Have you tried?

June 11th, 2009 · 6:00 am → Blog

I had an interesting discussion the other day with a colleague about creating a growth strategy for Starbucks. The challenge for Starbucks is one of success – how do you continue to grow when you’ve:

saturated your home market (for the purposes of the conversation we ignored the very obvious “grow internationally” strategy which was too obvious to be worth discussing)
are already running a relatively lean operation
are now facing a new onslaught of competitors (e.g. McDonald’s) who are eyeing the profit you make

And, of course, the big one:

you’ve already tried DOZENS of new strategic initiatives (e.g. CDs, restaurant food, utensils/cups, branded credit card, etc), many of which have flopped

(As Dilbert points out, “jargon” is not a very good answer)

After I fleshed out all the more interesting adjacencies as ideas (e.g. dessert food, franchising, coffee machines, online banking services, renewable energy credits, etc), my ideas turned to capability moves, and the most promising one that I came up with was supply chain services. I can’t think of many firms/stores that have the same distribution network that Starbucks has (~11,000 stores in the US). After all, in San Francisco, I know of corners where I can see 3 separate Starbucks stores – and I’m sure this happens in other big cities as well!

For Starbucks to function effectively, I would hazard a guess that they must have an efficient way to distribute supplies (e.g. coffee beans, baked goods, materials, machines, etc) to each of the ~11,000 locations in the US on a regular basis. I would also guess that such a system, if designed effectively, would probably see reasonable returns to scale, as I would expect a nationwide distribution network that had to distribute more products would be more efficient than one with less product (as you wouldn’t be sending trucks out on partial routes or with only some of their capacity filled).

That means:

Starbucks may have a unique capability that others (e.g. other stores, restaurants, etc) might be willing to pay for
Starbucks would benefit from developing that capability. If Starbucks does have such a distribution network, expanding the amount of materials it needs to distribute could, in theory, reduce the cost of distribution. This would help enhance its own ability to distribute supplies/goods to other firms as well as reduce the cost of distributing coffee/materials/baked goods to its own stores.

But this is a far cry from a sure thing. My colleague and I discussed just a few of the possible shortcomings of the strategy:

Starbucks may not actually operate its own distribution network so it wouldn’t be in a good position to sell this service
Starbuck’s distribution network may be well-suited for distributing coffee beans, but may not be well-suited for many other things (e.g. biological specimens, fresh produce, large equipment, etc)

Now, I just need to pitch this to Starbucks .