2012 Thought Leader: Lessons in Starbucks' Transformation

Some of the biggest things happening at Starbucks Corp. don't include the coffee bean. And they're not taking place inside the cozy confines of the café.

The coffee king is robustly growing its tea segment, which includes the Tazo brand and the high-end Teavana stores, and is opening a chain of health-minded Evolution Fresh juice bars. Of course coffee remains the heart and soul of Starbucks, but the branching out reflects a broader transformation of Starbucks from a café chain to a global consumer products business.

At the heart of the transition is Jeff Hansberry (MBA '89, A&S '86), Starbucks' president of channel development and emerging brands.  On April 4, he delivered a talk at the University Club to a group of nearly 50 students and faculty as the 2013 featured speaker in the Thought Leaders in Business forum, presented by the Katz Graduate School of Business and College of Business Administration. The annual forum is designed to expose students to executives with globally relevant business insights.

"We believe we can transform tea in the same way that we transformed coffee," Hansberry told the audience in his talk, titled "Starbucks Channel Development: Building a Blueprint for Growth," which lasted about an hour and closed with a Q&A session. "Tea today is a $1.4 billion business. We think it can be bigger. It is the second-largest beverage consumed in volume, behind water. It hasn't yet gone through a 'premiumization,'" he said.

At Starbucks, Hansberry leads efforts to increase distribution through consumer packaged goods. The channel side generated $1.3 billion in revenues last year, up 50 percent from the year before, Hansberry says. That segment, which for example, represents sales in the grocery store aisle, is growing three times faster than the company average and at a margin twice as favorable. Hansberry's team aims to grow the company's retail presence through food service, licensing, and franchising.  Another big opportunity is through the at-home single serving coffee machines and espresso machines, which deliver significant growth.

While many students who attended Hansberry's talk aren't destined for careers in the coffee or tea industry, the challenges that Hansberry addressed — in brand management, sales strategies, and distribution models — are relevant to many different sectors. In particular, one challenge facing Starbucks is how to expand its product lines while striking a balance that strengthens the brand, but doesn’t dilute the in-store experience for customers.

"At the heart of it is the humanity of the brand," Hansberry said. "We're trying every day to create a balance between making a profit and making a difference in people's lives. We call it the 'moment of connection,' when customers come to our stores. More often than not, the barista knows their drinks and makes it right every time."

But things weren't so good for Starbucks a few years ago. The company was reeling from a drop in year-over-year sales. In response, Starbucks closed 600 stores. It shut down every store for a day to retrain baristas on how to make perfect espresso drinks. Starbucks founder Howard Schultz was brought back in to lead the company.

"In 2008, we lost our focus on creating a great customer experience,” Hansberry said, adding that that period of time had a silver lining in that it taught Starbucks many valuable lessons, including the idea that serving customers beyond company stores was a big opportunity.  

Today, the Seattle-based Starbucks operates about 18,000 stores in 62 countries, reaching 70 million customers every week. In the US, one in 10 adults receives a Starbucks gift card over the holiday season. But with such market penetration, how does Starbucks hold onto its premium image? How does it ensure that its cafés stay a cozy "third place" for customers?

Hansberry says Starbucks is "constantly mindful of that balance" He says the company is unique in its combined strength in e-commerce, retail, and packaged goods, all at once. E-commerce, in particular, is opening up new avenues for complementary transactions to retail and consumer packaged goods.

"We are building a new go-to-market-model that did not exist previously. I don't think it would be dramatic for me to say it's comparable to the creation of the brand management model in the packaged goods industry back in the 1930s," Hansberry said.

The Pitt Business Thought Leaders in Business forum, established in 2005 by Katz alumni Shekar Narasimhan (MBA ‘75) and Ed Hurley (MBA ‘78), is designed to expose students to executive-level insights from leading business thinkers. Past speakers have included executives from PNC Financial Services, Minerals Technologies Inc., and BNY Mellon. The forum is made possible through the support of Narasimhan and Hurley.

Prior to joining Starbucks in June 2010, Hansberry served as vice president and general manager for E&J Gallo Winery, where he was responsible for leading the company’s flagship popular-priced brand portfolio. Before then, he spent 17 years at Procter & Gamble, where he held leadership positions in sales, marketing, and general management, both in the U.S. and abroad.  The Wall Street Journal has described Hansberry as "an industry veteran who has sold everything from Hawaiian Punch to gin and who has established himself as a possible successor to the Starbucks founder [Schultz]."

A graduate of Penn Hills High School, Hansberry is married and has two sons. He is a member of the Pitt Alumni Association Emerging Leader Program and of Phi Gamma Delta and Beta Gamma Sigma. He holds a Bachelor of Arts in Economics and a Master of Business Administration, both from the University of Pittsburgh.