The Big Gulp at Starbucks

Starbucks fancies itself a small company, which might ring a little odd, considering that the coffee giant is regularly parodied as being practically unavoidable. Well, the joke is only going to get funnier as the Seattle firm, with its shareholders clearly in mind, gets even bigger, selling more stuff, from hot food to hot music, in more places than ever before. Right now Big Green runs 12,440 locations worldwide, but the goal is 40,000, which would trump even McDonald's.

But McDonald's doesn't try to behave like a chain of boutiques, and that's where the tension inside Starbucks lies. "The battle within the company is making sure growth doesn't dilute our culture," says founder and chairman Howard Schultz. In the Starbucks ethos, the best authority is decentralized, and the best decisions are made store by store. The company stays clear of focus groups, acts on its instincts and doesn't open franchises for fear of losing control. Schultz decided to sell the New York Times, not USA Today, in stores because, he says, "it felt right." If he or another senior exec doesn't like a new drink concoction, it doesn't get sold. How's that for research?

In other large corporations, "We act like a small company" is one of the great empty slogans, but at Starbucks, executives tenaciously hold on to the idea that every store is like an independent coffeehouse. "You see the banter, the customers' knowing the people behind the counter," says CEO Jim Donald. "It's part of the reason they go." But Schultz and Donald are aware that it will be hard to keep the intimacy thing going. As Starbucks branches into more products (22 new drinks in two years, its own section of iTunes), spreads to more countries (from China to Brazil) and sees sales increase 22% a year, to nearly $8 billion annually, life is getting a lot more complex. And complexity is dangerous for any company.

You can see the resulting tension all over the place, even in your latte. Six years ago, Starbucks moved from manual to semiautomatic espresso machines. The quality was more consistent, but the real reason for the switch was that an employee needed 24 fewer seconds to draw an espresso--a double shot of productivity. "People struggled with it," says Silvia Peterson, director of store operations engineering. The new machine was at odds with the Starbuckian notion of a "handcrafted" beverage. An ice dispenser that would have eliminated time spent scooping was rejected as a step too far. "It was big and QSR-like," says Peterson--QSR being an abbreviation for quick-serve restaurant, as in fast food, anathema to Starbucks. "It was a lot of stainless steel."

Now the company is back to thinking about dispensing machines as it works through its biggest general operational problem: the length of time it takes to serve a customer. Starbucks aims to serve your drink in three minutes or less--any longer and people might bolt. Less than 60% of stores manage to hit that mark on average, which means that the company is missing millions in sales.

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