trade approach.

Direct Trade is predicated on a few simple pillars: improving coffee quality, incentive based rewards to the farmer and transparency of the supply chain.

We visit each farm 2-3 times per year on average. Early in the harvest, we build a strategy with the producer. We return in the middle of the harvest to check in on that strategy and ensure all aspects of cherry selection and processing are top notch. Generally, we’ll return at the end of the harvest to taste coffees and discuss the outcome of that particular harvest and reward a job well done as well as discussing options for the next year.

Price incentives are based on quality. We have a tiered pricing system which is geared to guarantee the farmer will get a larger premium than the farm gate price.  Producing great coffee is expensive, so the investment the farmer makes is taken into consideration for development strategies.

Rather than negotiating a price with a broker or an importer, we settle on the price directly with the producer.

From Stumptown’s web site.

Here’s Starbucks’ description of their Reserve strategy.

Each year we travel the world in search of great coffee. Every once in a while, we discover a handful of beans so special and rare that we can’t wait to bring them home and share. Our buyers and agronomists at our Farmer Support Centers work closely with farmers around the world, giving us the ability to discover and source unusual, one-of-a-kind coffees. Our team of expert Starbucks tasters evaluates more than 250,000 cups every year in our tasting room, selecting just a few of the most unique coffees to become Starbucks Reserve® coffees.

Collaborating with our tasting team, our master roasters experiment until they unlock each coffee’s inherent flavor qualities. We don’t tell the bean how to taste – we listen to know what the bean has to offer so we can bring out the best flavor.

From Starbucks Reserve microsite

If there’s any doubt about Starbucks’ competitive target, take a look at these pictures from their respective web sites.

Startbucks and Stumptown RoasteriesIt’s a tough problem, isn’t it?  But Stumptown’s problem isn’t unique.  It happened to Smith and Hawken (gardening and tools) and Ben and Jerry’s (ice cream).  Both companies successfully  weathered challenges from industry goliaths by resorting to very different strategies.  What’s your strategy for Stumptown Roasters?  How can Stumptown Roasters keep Starbucks from taking away Stumptown’s share of the single origin coffee market?  Can Stumptown even use Starbucks’ Reserve strategy against itself?

Put your contribution to the Business Innovation Challenge in the comments at the end of this post.  We’ll read and respond, stir the pot, and gently moderate what we hope will be a lively online conversation.

For this inaugural Business Innovation Challenge we’ve also included a short survey… please tell us if you like this idea, and how we can make the Challenge even more interesting.

Have a great business week!  All of us in the GoodBusiness Monday  club (if you’re a reader, you’re a member!) are looking forward to your contribution to the Business Innovation Challenge.

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8 Comments

  1. Carol Orris says:

    Consumers are sick of commercialism. I feel that a company like Sumptown could easily find it’s niche and perhaps trump Starbucks. In an age of health conscience living, Starbucks offers nothing but sugar laden, ultra processed fare. By offering more healthy options, and using that as a platform to draw attention to the lack thereof in Starbucks selection, would be an excellent starting point. Stressing the “your bean, from plant to cup” philosophy, as Chris stated earlier would give Sumptown a definite edge with the Eco- friendly Hipster crowd. Great discussion!!!

  2. Complementing, here in Brazil we have some specialty coffee shops and in my point of view, one competitive advantage that i see is healthily products. In Starbucks you can find a lot of tasteful options but you don’t have so many healthy options. Low fat, low sugar and protein based food i think is a huge differentiation from the competition.

  3. CRISTOVAM PERES says:

    Complementing, here in Brazil we have some specialty coffee shops and in my point of view, one competitive advantage that i see is healthily products. In Starbucks you can find a lot of tasteful options but you don’t have so many healthy options. Low fat, low sugar and protein based food i think is a huge differentiation from the competition.

  4. CRISTOVAM PERES says:

    First of all, i think Stumptown should take an action to face the Startbucks threat but that to do?
    It’s obvious that the single origin coffee is a huge competitive advantage for those who have access but is it the only one?
    Can Stumptown discover or create a new competitive advantage on other areas than raw material? Starbucks do it with human resources but it lacks on marketing efforts. Maybe this is an interesting area to focus and gain some advantage. Another area that might be interesting to develop is costumer relationship so this way you can develop costumer loyalty and get going.
    Is my reasoning ok?
    Btw, it’s a pleasure to read a article like this.

    • Chris Chadbourne says:

      Cristovam, your observation about creating competitive advantage in areas other than raw material is very OK. Stumptown emphasizes transparency, so a “Your bean, from plant to cup” description might be one differentiator. I also like the idea of developing customer relationships… perhaps through a subscription program, capped by an ecotourism cultural tour?

      • Very interesting point of view Chris.
        Maybe a marketing campaign (and a real service) like “adopt a coffee plant” that would provide this tours to visit the plants once in a while. Its very narrow niche and maybe its a market opportunity.

  5. James Ojuok says:

    It takes a lot of courage to confront competition that is way above your level. Stumptown would benefit more by employing an effective campaign strategy. Putting in a sense of humour is smart and well calculated. Good read!

  6. Chris Chadbourne says:

    Alright, I’ll lead off.

    Perhaps there’s no problem yet. Starbucks just opened their super-sized Reserve speciality this last Friday. They’ll be shaking out the concept, trying to persuade people to pay $5 for a cup of coffee. Starbucks probably won’t open another store for six months or so.

    If I thought that way, Stumptown would be doomed. Here’s why. Starbucks has tremendous resources. They might be large and perhaps even slow, but their momentum, once they get going, will be unstoppable. The right thing to do is start countering RIGHT NOW.

    How? I’d start by taking a tip from Richard Branson (GoodBusiness published reviews of three of his books last week). Use humor and start a counterculture social media campaign now. First jibe? Well… see that picture of the roasters? Starbucks is using the same German brand as Stumptown roasters. So the first volley might go something like this:

    “Stumptown welcomes Starbucks to world of single origin coffees. You’ve decided to experiment with your Probat roaster; would you like a few tips about how to use it? Might cut short your experiments with those very expensive, very rare beans…”

    No, it’s not a new idea. That’s the way Ben and Jerry’s fought back when Pillsbury leaned on grocers to cut down the shelf space for Ben and Jerry’s ice cream. Their tag line was much shorter and much sweeter: “What’s the doughboy afraid of?”

    Over to y’all…

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