Starbucks figures out it's its people, not the coffee, that makes it successful.

It's been a humbling experience for Starbucks--closing stores, cutting overhead, laying-off workers.  The recession was hard on a firm that made it's fame and financial success on coffee sophistication and high style--and even higher prices.  Now easy to see in retrospect, the early strategy was most vulnerable to the damage a good recession could bring--and that is exactly what happened.  Starbucks is making its way back to financial respectability and market dominance in coffee-as-a-destination place of business.  

Starbucks is striving to make a comeback in a pretty unusual way, really.

Late last week The Wall Street reported the declaration of an investor dividend by Starbucks and the plans for the firm to come back, buy-back stock, and expand once again.  However, what was most impressive in the over-all scheme was Starbucks devotion to--not coffee--but the Starbuck employee in being the central component of the come-back strategy.  Here, in Howard Schultz's own words, is the testimonial:

It is an uncommon CEO who champions the hourly employee when describing the guts of what's going to make the difference.  Most executives like to think that the underlying product is the key to future gains, that the thing that's branded and sold is the central player--for Starbucks that would be the coffee--in rebirth.  

It's a commodity business--what really are his alternatives?

But Mr. Schultz is smart to figure out that he's fundamentally in a commodity business; in truth, if legitimate taste tests were performed, the ability of consumers to detect taste differences in the basic product would be difficult to show; in fact, the vast majority of consumers can't tell Starbucks' coffee from Dunkins', from no-name, from McDonalds', or the local diner.  One of the few things that Mr. Schultz's operation can make distinguishable is the wait staff who work there and serve the coffee.  

[Interestingly enough, where Starbucks' can't control the selling and consumption environment of it's premier brand, it plans to also strive to dominate the coffee market by distributing it's very worthy and strong--but non-flagship--brand, Seattle's Best, through other chains.  In effect, Mr. Schultz plans to work both sides of the strategy street!]  

What's not readily apparent to many executives--partly because it's not intuitively obvious, partly because many execs are understandably daunted by the job of making their workforce special.  It appears that Mr. Schultz is smart enough to get both right.  It won't be easy to achieve success this way--but it's likely the only one he as available to get the job done he wants to do.

TOMORROW:  The reason behind Starbucks' fall from grace in the first place--there's a very good...and predictable explanation?  Do you know what it is?  
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