Friday, March 21, 2008

Starbucks' New Strategy

Thursday's Wall Street Journal featured an article about Michelle Gass, the putative head of strategy for Starbucks' new attempts to recapture its former growth.

Ms. Gass states, per the article,

"I'm not a traditionally trained strategist....I've never worked at McKinsey or Bain."

Well, neither am I, by that measure, but I've been a strategist since my early days at AT&T. For some, strategy is an orientation and way of thinking, not a result of a specific training ground.

Ms. Gass' training and experience involves heavy interest and involvement in consumer research while at P&G, which is quite admirable. And she successfully introduced the Frappuccino at Starbucks.

So far, so good. She is now Schultz' right hand woman on the big makeover at the coffee giant.

However, one line in the Journal story left me with doubts about Gass' and Starbucks' long term success. The story reads,

"She says she hasn't been focused on competitors in developing the new plans. "I think we'd all readily admit that a lot of the situation we're in is self-induced." "

Perhaps Ms. Gass needs one or two courses in strategy, after all.

As I wrote in this post a few months ago, Starbucks is very much locked in a competitive battle with at least McDonalds, as well as Dunkin' Donuts,

"The outcome of this battle royale between two retail food giants, Starbucks and McDonalds, with Dunkin' Donuts also roaming the same terrain, will be fun to watch. If you ever wanted to view a classic marketing struggle between two fairly well-matched firms in a clearly-defined market, this is your chance."

Thus, I find Ms. Gass' comment to be dangerously short-sighted and internally-focused.

Instead, she might wake up to the reality of Schumpeterian dynamics. Between Starbucks' own prior expansion into lower-income segments, and McDonalds' search for growth in kindred products, the former's market dominance was almost certainly going to come to an end, one way or another.

As it is, Starbucks is being bracketed by another coffee retailer on one side, and a fast-food giant on the other. This has less to do with Starbucks' 'self-induced' troubles than it does with recent targeting of the coffee giant's business by two very large, savvy food retailers.

I hope, for Howard Schultz' and Starbucks' sake, that Ms. Gass begins to become aware of this reality.

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