“Theater, Intrigue, Romance”: Starbucks CEO Shares His Disruption Battle Plan

More retail stores across America are expected to close this year than at any other time during the great recession, and even though you can’t order a steaming hot latte through Amazon and have it delivered to your door (yet!), Kevin Johnson hasn’t exactly taken the reins at Starbucks at an opportune juncture.

Shares in the coffee chain slipped 5.1% yesterday after quarterly sales missed analysts’ expectations, giving Johnson a baptism by fire, since he’d only stepped into Howard Schultz’s big shoes on April 3.

At least he’s not suffering alone: digital disruption is making life tougher for CEOs across the board, whether they’re in retailing, banking, healthcare or engineering.

Retailers, though, are perhaps some of the hardest hit as e-commerce giants such as Amazon allow people to shop online, avoiding brick-and-mortar stores.  And many Starbucks outlets are located in shopping precincts drained of foot traffic.

“The common denominator will be the creation of a consumer experience that evokes human emotion and connection.”

The company also is facing competition from revitalized Dunkin’ Donuts and McDonald’s chains, which are fighting back by diversifying into a broader coffee line and cakes.

How is Johnson rising to the challenge? The former Juniper Networks CEO and Microsoft executive confronted analysts on his first ever Starbucks earnings call yesterday with a preamble devoted entirely to answering that question.

In Johnson’s own words, it’s all about establishing an engaging, digital and mobile relationship with customers threaded into a branded, immersive and experiential retail destination.

“The attributes of the destination will vary,” he said. “They may include theater, intrigue or romance. But the common denominator will be the creation of a consumer experience that evokes human emotion and connection.”

Whether that means Starbucks will be hosting plays and speed-dating events in its stores remains to be seen. In the meantime, Johnson said the company is fine-tuning its mobile-pay capabilities after its stores couldn’t handle their initial popularity, forcing customers to queue.

That involved training and relocating staff during peak trading times and adopting new tools to get things done faster. The company is currently rolling out a digital order management system that tells customers when their order is ready on their smartphones, while providing baristas with an order display and tracking interface on a tablet.

After that, Johnson wants to make stores look and feel more attractive. “We are sharpening our focus on the selection and addition of in-store equipment and pursuing improvements in overall store layout and design, all with the goal of delivering a great customer experience and further increasing throughput,” he said.

Another way the company is hoping to lure shoppers from their living rooms is by offering a more luxurious product range. Schultz is on hand to help with that, having elected to stay on to drive its new high-end Reserve brand’s development.

Finally, Johnson also wants to push further into two markets that still have growth potential for Starbucks: China and lunch.

“The analogy from my years in the tech industry is how companies respond when a new disruptive technology, like cloud computing, for example, emerges,” Johnson said. “Those who recognize the disruption think long-term and innovate for the future are the big winners. Those who don’t struggle.”

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Ross Kelly
Ross Kelly is a London-based business journalist. He has been a staff correspondent or editor at The Wall Street Journal, Yahoo Finance and the Australian Associated Press.

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