Who is more important: the consumer, or the shareholder?

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Permalink Reply by Pat Coyle on January 11, 2009 at 8:56am

Seems to me the original spirit of Starbucks was built around a passion for amazing coffee. McDonalds, on the other hand, set out to be a fast-food franchise. These are very different motivations. So I don't fault McD's for being what it is, and I'm happy to know I don't ever have to eat there. Starbucks, on the other hand, strayed from its focus on quality and set a course to make more money, which is disappointing. In doing that, Starbucks became more like McD's, which for me is exactly what I didn't want to see happen. (Plus, they're not as good at it). I tolerate the changes made at Starbucks because they sell my drug of choice, and I am in the habit of going there, and the stores are ubiquitous. But I am now more open than ever to independent / local alternatives.

Beyond these two stores, I don't really understand how anyone would want to be in the food business unless they had a passion for serving great-tasting, nutritious, creatively presented, unique fare that customers couldn't get anywhere else. Indy is sorely lacking such food establishments. I work in Castleton, which is fast food central. I broke down and ventured into Chic fillet the other day...and had the absolute worst chicken sandwich I have ever had. How is that possible? You're a chicken sandwich restaurant!? How hard is it to serve a freshly made chix breast without drying it out and smothering it with salty mystery glaze? Yuck! I hope the shareholders are happy.

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Permalink Reply by Andrew Ball on January 11, 2009 at 10:00am

You should be buying your coffee from local providers... 'nuf said.

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Permalink Reply by P.J. Hinton on January 11, 2009 at 11:46am

How does a company forget about the customers? I don't think that a company ever forgets about customers in practice. What changes is the assumptions about the customer upon which decisions are made.

In a quest to keep its shareholders happy, a corporation may decide that they can increase profits reducing the costs of delivering a good or service to customers, even if it worsens the quality of the product. Management fools itself into believing that whatever shortcomings exist will be papered over by a "compelling message" crafted by a marketing department. Perception trumps substance.

In the past, such an approach worked because the channels of widespread communication and visibility were affordable only to larger companies. The internet and search changed all of that. As I wrote in a post on my work blog last week, a corporation's once compelling message now has to compete with opposing viewpoints that may not necessarily originate from their competitors.

It might also be worth noting another New York Times blog post by economist Edward L. Glaeser that was published on the 6th. It asks the question of whether corporations should place greater emphasis on being ethical as well as profitable. I I think this post is relevant is because it looks at the source of Pat's question about the value of in a business that exists only to make money -- the assertion that the corporations are responsible only for maximizing profits. When that becomes the overriding goal, the temptation to cut corners becomes... quite compelling.

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Permalink Reply by Kevin M. Hill on January 13, 2009 at 7:16am

I respectfully disagree and believe that many companies don't give a lick about the customers. I would venture to say that the top 25% of employees at a publicly traded company don't know, nor care, about the customers. They care about moving up the ladder or keeping their personal status quo. That will have more to do with stock price and mid level management than it does the actual product.

I work in a publicly traded company now (first time in my life) and I can tell you that the emphasis sure seems to be on doing things "our way" and driving revenue. There isn't a real focus on customer problems from the top.

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Permalink Reply by David Mark on January 11, 2009 at 12:01pm

That's easy....it's the customer who's most important. Not because that's the "right" answer, or the warm and fuzzy thing to state, but because it's a fact. What many shareholders don't get is if you don't truly place the customer first, there eventually won't be a company worth keeping around. I boldly state they don't get it because all we have are results to base our opinions. You can tell me you care, but if your actions tell me you could care less, then you, in fact, care less.

I'm not insinuating Starbuck's doesn't get it because they may not be the proper party to blame. They may just be part of a sytem we all may moan about, but contribute to daily. As I'm writing this, I can't help but ask the age-old question: What came first, the chicken or the egg? Did consumers drive the corporate behavior that's become commonplace. Do chains pop-up like a just-add-water community because we demand it, or do they cast the line first because they know we'll bite? Either way, WE contribute to the rise and fall of a chain like Starbucks.

This is America -- the land of opportunity and many choices. If you don't like the multi-national conglomerates, then buy local. However, if you want your community to thrive, buy local AND lean on the big guy. Here's why: I grew up on a farm (dairy and cattle) on the southside of Indy. We were the largest farmers in the area and I was proud to be brought up in this environment. So, buying local means everything to me. Whether it's coffee or a fruit stand, I stop and shop. When I was about 12, my wise grandfather asked me a thought-provoking question I thought would be easy to answer. "What do you want to be when you grow up?", he asks. "I want to be a farmer like you!" and he abruptly replies, "The hell you do!".

Ummm. say what? So, I bit. He explained to me how things were going to change and that I wouldn't see this change for about 20 years and I should consider accepting the inevitable -- we were no longer going to be a farming community. He was right! The dairy farm and many of our corn fileds are now a Menard's, McDonald's, Meijer, Mike's Carwash, and yes, your beloved Starbuck's and more! I was sad to hear this at the time, but now I get it.

Is my grandfather part of the problem? No. He was part of a solution. These developments support taxes and alleviated the highest taxed land in Marion County at the time because there was no commercial infrastructure. They created a plethora of jobs, which, in turn, stimulated the economy up and beyond all of the farmers together. The school system has grown immensely and these development impact fees have allowed this necessary growth.

How does all of this relate to over-priced coffee at Starbucks, their shareholders and consumers alike? Once again, ask yourself "what came first....". Are you the chicken, or the egg? Do we, as responding consumers, drive this behavior? Yes we do. You're in control and don't ever forget that. Please buy local and lean on the big guy sometimes too if you want options, cost-control, a stimulated economy and an infrastructure you take advantage of everyday. We need both to succeed. One raises the spirit and the other provides jobs -- both giving back to the community.

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Permalink Reply by Mark Howard on January 11, 2009 at 1:17pm

Starbucks business model was 'grow until we fail'. Whoever buys in to that model earns their loss.

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Permalink Reply by David Mark on January 12, 2009 at 10:20am

Mark - For the record, I'm not disagreeing with you. However, I have to ask... Do you believe Starkbucks has actually failed, or is failing? I'm certainly not defending the all-mighty coffe chain, but I think they're o.k. with what's going on. Of course they'd prefer to not close stores, but they'll be alright. Here's why: Just because they're closing stores doesn't mean they're not making tons of money. They pushed the envelope on purpose and they knew the risks. Also, they're expanding overseas in China and elsewhere. Once our economy rebounds, so will the double latte drinkers.

I may be going out on a limb, but if our economy had not hit rock bottom (or something like it!), I don't think we'd be discussing the "failures" of Starbucks.

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Permalink Reply by Erik Deckers on January 11, 2009 at 1:48pm

Customers. Always customers.

I think businesses that focus on their customers will always succeed over businesses that focus on their shareholders. Private businesses always succeed over public ones. Public companies may have the money to research new products, but they will usually abandon them if they don't see any profits after a couple of quarters.

However, I have noticed that companies that focus even more on their employees, like Chick-Fil-A closing on Sundays so employees can be with their families, tend to be more successful than those companies who focus on their customers. Needless to say, companies that focus on their shareholders don't give a rat's behind about their employees. Why else would they lay off big portions of their staff just so they can show a profit to their investors?

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Permalink Reply by Andrew Ball on January 11, 2009 at 2:47pm

Erik - you got it right. Companies which focus on employees have happier employees who make happier customers. Good interview with Costco CEO Jim Senigal in November's Fast Track on this subject. It always looks to me like his people are happy to be there.

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Permalink Reply by Pat Coyle on January 11, 2009 at 3:55pm

Funny thing...Starbucks treats its employees fairly well...and I will say that seeing the same faces behind the bar day after day...and the fact that those folks are local - and friendly - has saved Starbucks rear from getting further scorched...

Meanwhile, we buy all our milk, cheese, eggs and much of our meat from local farmers...we belong to a local CSA and get as much produce as we can from farmers markets...and I would buy local coffee if there were any available near where I live and word...but it has to taste good...I won't buy local if it's a vastly inferior product. What's the point?

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Permalink Reply by Steve Stuck on January 11, 2009 at 2:49pm

"Why else would they lay off big portions of their staff just so they can show a profit to their investors?"

Your number one controllable expense running a company is payroll.

Moving forward, customers decide where they go and what they buy. Starbuck's expanded way too much and now have too much operating costs with downturn in their sales. I almost bought Starbuck's stock in the spring of 2007. I then saw how much they were expanding and it turned me off. I decided to go with natural gas stocks.

I would take McDonald's business model over Starbuck's anyday of the week. They built the franchise industry into what it is today. Many of their business models are used by companies that also successful.

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Permalink Reply by Mark Howard on January 11, 2009 at 2:20pm

i never noticed a change in the focus from customer to shareholder. For years, you go in, you order coffee (from a stupidly confusing size choice) and get it. What changed?!? and now the economy is not rocking, times change, people wonder should they spend $5 on a cup of coffee $5 on an entire meal at McDonalds. Obviously McDonalds is more recession proof. If a depression comes, people then decide to spend that $5 on a whole chicken and bag of potatos and feed their family. Then McDonalds suffers. Luxury items are the first to go when your income is in jeopardy. No mystery here.

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