How IT Systems Can Help Starbucks Fix Itself

Too much growth and an executive shake-up bring a new IT chief. But just what can CIO Chris Bruzzo do to keep Starbucks from going stale? A Retail Systems Research analyst has a couple of good ideas.

By Thomas Wailgum
Fri, January 25, 2008

CIO — A management upheaval at Starbucks Coffee Co. led to the ouster of the company's CIO and the installation of a new technology leader steeped in Seattle-based commerce. And it will be up to him and his colleagues to use IT systems to inject some caffeinated customer connections and wake up the retail giant.

It was in early January when Starbucks announced that Howard Schultz was reclaiming the CEO duties from Jim Donald, who had taken over the reins from Schultz in 2000. Harry Roberts, a former Starbucks executive, was returning as SVP and chief creative officer.

And in addition to a couple of other promotions and departures, Starbucks named a new CIO: Chris Bruzzo. As vice president, CTO and acting CIO, Bruzzo was tasked with leveraging technology "to create innovative ways for Starbucks to connect with our customers and build loyalty programs," the company said.

Starbucks Coffee

The changes acknowledged that the company had lost its way—its customer experience, merchandising and hypergrowth strategies appeared headed in the wrong direction and limited by layers of bureaucracy. "They were drifting," says retail analyst Paula Rosenblum, a managing partner with Retail Systems Research (RSR). She adds that Starbucks "lost its focus and quality control."

The Tyranny of Same-Store Sales

As a result, even though the company's revenues ($9.4 billion) and earnings ($673 million) each climbed by about 20 percent in 2007, Starbucks' stock price dropped almost 50 percent in the last year. In addition, the board watched as comparable-store sales, a critical benchmark in retail, plunged each year from 10 percent in FY 2004, to 8 percent, 7 percent and 5 percent for 2007.

"Same-store sales are really, really important, especially to Wall Street and especially if you're in growth mode," Rosenblum says. When a company is adding new stores and its comparable-stores' (ones that have been open for more than a year) sales decline, that usually shows that the company is "probably cannibalizing existing stores' sales with the new ones," she notes. (Starbucks plans to release its first quarter fiscal 2008 financial results on Jan. 30.)

In addition, Starbucks' efforts to improve business process efficiency led to a loss of store flavor. "In its zeal to efficiently open and operate tens of thousands of stores, it found ways to tightly and effectively seal massive quantities of coffee and install new, more efficient coffee-making machines," Rosenblum writes in a report on Starbucks. "The result—the stores didn't smell much like coffee and they didn't feel intimate, unique or high-end anymore."

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