Back on Monday, we ran some basic observations on Starbucks (SBUX-NASDAQ) based on its aggressive growth plans and based on our own muti-state and multi-site reviews.  The long and short of it is that there are obvious changes and improvements this operator needs to make before it embarks on a massive expansion.  Fix yourself, Then Grow! 

After looking back through the list of store reviews and the earnings review, there are even more suggestions that 24/7 Wall St. can offer the company.  Here is a brief summary of the basic impvements you can make on the surface:

Merchandise: Fix the placement of your add-on merchandise.  We know you can’t keep it all at the door where your customers will steal it but make it so that the merchandise is within reach on your way to the register.  95% of it is impulse buying, so if you make me walk over for it and then rewait in line to buy it I will tell my impulse to go to hell.

Newspapers: The New York Times (or local papers) would sell much better if you have it close to the cash register.  Newspaper companies need all the help they can get and you are not making that an easy purchase for something that needs to be easy.

Wi-Fi: Go fire T-Mobile and go for a free wi-fi immediately.  Many of your competitors offer this and I am positive you are leaving lots of "customer hours inside the store" on the table.  This may be sending your customers to your competitors.   Your T-Mobile paid wireless initiative is costing you money.  If patrons sit and work on their laptops the chance that they buy a sandwich, scone, or even another cup of coffee goes up astronomically.  This is 2007, not 1999, and that wireless issue is a bad one.

Emplyee Time: Any time a manager sees an employee standing around or yawning, that is an opportunity to send them to clean up the store or to make sure the bathroom is nice.  No one likes doing that stuff, but that has to be done.  You can’t be expected to have a shine on your floors and can’t be expected to have no trash around anywhere, but you have a lot of room to improve the cleanliness.

What was the point?:  Also, avoid cute long slogan writing on your coffee cups, and sure as hell stay away from religious writings on your corporate products.  You will offend people either way you do that one so just avoid it.

You have many things going well for you.  Your coffee is great or you never would have gotten here.  By and large you have hipper or just as hip as other upscale coffee chain stores. You have other non-coffee and non-food merchandise buyers already spending cash with you.  The public thinks you take better care of your employees than other low-wage food and beverage stops.

We are giving this to you because we actually believe that many investors still follow the Peter Lynch method of investing in what they use and know.   A consultant would give you this for quite a hefty fee and they’d have more scientific data down to 1% differentials and scorings with many more points, but this would be a great start.  You will be a better chain store for it and you’ll be better able to manage your store growth prospects in the coming years.

Jon C. Ogg
May 9, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in any of the companies he covers.

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