How Does Coffee Farm Sourcing Fit Into Starbucks' Turnaround?

Howard Schultz returned to lead Starbucks in April as the company faced renewed operational trouble, and his measures echo the playbook he used during the 2008 financial crisis: store closures, layoffs, and rebuilding corporate culture. That earlier recovery drew on consumer lifestyle research, the My Starbucks Idea campaign, rebuilt partner relationships and direct sourcing from coffee farms.

The current situation adds a new challenge: unionization efforts among store partners during the pandemic. Schultz has launched a relationship-rebuilding plan for staff after his return, and the outcome will shape whether the chain can regain momentum. How coffee is grown and bought directly at origin remains one part of the wider effort to steady the brand.

Starbucks has recently found itself in operational difficulties once again. After Howard Schultz returned in April this year, he rolled out a series of bold measures, sparking widespread discussion about the brand's future. In fact, this is not the first time Schultz has rescued Starbucks in a similar manner—during the 2008 financial crisis, he likewise led the company out of its trough through store closures, layoffs, and rebuilding its corporate culture. This article reviews how Starbucks restored growth back then through consumer lifestyle research, the "My Starbucks Idea" campaign, rebuilding partner relationships, and direct sourcing, and analyzes the new challenges that unionization efforts under the current pandemic context pose to the brand, as well as the relationship-rebuilding plan Schultz has launched for store partners after his return this time.

After more than a decade of rapid expansion, Starbucks has once again reached a difficult juncture. In April this year, Howard Schultz took the helm again, and a series of adjustments have led many observers to lament: this coffee giant seems to be losing its former luster.

Layoffs, store closures, selling off regional businesses—moves that appear quite aggressive to outsiders are nothing new to Schultz. As a Cantonese saying goes, "It doesn't matter if the sedan chair is old, as long as it works"—meaning the method doesn't need to be new, it just has to be effective. More than a decade ago, during the financial crisis, he had already used the same strategy to help Starbucks weather the storm.

At the most severe moment of the 2008 financial crisis, the global economy was hit hard, and Starbucks could hardly remain unscathed. Before the crisis erupted, Starbucks had been aggressively expanding in global markets, even opening up new business models in music and entertainment, but this also gradually blurred the company's business focus.

At that time, Starbucks used consumer lifestyle research for brand positioning and business expansion. (Lifestyle research refers to: exploring target consumers' behaviors that cannot be explained by demographic variables alone, understanding their consumption motivations and value demands, and examining one's own products and services from the consumer's perspective. Through in-depth analysis of target consumers' lifestyles, one can accurately grasp their core characteristics, thereby more effectively formulating product positioning and marketing communication strategies.)

It was precisely because Starbucks had developed various forms of business at the time to attract different types of consumers that after the financial crisis struck, the problems the company faced became especially thorny. The resonance between the brand and consumers gradually weakened, and ultimately during the financial crisis, Starbucks closed hundreds of stores, with its stock price slashed in half within 18 months.

Amid such turmoil and decline, Schultz decided to rebuild the corporate culture, redesign the brand value proposition, and return to fundamentals, devoting all energy to customers and the community.

Although Starbucks had already successfully grown into the world's largest coffee chain brand and expanded into multiple business forms through consumer lifestyle research, most store partners did not clearly understand what customers truly needed, making it difficult to deliver a better in-store experience.

To this end, Starbucks launched a campaign called "My Starbucks Idea," encouraging customers to give feedback and make suggestions directly to headquarters. Ultimately, it adopted 100 of the most frequently suggested customer ideas and integrated them into its core business model.

Among them, customization needs and attention to environmental space became Starbucks' most focused topics in the following year. At the same time, Starbucks also set many goals aimed at long-term social benefits, such as ethical sourcing.

During its transformation amid the financial crisis, Starbucks treated all employees at the time as partners. Schultz also emphasized publicly: "Partners will always be Starbucks' most important asset." It was precisely because the company truly began to care about the feelings of customers and partners that during this financial crisis, partners worked together to uphold the brand and present customers with a brand-new "third place" consumption and dining experience.

In addition, Starbucks also focused on coffee bean sourcing, establishing a transparent supply chain and support mechanisms through direct trade, improving coffee farmers' cultivation and production levels, and forming a mutually beneficial virtuous cycle.

It was thanks to such a transformation that Starbucks maintained stable and rapid growth over the following decade or so. From the supply chain to the production chain and then to the consumption chain, the entire system operated in a virtuous cycle, helping the company through its darkest hour. There were once voices from outside saying that "consumers" saved Starbucks, but in essence, it was partners who saved Starbucks. Without a solid foundation, there can be no quality service; without a good consumption experience, more customers cannot be attracted.

In the face of this pandemic, Schultz is likewise responding by reshaping the corporate culture, only this time with more emphasis on store partners. Affected by the pandemic, many partners have borne varying degrees of physical and psychological pressure. Coupled with the economic downturn, quite a few partners became dissatisfied with pay, benefits, and work intensity, and consequently launched unionization efforts opposing the company, which also affected the subsequent in-store experience for customers.

Therefore, in his latest open letter on the official website, Schultz mentioned that the company has recently, through meetings, surveys, open forums, and management communication, learned about partners' thoughts, operating conditions, and stories, and has re-formulated a "relationship with partners" plan, promising to provide partners with opportunities for development and advancement, more benefit policies, jointly create a safe and welcoming work environment, and share rights, responsibilities, and success.

The goal of this plan is: on the premise of ensuring store safety, to enhance partners' sense of belonging and jointly rebuild a welcoming, safe dining environment that connects with customers.

The reason Starbucks is currently in trouble is that in recent years the brand expanded rapidly, neglected the feelings and experiences of many partners, accumulated a large number of problems, and failed to solve them in a timely manner.

Therefore, Schultz's first move after returning is to first remove some "bad roots," then re-stabilize the foundation by promising to safeguard partners' physical and mental health and workplace safety and by improving pay and benefits. After that, in line with the broader development trends, he will work together with partners to provide customers with services and dining experiences that better fit the present.

Every transformation at Starbucks goes through a transition period; nothing can be accomplished in one step, and adjustments inevitably have both pros and cons.

Image source: Starbucks official website

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The above content is compiled by CoffeeHunters, a coffee news website.