Operational Problems Slow Starbucks Growth

Starbucks’ Sales Slide on Frozen Drinks

Starbucks is blaming operational problems for their sales slide (actually, it’s just the rate of sales increase that fell, from 7% to 4% – let’s ignore the faulty Wall Street math that views a 4% increase as a “slide”). With their frozen Frappucino coffee or fruit drinks being so popular, apparently it is bogging down their lines and some frustrated customers are bailing out (some classic “queue balking,” in Industrial Engineering terms).

I’ll pick on Starbucks for not being faster in realizing that if the frozen drinks are more labor intensive (something they should test and model during their product development phase). Is Starbucks developing new drinks and “throwing them over the wall” to the stores? Starbucks is going to add labor to better balance their cycle time (how long it takes to make a drink) with their takt time (customer demand). Not planning properly for these new products seems more “GM-like” than “Toyota-like.”

I’ll give Starbucks credit, though, for owning up to their operational challenges. Admitting that you’re reponsible is definitely more Toyota-like. If Starbucks wanted to be GM-like, they would have a hundred excuses, ranging from oil costs, healthcare costs, etc. Sure, they should have fixed their operational problems earlier, but they’re taking responsibility. Good for Starbucks.

“Chief Executive Jim Donald said the company was working to solve the problem by having more baristas work the morning peak hours, among other possible changes, including reducing the time it takes to blend cold drinks.”

I normally just order drip coffee, a simple process and fast turnaround time. For those of you who order frozen drinks or more complicated drinks, how would you use lean principles to fix Starbucks? I found an example of “visual controls” once at a Starbucks, but I lost the picture.

I also found an old blog posting of mine, from April 2005 about how Starbucks had “efficiency experts” working on their processes. So much for relying on experts! I wonder if the experts thought things would be OK, but people at the stores were screaming for help?

The WSJ article I linked to then, said:

“Times for drink preparation range widely, from less than 20 seconds for a Tall black coffee to about 90 seconds for the Venti Double Chocolate Chip Frappuccino Blended Crème.”

I can’t find a free version of the article, but it’s still there for the WSJ subscribers. I can’t post the whole thing, unfortunately.


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Mark Graban's passion is creating a better, safer, more cost effective healthcare system for patients and better workplaces for all. Mark is a consultant, author, and speaker in the "Lean healthcare" methodology. He is author of the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, as well as The Executive Guide to Healthcare Kaizen. His most recent project is an eBook titled Practicing Lean that benefits the Louise H. Batz Patient Safety Foundation, where Mark is a board member. Mark is also the VP of Improvement & Innovation Services for the technology company KaiNexus.

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8 Comments on "Operational Problems Slow Starbucks Growth"

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  1. Jamie Flinchbaugh says:

    When you have vastly different processing time, you need to split the value streams. So you need one line for drip, and one line for specialty drinks, or something like that. That’s at least a start.

  2. Mark Graban says:

    I agree about the separate drip line, but maybe it also has to be an espresso line. Here are some interesting comments on a Starbucks blog, supposedly from employees:

    http://starbucksgossip.typepad.com/_/2006/08/is_starbucks_bo.html

    One employee points out that drip is such a small pct of business that a separate line for that wouldn’t help much. Someone else commented “can’t we go back to being a coffee company?” Well, Starbucks is giving the customer what they want. The WSJ said today, about Starbucks, that only 37% of people drink coffee with breakfast and that the numbers are falling.

    I do remember an Einstein Bros Bagel shop in Austin that had a separate “honor system” coffee line for a while. You poured the coffee for yourself, for one thing, and put the money in a box. But, maybe there was no “honor” because they stopped that process.

    The WSJ pointed out how Starbucks is getting “automated pitcher washers” and faster blenders.

    This really is a classic industrial engineering and lean standard work type problem. With all of the thousands of Starbucks stores, you’d think someone could innovate a better method that would be shared with the other stores. The company might be better off with a true kaizen initiative, tapping into the Barista’s creativity instead of using separate “efficiency experts.”

  3. Mark Graban says:

    It also sounds like, on that blog, that managers know they’re short on labor, but there’s an amount of fear and arbitrary standards that they have to meet;

    “I think the tight regulations they have on labor (over, under, QTD hours, etc) are hurting some of us. My manager (in fear of them and our DM) schedules thin a lot of the time. We do plenty that isn’t the most efficient use of our money but what if we overscheduled by one person?”

  4. Mark Graban says:

    This also sounds like a classic Little’s Law problem. If their goal is 100% employee utilization (minimum employee schedule), then cycle time (waiting time) will skyrocket exponentially. By adding one employee (say even $15 an hour with benefits), if they can get maybe 5 additional drinks out, I bet that person pays for themself. Lower utilization might equal higher service levels and higher profits.

    One other comment on the Starbucks blog pointed out that, at some point, they reach limits on space behind the counter. The stores weren’t physically designed for enough staff to make 100% frozen drinks? Oops.

  5. Ed says:

    I agree but use caution. When opportunities for improvement surface, one is quick to say “We need more people.” In depth study needs to take place. Can you support this Team Member for 20-30 years with active work, with minimal Muda. Eliminating non-value added work in your organization and improving upon old task gives a greater outcome. Do a walk chart, are Team Members bumping into each other and if so, should a standard method of work flow be generated. Think outside the box, small changes in organization gives you a more successful outcome. I don’t necessarily think “The Drink” is the problem. Like you, planning, standardized work and overall Team involvement is key. Did they just develop a drink and did taste test, or did they involve the Team Members in the stores to solicit their ideas? Did they ask how would this affect our customers inside the organization, not only the ones outside?

  6. Anonymous says:

    Jesus guys, it is obvious none of you have used Kanban or worked in manufacturing. Yes I agree a walk-about is a good way to learn the problems and where they may stem; however, tossing people at the issue is the automotive method of solving it. What is the bottleneck? What is causing the lengthened time period to deliver a Frap? Identify that issue and you can solve the “capacity” problem and shorten the stand around time. This is a classical manufacturing issue which prevailed in the sixties.

    run75441 (someone is using my name here?)

  7. Mark Graban says:

    Hey Run75441, let’s keep the insults to a minimum OK?

  8. Ed says:

    I 1st want to thank you Mark for asking your bloggers to hold their insults to a minimum. For you run 75441, what I was eluding to was to utilize all the tools. At Toyota, it is common not to give the exact answer to problems, but to give examples and have the Team Members come up with the answers. This is a common problem solving method that everyone uses. So if I do this, please forgive me. As for my credentials, I have worked at General Motors & Ford Motor Company. I’ve also worked out of the auto business for Hormel Foods. To tie it off, I know work for Toyota Motor Corporation. All of which has been in manufacturing, even then, I am still learning. Lastly, one item that I’ve learned in Graduate school and all my years in manufacturing, that’s how to remain professional, thanks for your feedback.

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