Can Starbucks Grow Bigger By Getting Smaller?

Starbucks is closing some stores to boost its growth
Starbucks is closing some stores to boost its growth
Image Credit: Nicholas Smale

Oh man! How great would it be to be a product manager at Starbucks? I mean, they are the largest coffee chain going. It sure seems like there are new Starbucks stores popping up all over the place. In fact, sometimes when you are going down the road there will be a Starbucks on one side of the road and then you’ll see another Starbucks on the other side of the road! When you are part of an organization that is growing so fast, it can be a real challenge to keep things moving. The Starbucks product managers have decided to do this by closing some of their existing stores.

Why Close Stores?

So what’s going on over at Starbucks? The company has announced that they are planning on closing some of their stores. The stores that they will be closing are located in the U.S. market. This is the market that is starting to become more and more crowded. It’s important to note that the U.S. market is where the Starbucks chain got its start. The Starbucks product managers are planning on closing 150 stores next year. This number is going to be triple the number of stores that they have closed on average in the past few years.

This is not the only change that Starbucks is going to be making. At the same time the company has also announced that they are planning on slowing down the growth of their licensed locations. These locations can often be found at supermarkets, airports, and in other retail locations. The company has come under a great deal of criticism as of late. The experts who study the coffee chain market said that they believed that Starbucks was trying to expand too rapidly. The changes that the company is now trying to make is their attempt to deal with these issues.

In the past few years, as Starbucks has continued to grow, a great deal of their growth has come from the types of licensed stores that they are now planning closing. It turns out that stores like these are actually less profitable than the company owned Starbucks stores. There are other reasons why the Starbucks product managers like the company owned stores better. At these stores, the product managers can use their product development definition to introduce new products more easily. Additionally, they’ve found that they can also price their drinks and foods more consistently.

The Future For Starbucks

In the last three years, Starbucks has opened more than 2,000 new stores in the U.S. This would look good on anyone’s product manager resume. Although on the surface this sounds really impressive, the people who study the coffee shop market believe that this has resulted in an oversupply of coffee stores. Currently Starbucks has over 14,300 locations in the U.S. What this means is that there are currently more Starbucks locations than there are McDonald’s restaurants. Couple this with all of the other brands of coffee shops that are out there and you start to see that there is a good chance that this market might be getting close to being saturated.

One of the goals of Starbucks product managers is to find ways to boost sales at all of their stores. However, in the past few years this has been very difficult to do. During the past several years, sales in individual Starbucks stores have been declining. This has become enough of an issues, that the Starbucks corporation last year had to reduce their long-term sales and profit targets. However, in a bit of good news, the company recently said that they are expecting 1% in same store sales growth this year.

The Starbucks product managers believe that they still have room to grow the company in the U.S. They believe that there is still room for the company to grow in the Midwest and in the South. This ties in with where the company is planning on closing stores. The stores that will be closed are located in more urban parts of the country. In these locations existing Starbucks stores are tightly clustered together and both rent and wages are quite high. The decision to close the stores was based on the product managers analysis of the sales data that had been generated by all of the stores in the Starbucks chain.

What All Of This Means For You

Something that a lot of product managers may not realize is that what their product manager job description tells them is that sometimes when you want to get bigger, first you have to become smaller. In the case of Starbucks, their product managers are under a great deal of pressure to find ways for the successful company to keep on growing. They have reached the decision that in order to make this happen, they are going to have to first close several of their existing stores.

Starbucks closes under performing stores every year. However, in the upcoming year they are planning on closing 150 stores – 3x the normal amount. The product managers are also going to be slowing down the growth of their licensed locations at supermarkets, airports, and in other retail locations. The company is responding to criticism that they have been growing too fast. Starbucks makes more money from their company owned stores because they can control new product introduction better and do a better job of setting prices. There are currently more Starbucks shops than McDonald’s restaurants and the U.S. market is starting to become over saturated. Starbucks shops have been losing money over the past few years. The stores that are being closed are in expensive urban locations.

Keeping growth happening in a potentially saturated market is a tricky thing to make happen. The product managers at Starbucks realize this and so they are now taking a look at their existing stores and trying to determine how they can make them more profitable. The first step in this process will be to close the ones that are under performing. There’s still room to grow, just in different areas. This is always a painful decision to make, but in the case of Starbucks it just might be the bitter drink that they need.

– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Product Management Skills™

Question For You: How can the Starbucks product managers work with licensed locations to better plan new products and price changes?

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What We’ll Be Talking About Next Time

The dream of every product manager is to be responsible for a product that is so popular that it flies off of the shelves. We dream of the day that we have to spend our time worrying about how we are going to keep our product in stock because it is selling out so fast. It turns out that this is exactly the problem that the product managers at the fast food chain Popeyes have been dealing with. When they decided to introduce a new chicken sandwich, they had no idea how popular it would be. That’s when all of the trouble started.