Starbucks: Addressing Challenges in Declining Retail Traffic

Introduction

Firms operating in today’s business contexts have to address various challenges and respond to emerging opportunities often in highly competitive markets. As a result, effective change management becomes a pertinent undertaking for the leadership in such firms, enabling them to navigate prevailing and developing market conditions. For Starbucks, the challenges faced range from heightened competition and decline in retail traffic related to changing consumer preferences among various other issues (Cheng, 2018). Focusing on the issue of decline in retail traffic, the present undertaking utilizes Kotter’s 8-step approach to undertaking change in demonstrating how Starbucks can address the challenge. Effective change management also calls for a clear diagnosis of the need for change, necessitating a background discussion on Starbucks and the retail traffic issue under consideration.

Company Overview

Founded in 1971 and headquartered in Seattle, WA, Starbucks is specializes in roasting, marketing, and retailing specialty coffee globally (Yahoo Finance, 2020). Its 31,000 stores sell coffee beverages, tea beverages, roasted whole bean coffee, ground coffee, single-serve beverages, ready-to-drink beverages, and iced tea, alongside food products such as pastries and breakfast sandwiches. Starbucks also licenses its trademarks through stores, groceries, and foodservice accounts. Employing 346,000, Starbucks is a leading brand in the global coffee chain industry. Moreover, the firm has established a solid reputation for the ambience environment in its stores, which Starbucks designs as gathering places in neighborhoods with inviting atmospheres for friends and family to meet and enjoy the firm’s first-rate beverages and services (Starbucks Coffee Company, 2020).

Diagnosis

Starbucks has excelled not only because of its exceptional beverage products and food items, but also because of the ambience and customer experience in its stores. In this case, Starbucks has employed the “Third Place” outlook, seeking to be an additional place besides home and work in people’s daily lives (Taylor, 2019). This model has helped Starbucks grow as a global business brand while also being community-centered, with the firm exploiting the consumer willingness to pay more for coffee for the customer experience and potential connection accompanying the purchase.

However, recent trends and developments are challenging the firm’s model and in the process necessitating rethinking. Starbucks is facing a decline in retail traffic into its stores driven by a number of factors. One of the drivers pertains to consumer shifts in which many people are spending more time at home amid work-from-home lifestyles and a rising number of retirees, with many of them brewing artisanal craft coffee in their homes (Cheng, 2018). Meanwhile, when outside homes, many consumers have increasingly on-the-go lifestyles, which also serve to reduce retail traffic as such consumers go for ready-to-drink beverages. At the same time, decline in mall traffic is an additional problem, whereby malls and similar shopping areas in which Starbucks has many stores are struggling to attract traffic (Cheng, 2018). Amid such trends over the recent years, the ongoing COVID-19 pandemic is further reshaping retail traffic, shifting commuting patterns and changing work schedules in ways that have led to a 42% decline in Starbucks same-store sales (Maze, 2020).

These observations indicate that Starbucks reliance on a “third place” outlook may not be effective amid decline in retail traffic, necessitating that Starbucks institute change to ensure that it continues selling to its clients even amid such decline. One of the changes that Starbucks could consider entails changing the most affected stores from the “third place” model to ones that specialize in selling packaged versions of Starbucks beverages and quick-service offerings. Selling packaged beverage products would allow consumers to brew Starbucks beverages at home with their own coffee makers (Maze, 2020). Such proposed change translates to transforming some stores from the focus on ambience and customer experience to store fronts for quick sale and even delivery to home addresses. As a result, the change will significantly affect store operations and employee roles, underscoring the need for an appropriate approach to implementing change.

Kotter’s 8-Step Approach

Kotter's 8-step approach to implementing change seeks to ensure that organizations can manage the change process successfully, helping address some of the barriers and challenges to change that may be encountered. The first step entails creating urgency for the desired change, which helps employees understand the necessity of change (Gerhardt, 2019). The second step entails establishing a strong coalition to drive change in the organization and drive the process forward. In the third step, a vision for change is created, helping determine the future direction for the firm or department. The next step involves communicating this vision, which enables the employees to visualize what the firm is attempting to achieve. The fifth step pertains to removing obstacles such as structures or processes that may be getting in the way of change, in the process empowering the employees to complete the change process. The subsequent step then involves creating short-term goals or targets, which enables the organization and employees to attain quick wins that motivate the change process. In the seventh step, the organization needs to build on the change, necessitating persistence even after the attainment of the short-term wins. The last step entails anchoring the change in the organization’s culture, which calls for making the change more permanent and part of the organization’s practices and procedures (Gerhardt, 2019).

Step 1: Creating a Sense of Urgency

In this step, Starbucks’ leadership will focus on ensuring the employees across the organizational hierarchy see the need for the change, helping spark the much-needed initial motivation towards the desired direction (Gerhardt, 2019). At Starbucks, this will be through initiating honest and convincing conversations regarding developments in the marketplace, including shifting consumer habits and preferences, competition, and emerging business models, as well as their implications for the firm. Another key aspect of creating urgency revolves around communicating the need for immediate action in light of the aforementioned developments. Transparency and honest dialogue will be crucial in ensuring that the sense of urgency develops. Having many people within the firm speaking about such issues and the proposed change will ensure that urgency builds and reinforces itself.

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Step 2: Building the Change Coalition

The next step will involve the establishment of an effective and powerful coalition that will help take the firm in the desired direction (Gerhardt, 2019). The significant implications of the change proposed at Starbucks for employee and store operations in light of the embedded “third place” culture calls for strong and visible change leadership. Effective change leaders at Starbucks will not only included figures in the formal hierarchy, but also influential people who draw their power from sources such as status, expertise, experience in the firm, and charisma among others. After identifying the change leaders and stakeholders, a change coalition will be established through team building processes and inspiring collective commitment towards the desired change. The change coalition will then reinforce urgency for change, spark and build momentum, inspire and motivate employees, and provide role models and mentorship. Moreover, the change coalition will be responsible for guiding, coordinating, and communicating change-related policies and activities.

Step 3: Creating a Strategic Vision for Change

In this step, the focus will be on clarifying an image of the future in terms of its contrast from the past, as well as how to make the desired future a reality through aspects such as strategies and initiatives (Gerhardt, 2019). At Starbucks, this step will involve establishing an overall vision that leaders and employees will find easy to grasp and recall. The vision will revolve around extending the existing customer-centric focus at the firm in new ways through quick-service and packaged product distribution. Such a vision will be compelling because it does not depart from Starbucks’ traditional attachment of value to customer service, instead tweaking it to allow for a new approach to rendering services and selling products. A summary statement of the vision will then capture then be established, capturing what the guiding coalition views as the desired organizational future. Moreover, the vision statement will be one that members of the coalition can describe briefly, compellingly, and effectively. Another key aspect in this step will involve establishing initiatives, strategies, and actions underlying the vision, pertaining to the two areas of quick-service and packaged product approach.

Step 4: Communicating the Vision

The vision will need to be communicated clearly to the employees to ensure that they can fulfill the desired change (Gerhardt, 2019). Given that the vision message will have to compete with other daily communication in the organization, it will need to be effective and powerful. At Starbucks, this will be done through both formal and informal approaches to communication, with the formal outlook including official meetings, memos, and standards of operations messaging among other aspects. Informal communication will be through other platforms such as the company grapevine, social media pages, and team building activities. Moreover, the vision will be communicated through the guiding coalition demonstrating and role modeling the change. Further, the vision will be communicated frequently, and will be visible across various operational aspects to ensure that all concerned stakeholders encounter and engage with it. The process of communication also calls for engaging openly and honestly with the employees regarding the vision.

Step 5: Removing Barriers/Obstacles

In this step, the leadership will focus on enabling action and fostering buy-in through addressing any bottlenecks that may prevent, slow down, or complicate change. This step will involve examining the organization for structures, job descriptions, performance systems, and compensation systems that may be in the way of change. Such structures and processes will then be aligned with the change vision, involving instituting new measures and getting rid of others. Another pertinent consideration will involve identifying people who may be resisting change and addressing their concerns. Key approaches to ensure barriers are addressed will be through monitoring, taking quick action, and recognizing and rewarding those participating in advancing change and overcoming barriers. This step will be especially crucial owing to the permeation of the traditional “third place” model at Starbucks, given that reformulation will involve changing stores from offering ambience and exceptional service to a focus on quick selling, packaging beverage products, and even undertaking deliveries.

Step 6: Generating Short-term Wins

This step will involve creating short-term targets and celebrating the attainment of such targets with the aim of energizing employees to persist in the change process (Gerhardt, 2019). In this case, achievements such as customer satisfaction ratings, number of orders completed, and improvements in store sales/financial performance will be used as some of the short-term targeted wins, demonstrating quick turnarounds especially after the preceding period of lackluster performance. The short-term wins will be recognized, communicated, and rewarded to inspire continued commitment to the change process.

Step 7: Building on the Change

This step will involve pressing harder and accelerating the change after the initial wins to build and sustain the momentum. In this step, the leadership will focus on evaluating the achievements, misses, and lessons after every win, using such insights to inform continued change. The leadership will continue setting and evaluating goals and initiatives in line with the vision as the change unfolds, focusing on continuous improvement. Moreover, this step will involve ensuring the change process and its ideas remain fresh through recruiting new change agents and leaders to revitalize the change coalition. The accompanying credibility accompanying the change process will then help maintain the momentum and build on the initial wins.

Step 8: Anchoring the Change within the Organization

In this step, the focus of the organization will be in making the change become part of the organization’s processes and practices (Gerhardt, 2019). One of the approaches in anchoring the change at Starbucks will be through talking about progress and telling success stories surrounding the change. In this case, change will be anchored through demonstrating to all the relevant internal stakeholders how the new approaches have contributed to organizational success, reversal in fortunes, or overcoming the earlier mentioned challenges surrounding decline in retail traffic (Cheng, 2018). Another key approach will be in terms of aligning human resource management with the change in aspects such as hiring, orientation, and training and development. At Starbucks, such actions will be geared towards placing the new retail approach side-to-side with capabilities in the “third place” approach, ensuring that the organization becomes adaptable and responsive to prevailing market conditions or changing trends.

Conclusion

Recent developments surrounding decline in retail traffic caused by consumers spending more time at home, consumers making artisanal craft beverages at home, reduced mall traffic, and the recent COVID-19 pandemic have necessitated change at Starbucks. The “third place” outlook requires rethinking in the most affected malls, necessitating a move towards quick service offerings and selling packaged versions of Starbucks beverages. The proposed change will be accompanied by significant transformations affecting store and employee operations, informing the need for an effective change model. Through Kotter's 8-step approach, Starbuck’s leadership will implement the proposed change in a way that addresses the most pertinent change considerations. The model will allow for the creation of change urgency, establishment of a guiding coalition, creation and communication of the change vision, removal of obstacles and challenges to the change process, creation and celebration of quick wins, and building on the change momentum to ensure change permeates in the desired fashion. Ultimately, the change plan will help Starbucks navigate through the present retail traffic decline and become adaptable going into the future.

References

1. Cheng, A. (January 26, 2018). There are bigger challenges facing Starbucks. Forbes. Retrieved from https://www.forbes.com/sites/andriacheng/2018/01/26/there-are-the-bigger-challenges-facing-starbucks/#41e0243d14ae
2. Gerhardt, P. (2019). Change: Leader's guide to change management. Lulu Press.
3. Maze, J. (June 20, 2020). Starbucks, Dunkin’ and McDonald’s have a common problem: Fewer commuters. Restaurant Business. Retrieved from https://www.restaurantbusinessonline.com/financing/starbucks-dunkin-mcdonalds-have-common-problem-fewer-commuters
4. Starbucks Coffee Company. (2020). Starbucks company profile. Retrieved from https://www.starbucks.com/about-us/company-information/starbucks-company-profile
5. Taylor, K. (March 20, 2019). Starbucks is reimagining the core belief that turned the chain into an $88 billion juggernaut. Business Insider. Retrieved from https://www.businessinsider.com/starbucks-reimagine-third-place-2019-3?IR=T
6. Yahoo Finance. (2020). Starbucks Corporation (SBUX). Retrieved from https://finance.yahoo.com/quote/SBUX/profile?p=SBUX