Starbucks (SBUX, news, msgs) built its business as the anti-fast-food joint. Now, the recession and growing competition are forcing the coffeehouse giant to see the virtues of behaving more like its streamlined competitors.
Under a new initiative being put into practice at its more than 11,000 U.S. stores, there will be no more bending over to scoop coffee from below the counter, no more idle moments waiting for expired coffee to drain and no more dillydallying at the pastry case.
Starbucks says the efforts are already helping its bottom line, as shown by quarterly results last month that beat analysts' expectations. Still, some baristas fear the drive will turn them into coffee-making automatons and take away some of the things that made the chain different.
Pushing Starbucks' drive is Scott Heydon, the company's "vice president of lean thinking," and a student of the Toyota production system, where lean manufacturing got its start.
Heydon and a 10-person "lean team" have been going from region to region armed with a stopwatch and a Mr. Potato Head toy that they challenge managers to put together and re-box in less than 45 seconds.
Heydon says reducing waste will free up time for baristas -- or "partners," as the company calls them -- to interact with customers and improve the Starbucks experience. "Motion and work are two different things. Thirty percent of the partners' time is motion; the walking, reaching, bending," he says. He wants to lower that.
If Starbucks can reduce the time each employee spends making a drink, he says, the company could make more drinks with the same number of workers or have fewer workers.
Some say lean techniques aren't a panacea. "Those efficiencies only help when people come in the door," says Jeffrey Bernstein, a restaurant-industry analyst at Barclays Capital. "Broader economic pressures need to ease, and traffic needs to increase before they can benefit from those efforts." Transactions at Starbucks stores fell 4% in the most recent quarter.
Starbucks' efficiency quest is an example of how even premium brands are re-engineering how they do business amid an economic crisis. Unlike in boom times, offering ever-fancier products and opening new stores is no longer a recipe for growth.
The recession has resulted in a new thrift among consumers. In an April poll of 1,500 people, research company WSL Strategic Retail found 28% said they were putting more money into savings, up from 19% six months earlier.
Retail sales in June, excluding gasoline and autos, declined for the fourth consecutive month, according to the Commerce Department. Upscale brands are reacting in a variety of ways. In June, Coach (COH, news, msgs) introduced "Poppy," a new line with handbags that sell for about 20% less than most Coach purses. J. Crew Group (JCG, news, msgs) recently opened its first boutique dedicated to accessories, which often bring in higher margins. Department stores including Saks (SKS, news, msgs) and Nordstrom (JWN, news, msgs) are culling inventory.
The Seattle company is facing heightened competition from McDonald's (MCD, news, msgs) and Dunkin' Brands trying to lure customers with new, cheaper specialty-coffee drinks.
All major fast-food chains use some kind of lean techniques, says Dennis Lombardi, executive vice president of food-service strategies at consulting company WD Partners. Dunkin' Donuts uses lean methods "everywhere from manufacturing to in-store organization and work flow," says Joe Scafido, chief creative and innovation officer for Dunkin' Brands. McDonald's declined to comment.
One of Starbucks' biggest expenses is store labor, which costs about $2.5 billion, or 24% of revenue, annually. When the economy was strong, Starbucks added workers to handle an expanding menu. The company employed 176,000 people worldwide as of Sept. 28, 2008.
"We continued to add things, but we'd never had a real pressure on us to look at an optimal way to do the work," says Cliff Burrows, president of Starbucks U.S. "Lean has helped us relook at what we do every day."
Starbucks declined to be specific about how much its moves could save.
The company began testing lean methods in Oregon last year. One of the first stores was managed by Tara Jordan, in Oregon City. "In my eyes, we couldn't get better," says Jordan. Her store boasts one of the fastest Starbucks drive-through windows in the country, according to the company, with an average time per order of 25 seconds.
To help her understand how work can be done more efficiently, Kim Landreth, a member of the lean team, brought a Mr. Potato Head to Jordan's store and sprinkled the ears, nose, lips and other accessories across several tables.
Using a stop watch, Landreth timed Jordan as she assembled the toy and placed it in its box. It took more than a minute. Landreth asked her to think about how she could complete the task faster. Moving items closer together shaved time, as did altering the order of assembly. Over two hours, Jordan amended the task. Her final time: about 16 seconds. "That really opened my eyes," she says.
The next project: observing the area where blended drinks, such as frappuccinos, are made. "I thought it was going to be the best station in my store," Jordan says. "What I saw was how much my partners were moving and reaching for things that were never in the same place. It took way too long to make one beverage," she says.
They moved all but the most commonly ordered syrup flavors and now store pitchers closer to where the drinks are made. After learning that topping the drinks with whipped cream and chocolate or caramel drizzle at the drink station was slowing down production, they moved those items closer to where drinks are handed to customers. The changes shaved eight seconds off the 45-second process. "Just to top the beverage with whipped cream and drizzle took six seconds," Jordan says.
In all, new methods have cut two seconds off the store's drive-through time -- to an average of 23 seconds.
Between September 2008 and June 2009, her store experienced a 10% increase in transactions. The company says that having food and drinks ready to go quickly can boost traffic because that keeps people from leaving stores.
Cost-cutting helped Starbucks post better-than-expected profit in its third quarter. The company reduced costs by $175 million in the quarter, above the $150 million it had targeted. Starbucks reported net earnings of $151.5 million, or 20 cents a share, for the quarter, compared with a net loss of $6.7 million, or 1 cent a share, a year earlier. Net revenue fell 6.6% to $2.40 billion from $2.57 billion a year ago, as same-store sales fell 5%.
Drink preparation wasn't the only bottleneck at Starbucks stores.
Earlier this year, Heydon accompanied regional directors to New York. At one store, the barista made about 40 trips back and forth before the store opened -- carrying baked goods from one end of the shop, where they were delivered, to the pastry case at the other end. Time clocked: one hour and 15 minutes. Heydon and the store's manager came up with changes including rolling a pastry rack next to the case. Efforts at other stores have shaved an average of an hour-and-a-half off the task per store per week.
Starbucks has faced some resistance to the program. "They're trying to turn workers into robots," says Erik Forman, a barista in Minneapolis. "It's going to essentially turn the cafe into a factory. They want to control our every move in order to pinch every possible penny."
Heydon says that's not the intent. Because every store is configured differently and has its own customer-traffic patterns, he says employees are encouraged to come up with their own solutions.
That's crucial, says John Shook, a former Toyota Motor (TM, news, msgs) executive, who has been advising Starbucks on lean methods. At Toyota in the 1980s and '90s, he instituted the Japanese automaker's lean production in a General Motors (MLQQ, news, msgs) plant owned by Nummi, a joint venture of the companies.
"Most companies just focus on cost savings and figure out a better way to do things and roll it out everywhere," Shook says. "With more than 10,000 sites, Starbucks can't do that. The only person who's going to know the work the best is the person on the front line."
Color-coded tape
Now, baristas are required to grind beans for each batch and timers buzz every eight minutes to signal when it's time to make new coffee. At a busy downtown Chicago Starbucks, store manager Ryan Dobbertin says bins of beans are kept on top of the counter so the baristas don't have to bend over; bins are color-coded, so they can find a particular roast without having to pause and read the label. They also use different colored tape to quickly differentiate between pitchers of soy, nonfat or low-fat milk.
At the beginning of April, Dobbertin's store had a customer-satisfaction score of 56%; by June, it had jumped to 76%. His store has seen a 9% increase in transactions between April and June.
Not all stores are as far along. At a different downtown Chicago store, baristas on a recent morning temporarily ran out of coffee around 7:45 a.m. Heydon observed two workers at the espresso machine and traced their movements on what's called a "spaghetti map," because of all the lines.
After a few minutes, his map showed a jumble of lines from the espresso machine to the sink, over to the ice chest and back. Shaking his head Heydon said, "We're on a never-ending quest to get to perfection."