December 05


Starbucks CEO Howard Schultz Is Stepping Down. Are Local Coffee Roasters Beating Starbucks At Its Own Game?

Are Local Coffee Roasters Beating Starbucks at its Own Game?

News that Howard Schultz is stepping down as CEO of Starbucks to focus on developing premium coffee within the organization is fascinating on multiple levels.

We have done zero work on Starbucks at Pacific Square Research. But back when I was a business reporter, I tracked the company on and off for years.

I confess that I was critical of Starbucks post-IPO for two reasons: It was selling a product generally viewed as a commodity at a premium price; and it was opening up stores across the street from one another.

Talk about breaking the rules (and me being wrong)! Schultz proved the skeptics beyond wrong by creating the premium-coffee category on an international scale. In the process, Starbucks steamrolled a lot of ma-and-pa independents. Many simply couldn’t compete as Starbucks gained an almost cult-like following as its growth percolated.

One thing you knew about Starbucks, regardless of where you were in the country or the world: You knew what you were getting. It was actually comforting a few years ago to walk into a Starbucks in a department store in Dalian, China, and then again in Beijing, and know what I was getting. While its dark roast wasn’t and isn’t for everybody, it was and is predictable.

And to watch a well-run Starbucks in operation at rush hour – like the one nearby in Del Mar Highlands in San Diego – is a treat.

But one thing I’ve noticed recently is that the very kind of independent shops that Starbucks steamrolled now appear to be eating into Starbucks. Just based on casual observations in San Diego, Los Angeles and San Francisco: The local coffee shops that do their own roasting appear to be flourishing. In San Diego, for example, Bird Rock Coffee Roasters and Lofty Coffee are both expanding. A friend turned me on to Four-Barrel in San Francisco. And I love Jones when I’m near Pasadena. And while I haven’t seen the stats to prove it, there are no shortage of stories – such as this and this and this – suggesting that local specialty coffee roasters have been booming.

Perhaps most telling: Bird Rock’s original shop, just south of La Jolla, is across the street from a Starbucks. And Bird Rock is always packed. (Tip: Bird Rock’s Monkey Bite espresso is hard to beat.) I now find myself going out of my way not to go to a Starbucks, unless it is the only game in town.

That would appear to be the challenge that slowly crept up on Starbucks – one that Shultz apparently will attempt to fix.

I believe Schultz will go down as one of the great CEOs, period. And one thing is for sure: Creating a concept is one thing; executing is another. He did both. Never ever count him out. And don’t assume that just because he’s 63 he’s headed out to the pasture. (That’s coming from someone who is 64!)

But now the question is: Are the little guys beating Starbucks at its own game? Can’t wait to see how this one ultimately plays out.