Preserving the Starbucks Counter Culture

Preserving the Starbucks Counter Culture

Starbucks' competitive wages and generous benefits have made frontline recruiting as smooth as a latte. But with explosive worldwide growth, the Seattle coffee giant faces a tremendous challenge: Can it find enough quality employees to keep customers coming back for more?

By Gretchen Weber

seven mornings a week, Starbucks CEO-designate Jim Donald makes eight important phone calls.

As president of Starbucks North America, he contacts five of the 550 Starbucks district managers in North America, each of whom oversees 10 stores, to check in for a minute or two. Then he dials three Starbucks stores at random to say thank you to employees and ask for feedback.

But as the Seattle-based coffee giant grows globally by more than four stores and 200 employees every day, the surprise phone calls from the top brass are also a calculated strategy for maintaining the small-company atmosphere that Starbucks hopes to retain despite its explosive rate of expansion.

Donald, who will replace outgoing CEO Orin Smith on March 31, says that keeping the feel of the company small while it mushrooms in size requires a mindset that must start at the highest levels.

"We (are) going 100 miles an hour," says Donald, the former head of supermarket giant Pathmark Stores Inc. who joined Starbucks in 2002. "We're growing at 20 percent a year. We've got to be able to reach into this organization and say, 'How's it going?' and 'Good job!' If any company doesn't have the time to talk to people on the front lines, then you might as well close it up, because it's not going anywhere."

Starbucks, of course, is going everywhere. But even if there are enough customers in the world willing to pay as much as $5 for a cup of coffee to fuel Starbucks' aggressive expansion, questions about its ability to successfully recruit and staff its workforce remain. Can a company so dependent upon the personalities of its employees possibly find enough qualified and desirable candidates to greatly increase its current workforce of 85,000 in the coming years and still maintain its brand? How can it maintain its reputation for high-quality customer service and the unique feel that made it successful in the first place?

Despite its legions of well-trained, friendly employees and the undeniable popularity of the whole Starbucks coffee experience, there are those who don't think the company can continue to grow indefinitely. H.D. Brous & Co. analyst Barry Sine says that while Starbucks touts its customer service as exceptional, he doesn't believe the consumer experience is very different from other high-end retailers.

Nor does he think it's enough to carry what he believes is an unsustainable rate of growth as the company continues to expand beyond highly concentrated big-city hubs and into more rural areas where premium prices might not be as well-received. Despite Starbucks' popular brand and its good employee benefits package, Sine thinks that staffing could become more difficult as unemployment declines and competition for good employees increases.

"In a recession you can always find people," Sine says. "But now with the economy booming again, that will make it more difficult to find the right people."

Even Donald, who has experienced rapid expansion as a former Wal-Mart executive, says that finding enough good people to fill the swiftly growing number of positions is a genuine concern.

"My biggest fear isn't the competition, although I respect it," he says. "It's having a robust pipeline of people to open and manage the stores who will also be able to take their next steps with the company."

Currently, there are more than 8,900 stores in 35 countries, and in October, the company raised its total eventual worldwide retail target from 25,000 stores to 30,000, which will include 15,000 stores in the United States alone. And its eye-popping growth rate--1,344 new stores in fiscal 2004 and a target of 1,500 new stores for fiscal 2005--is boosting the bottom line.

Revenues grew 30 percent from $4.1 billion in fiscal 2003 to $5.3 billion for fiscal 2004, which ended in October. When calculated on a comparable 52-week basis for both years, the company reports a 27 percent increase in revenues. While new store openings are certainly the source of much of that increase, even existing-store sales jumped more than 13 percent and 8 percent in November and December, respectively, of fiscal 2005.

Building the Starbucks experience

Ask Starbucks executive about the company's recipes for success, and they will tell you unequivocally that it's the people, or "partners," as Starbucks calls its employees. They will tell you that Starbucks doesn't just sell coffee, it sells an experience. And that experience, they will say, is completely dependent upon the attitudes and abilities of the partners on the front lines who greet and serve more than 30 million customers globally every week.

The most loyal of its regulars return for their lattes and Frappuccinos 18 times a month. By providing consistent, positive customer interactions between partners and customers, Starbucks has become part of a daily routine for millions of customers.

"It's definitely a profitable strategy," says Dave Pace, the company's executive vice president of partner resources. "When a customer comes in and the person behind the counter says hello and maybe greets you by name, you feel a connection you don't find with most retailers anymore. It makes you feel welcome, and it makes you want to come back."

This strategy of selling an entire Starbucks experience has made the company one of the great growth stories of the last 15 years. In 1990, there were just 84 Starbucks stores. Now there are more than 100 times that number. Since 1992, when the company went public at $17 a share, there have been four stock splits. The stock ended trading in mid-January at $56 a share for a market cap of $22.7 billion.

Sharon Zackfia, an analyst at William Blair & Co. in Chicago who follows Starbucks, doesn't think the company will have trouble with staffing even if it continues to grow at its current rate. She says that despite the huge number of employees that must be hired in the coming years to sustain the expansion, the growth rate hasn't changed much from previous years: 1,339 new stores in 2003, 1,177 new stores in 2002 and 1,208 in 2001.

"They've