Onward (39 page)

Starbucks, however, was not done, and immediately after the ad aired, our digital team put into play a plan they'd been working on nonstop for the last 36 hours.

A torrent of digital and social media activity would amplify the 60-second spot, which ran only one time on television. We updated our home page (which could not yet host videos) to direct people to YouTube, where, right after the
SNL
spot aired, we posted the commercial so it could be watched endlessly by anyone. Next, we e-mailed information about Tuesday's free-coffee event to all Starbucks registered cardholders, whose e-mail addresses we had in our database. We also tapped Twitter. In August, our digital team had begun using Twitter as another channel to authentically connect with customers, and with little fanfare or cumbersome strategizing, a former barista turned product manager, Brad Nelson, began tweeting on behalf of Starbucks. Now, he was alerting thousands of his followers that they may want to visit YouTube, vote on Tuesday, and get their free cup of coffee.

The election campaign's main engine, however, was Facebook, the number-one social networking site. Several Starbucks fans had already established their own Starbucks pages, but our company had only recently established its own official presence. The election campaign was our opportunity to elevate it. Despite the time challenge, we jumped on it. Working with Facebook, we created a Starbucks page
and negotiated an ad buy: For the next few days, one of two Starbucks ads would be among the first five ads anyone logging on to Facebook would see. One ad was the actual election commercial. The other online ad invited people to come to a Starbucks after they voted and asked them (in a first for Facebook) to RSVP by clicking “yes,” “maybe,” or “no.”

Every time someone clicked a response or watched the actual video, the action triggered a message to his or her Facebook news feed. For example, some of Chris Bruzzo's Facebook friends were notified that he'd RSVP'd “yes” to Starbucks’ free coffee day, exposing his entire network to Starbucks’ election campaign. This secondhand or “viral” exposure added 14 million more individual impressions on top of the 75 million original impressions Facebook yielded, meaning that, all told, 89 million people were exposed to the election campaign in some way. Starbucks placed additional, more traditional ads on other media websites, but Facebook fueled the widespread exposure.

After months of watching others promulgate negative buzz about Starbucks online, it was empowering to finally be the source of so much positive buzz.

Now all Starbucks had to do was deliver in the stores.

Truly, we did not know what would happen on Election Day.

Our store operations teams did everything they could under the circumstances to increase coffee stock and prepare our partners. After I voted that morning, I visited various stores. They were bustling, a hint of esprit de corps definitely prevailed, and throughout the day I got word that volunteers at polling places around the country were actually reminding voters to get their free coffee after casting their ballots.

The confluence of the beautifully conceived and executed commercial, the
SNL
spot, the digital marketing, and the resulting news coverage sparked conversation and store traffic. On that seminal day, Starbucks was so much more than a source of great, free coffee. We were a communal gathering place, which was, after all, what we'd set out to be.

Of course we hit inevitable bumps. Some stores ran out of pastries. The increased traffic put an additional burden on our already hardworking baristas. And while many of our partners felt proud and had
fun with the spirit of the campaign, the sudden, intense influx of customers in some stores strained our staff.

Controversy also found us. According to rumors, the election campaign was Starbucks’ attempt to influence how people voted. Then claims surfaced that our free-coffee promotion violated federal and some state election laws because it promised an incentive in return for voting. To avoid any legal tussles, we again turned on a dime and extended the free-coffee offer to any customer who requested it. Unfortunately, word of the shift often got to customers before our partners, and at times confusion reigned.

But overall the election campaign succeeded on several levels. Starbucks’ US stores served more than two million cups of coffee that day, at least two and a half times more than on a typical weekday. More significantly, beyond the traffic and additional pastry sales, a sense of community enveloped the stores. For partners, pride in the company's intentions trumped pockets of inconvenience and chaos.

Operationally, the harried experience reminded us that Starbucks could act nimbly and not be grounded by our size or leashed to bad habits. I think we were all stunned, given the relatively low cost of the entire campaign, at the sheer magnitude of the audience we reached. On YouTube, the ad was viewed 419,000 times, making it the fourth-most-viewed video on Election Day. On Facebook, 405,000 people replied “yes” or “maybe” to our invitation. On Twitter, someone, not just Brad, was tweeting about Starbucks every eight seconds. We also reaped 70 million impressions via traditional print, broadcast, and online news outlets that covered the Starbucks campaign in some form.

The election campaign was a turning point, with Starbucks discovering powerful ways to drive traffic and positively engage with customers at a low cost that was still in keeping with the brand. With BBDO, we even coined a term for our election ad–inspired marketing approach: brand sparks. These subtle, surprising, and rare marketing events—usually linked to cultural or humanitarian issues and devoid of a self-serving sales pitch—would characterize how we went to market.

Whether or not someone walked into a Starbucks on November 4, the election campaign no doubt generated goodwill among several constituencies, placing a halo above our somewhat battered brand. And going into winter, Starbucks needed all the goodwill we could get.

Starbucks’ mission from the beginning was to build a different kind of company, one that would achieve a healthy balance between profit and social conscience. Never had the earnings side of the equation been in more jeopardy than during the fall of 2008.

For Starbucks’ fourth quarter ending in September, profits plunged 97 percent to $5.4 million. For the year, earnings were down 53 percent, to $316 million. While the drops included $105 million in one-time charges associated with the restructuring and transformation, without those charges the company still came in four cents a share below earnings estimates.

Our outlook was also bleak. We publicly predicted that, in 2009, sales would be slow to rebound if costs of staples like gas and food continued to rise and home values and credit continued to contract. As the crisis spread to Europe and Asia, we were also pulling back on plans to open as many new stores overseas as previously announced. Our comps were trending at negative 8 percent, dangerously close to the double-digit declines plaguing other retailers.

Because no one inside or outside the company knew just how bad the economic situation might get, Starbucks’ board of directors had steered us to prepare for the worst and, in an unprecedented request, had asked the leadership team to financially model what would happen if our comparative store sales dipped to negative 15 percent or even
negative 20 percent.
It was a chilling request. The exercise alone spoke to our dire straits, and once we ran the numbers it was immediately apparent that, should sales fall to those levels, Starbucks Coffee Company would be in very, very big trouble. Put simply, our earnings would decline even faster than the rate of our sales decline.

Beyond modeling death-defying comps, the board also urged us to cut costs far beyond what we'd done to date. “Go deep” was the directive.

We'd already retrenched once, back in April 2008, when the leadership team had agreed to reduce spending by more than $150 million, a decision that led in part to the July store closings and layoffs. Actions already taken would save us approximately $205 million in fiscal 2009. But that was not enough, and in the weeks prior to a scheduled November board meeting every department revisited its budget and, starting from zero spending, hunkered down and justified every line item.

Working furiously, we looked for ways to reduce our cost structure. The challenge was as much emotional as it was financial, as we asked ourselves how to eliminate spending in ways that were not consumer facing and wouldn't subtly fracture the culture and values of the company. Finding a balance between Starbucks’ fiscal responsibilities
and our responsibilities to live up to our partners’ expectations was more art than science, an ongoing struggle that prompted debate almost every time we sat down to talk about specific cuts.

When it came to our back-end infrastructure, however, although Starbucks had never been a lavish operation, just relatively undisciplined, we quickly identified low-hanging fruit that we had never gone after in a lasting or meaningful way. In SCO, Peter's due diligence revealed that operating costs—the day-to-day expenses incurred in running supply chain operations—were exploding by $100 million each year, a runaway expense he subsequently referred to as a “super-tanker” that he insisted be stopped in its tracks by January 2009. Peter further committed to reducing manufacturing and logistics costs by $25 million and finding another $75 million in procurement savings.

As Cliff and his US team examined the unit economics of our stores, they committed to reducing the cost of waste—the food, coffee, and milk that aren't sold—by $25 million. Another $75 million would be cut from labor costs, not by cutting jobs but by holistically reshaping how and when work got done within the four walls of our stores. More specifically, Cliff and his team were already applying Lean techniques to simplify and streamline the work of our baristas, finding efficiencies by optimizing their time and energy while improving the speed of service during busy morning hours and, in the afternoons, reducing labor hours to reflect traffic slowdowns. District managers who once focused on opening new stores would now attend to improving existing stores.

Such deep cost analysis was a very healthy process for the company and its management. We could not control the economy, but we could exert greater control over how we operated in it—not just by reducing or freezing new spending, but also by designing a less costly operating model. Even once we revived the Starbucks Experience, brought back the theater and quality and partner engagement, even when our customer-facing initiatives panned out, we would need to operate differently over the long term if we were to survive financially.

Eventually the leadership team felt confident that we could take out $400 million in permanent costs.

This, we told the board in November, was Plan B.

No, the board responded, it should be your new Plan A.

Boards of directors do not exist to manage companies, but rather to make sure companies are managed well.

Boards are at their best, I believe, when directors have complete transparency so they can provide informed guidance, offering an outsider's experienced perspective to push a company's management further than they might otherwise go. In the spring of 2008, for example, as we created the final Transformation Agenda, Starbucks’ board had been instrumental in helping Michelle and me more clearly articulate our overall goals and milestones.