Looking At Starbucks (SBUX) Quality, Store By Store

It has been one year since 24/7 Wall St. looked at over 40 Starbucks (NASDAQ: SBUX) from Texas to New York.

Since then, the company has replaced its CEO with the company’s founder, Howard Schultz. The share price of SBUX has dropped from almost $32 to just above $17. The big coffee house company has gone so far as to close it 7,100 stores for a period of re-training staff. There are also plans for adding new coffee-brewing machines in each location.

Starbucks has gone so far as to release a new flagship brand product–Pike Place Roast. The company has put together a relationship with Apple (NASDAQ: AAPL) for marketing iTunes. It has formed a partnership with AT&T (NYSE: T) for free WiFi in Starbucks stores.

Some on Wall St. would argue that all of these alterations are too much to change in too short a period of time–a kind  of corporate panic. With McDonald’s (NYSE: MCD) and Dunkin’ Donuts both aggressively moving into the premium coffee business, Starbucks problems are more than internal. Its market share is under withering pressure.

Recently, 24/7 Wall St. went back to look at many of the 43 stores we visited a year ago, and a dozen new ones. We visited a number of locations in NYC from Time Square to Union Square to the Upper East Side. We also looked at outlets in Oakland Country, Michigan, Palm Beach, Florida, Houston, Fairfield, Connecticut and Westchester Country, NY. We stopped by several shops in San Francisco.

We rated locations on the same seven variables as last year: waiting time, cleanliness, bathrooms, seating, inventory, staff, and ambiance. On each of these, a store got a "1" to "3" rating, "3" being the best score.

The things which changed the least were ambiance, seating, and inventory. Most stores with cramped seating or too few seats did not change. This may be a sign of management overlooking something which is not related to coffee but is important to customers. Inventory at most stores is still very good. Starbucks is almost never out of anything, a critical key for success at retailers of any sort.

Waiting time is down at about two-thirds of the stores. This has to be bad news. Workers at Starbucks are supposed to spend more time on making drinks and not less. Management has made it clear that careful brewing of each drink is critical to the "Starbucks" experience. Perhaps that is not happening at the store level. The other explanation is that there are fewer customers. That would hardly be ideal, but could certainly account for less waiting time.

Gauging the attitude of staff is clearly subjective. But, at almost all stores, it appears that employees take the company’s issues seriously, believe that the new training reminded them of how they should go about their jobs, and are trying harder to make the customer experience as good as possible.

The biggest of the problems which Starbucks can control and has not is cleanliness at stores. Nearly half of the store we visited ranked no better than "2" on this measurement, and about 20% rated only "1".The same holds true of the store bathrooms. If Starbucks is a neighborhood place to have coffee and a snack, bring kids, and have small meetings, clean stores must be absolutely critical to keeping people coming back.

Starbucks is, to a large extent, focusing on the wrong things. A new brand of coffee and new brewing machines are not going to do anything for the company’s issues if Starbucks cannot even maintain a pristine environment.

Starbucks comeback is in trouble.

Douglas A. McIntyre