Starbucks (SBUX): Individual Store Problems Hard To Fix

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Perhaps Starbucks (SBUX) has managers who cover small regions of 100 stores each or "spies" from market research companies who visit a certain percent of all the coffee chain’s outlets each month. Management can’t get to all of the more than 7,000 stores in the US part of the chain, but it was not so long ago that Sam Walton hit half of all US Wal-Mart (WMT) locations every year.

The story about the sharp drop in Starbucks shares has been written too many times. It is enough to say that the shares are down 50% due to slowing in US store sales.

The question now is, what does Starbucks do going forward? The company’s CEO and founder Howard Schultz claims that he will re-invent the company so that the experience at each store is better. But, quality control is not a national issue. Ultimately, it is war fought location-by-location.

Our conversations and observations based on visiting to about 50 locations indicates that there is a very wide disparity of customer service, product quality, and store appearance. The stores which are dirty, the stores where employees are slow or less than friendly, and the stores where the actual quality of the product is below the company’s standards are an Achilles Heel for the entire chain. Starbucks had a "retraining" day a month ago, but at most locations it went on for a few hours, which is not enough to address the problems.

Management of huge retail chains is, in essence, management which has to be largely local and well-monitored. Starbucks can send its stores new brewing machines and can take some of the sandwiches off the shelves. The company can offer free WiFi and special deals on Apple (AAPL) iTunes.

The customers who walk into sub-standard stores will not be back. There is nothing to show that SBUX is doing anything of substance to solve that problem

Douglas A. McIntyre