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Starbucks Brews Up Wireless Access

By Tom Steinert-Threlkeld  |  Posted 2003-04-17 Print this article Print

Starbucks' wireless networks aren't just for latte lovers. Managers also get to spend more time in stores.

Artie Dohler is on the phone, animatedly trying to find out about an altercation involving a customer the previous night at closing time at one of his Starbucks stores in New York's Times Square district.

"Definitely there's some fault there, but not everything" is as the patron contends, Dohler says. He wants to get a statement from the security guard in the building, and notes that a member of his company's "asset protection" squad is on the way to secure the videotape taken by one of the store's cameras.

Dohler is plugged in. He's working at his desk, with cell phone in hand, laptop at his remaining fingertips and a token-sized random-number generator next to it, giving him access to his company's network whenever he wants it.

Only there are no wires. And this is no office.

Dohler is a district manager for Starbucks, the $3.3 billion-a-year operator of 5,886 coffee shops in 25 countries. His use of wireless technology is no accident.

Lovina McMurchy, director of business development for Starbucks' New Ventures Group, calls the coffee company's wireless access points a "great strategic asset." And even though it has gotten an outside partner—Deutsche Telekom's T-Mobile USA unit—to foot much of the bill, there is no doubt that the radio waves in its stores are going to be used not just by its latte-drinking customers. A big user will be Starbucks itself.

In fact, Starbucks has been rather expert at shielding itself from the risk of installing wireless systems in its stores. The rollout actually began in 2001. Deutsche Telekom was brought in to take over the project when MobileStar of Richardson, Texas, went bankrupt. The wireless service provider wasn't able to attract enough customers to cover its expenses as it built out networks in Starbucks stores and airports.

Even now, Starbucks won't say how many of its customers have signed up to use the "hot spots" that T-Mobile has been building in 2,100 of its stores. But that hasn't stopped it from starting to put the networks to use for its own purposes.

First up: Empowering district managers like Dohler to work in the stores they oversee, spending more time with customers and the stores' 54,000 North American employees, a.k.a. "partners." Coming soon: Faster authorization of credit sales at the cash register. Later, shipping of sales data almost instantaneously to wherever it's needed. Somewhere along the way, downloads of for-a-fee music. Eventually, Dohler or a manager like him also will likely be able to pull up video files of anything that happens in one of his or her district stores, right from an untethered laptop.

After all, even on this routine workday in February, Dohler is picking up data—wirelessly—from Starbucks' corporate network at the rate of 11 million bits per second. That's compared with speeds between 512,000 and 1 million bits per second when he hooks into the company network at its regional offices at the corner of New York's 33rd Street and Fifth Avenue, above a Starbucks. And 44,000 bits a second when he dials into the network from home.

The speed of the connection can be incentive enough for Dohler and other Starbucks district managers like Lisa Jansen of Portland, Ore., to want to head for one of their stores to do their work. The benefit is they now can spend almost all their time in stores. Any one of them is an office, at any time it is open.

In Jansen's case, the daily routine used to involve heading for a store, conducting a review of operations, developing a punch-list of items to follow up on, driving as far as 23 miles back to her regional headquarters, filing reports and sending e-mail, and then heading out to another store to do the same thing all over again.

Now, "instead of running my business from a cubicle, I run my business from a chair at a table at one of my stores," the district manager says.

Jansen figures she saves 45 minutes of drive time, twice a day, or as many as 10 hours a week that she can put back into improving store operations.

She oversees 10 stores in the Willamette Valley around Portland and considers herself "not a very technically savvy individual." Her latest step forward in dealing with the electronic devices that will unleash her to spend more time in stores: learning to program numbers into her cell phone.

With her newfound time, she produces monthly status reports before she leaves the store on which she's reporting. She can run through every aspect of how a store is dealing with customers, how partners are performing and how business is faring, all before walking out the door.

With the drive time she's saved, she can run her stopwatch to see how fast patrons are getting served—and see how the customers are reacting. She can observe whether, in the process, the partners are following Starbucks' cash-handling policies and procedures, and whether the entire process is handled within the company's 3-minute benchmark for each customer.

But it's not only 10 more hours she can put into making sure each store is "operationally strong." It is that much more time she can put into speeding up response to the minutiae of day-to-day operations that can fester and drag down sales and customer satisfaction. If a store needs a new outdoor umbrella, she can order it on the spot. If a candy fixture is broken, she can get the ball rolling on a replacement. If there's been a run on a particular type of coffee bean, she can zap off a notice to restock while looking at the inventory still sitting in the store's display cases.

Being on the spot is no minor advantage, either to Jansen or Dohler, or to Starbucks as a corporation. Company sales nearly doubled in the past four years, from $1.7 billion in 1999 to $3.3 billion in 2002.

That nearly 20%-a-year growth rate means Dohler has to be more productive to keep up. In the past year, Dohler has gone from managing fewer than 100 partners in his Times Square area stores to managing 115.

In turn, he has to make his partners happier. In 2001, turnover among his partners was 117%, meaning that on average, he had to train a whole new staff every year. Now, he has a shot at hitting his goal of bringing turnover down to "just" two-thirds of his partners this year. Not a minor achievement.

Spending more time in the store allows him to get a sense of each of his partners, and to develop in them a passion for the kind of "legendary service" that he thinks is required to make 10 stores—or more—succeed in the relatively small footprint of Times Square.

Each time he is in a store, he can make sure three partners spare the time to taste and evaluate the coffees they are serving to customers. He can watch how they introduce themselves or the store's products to customers. If they do it right, he can dole out movie tickets as a sign that the small details matter.

These managerial and productivity gains have not arrived by accident. But that's not to say there's been that grand a design. Wireless networks first started appearing in Starbucks stores about three-and-a-half years ago, according to James Snook, vice president of information technology and enterprise architecture. They first were deployed for the most obvious practicality: helping cash registers communicate with company networks when it was impractical to connect them by cable.

This solved problems in about 50 stores. Figuring out how to make wireless networks pay for themselves in hundreds or thousands of stores meant finding someone else to foot the bill; namely customers.

The first attempt, with MobileStar, failed. Coffee customers showed little predilection for mixing laptop Java beans with real coffee equivalents. Lack of demand put MobileStar out of business. Even now, Starbucks won't let itself be pinned down to specifying how many lasting customers the new service provider, T-Mobile, has been able to sign up among Starbucks customers. "We are currently seeing thousands of subscribers using the service tens of thousands of times per month," the company says, carefully.

Anne Saunders, vice president, Starbucks Interactive, New Ventures, says real detail on how much time is being spent by customers surfing the Net via T-Mobile's access points in its stores are coming "over the next few months."

That usage may not be so relevant to Starbucks, however. Getting a slice of revenue from subscribers to T-Mobile services is just part of the action. The big benefit now is being able to increase the presence of district managers by 25%, without adding any managers at all. To that end, the company is upgrading the laptop computers of 600 district managers for wireless access.

Next up: Scores of support personnel will become part of its mobile work force. With entry to the wireless access points, employees who call on food-service accounts can use Starbucks stores as their bases of operations, and human-resources managers can work where the human resources do.

The networks also could produce revenue for Starbucks, not just T-Mobile, by offering music downloads first, entertainment videos later; more sales per minute, by shaving time off the clearance of credit card sales; and cost savings, by delivering interactive training right to any Web browser in any store, from a central server.

Then, unexpected services, like instantly retrievable video clips of store activities, could be layered on. This could aid store security, for instance. All 10 of Dohler's stores already feature some form of video security and promote it in store windows.

So far, three of Dohler's stores have converted from conventional videotape chronicles of customers moving in and out of its stores, placing orders and interacting with staff. Using a service from Diebold, they are storing moving images instead in digits, in 30-second bursts.

In the not-too-distant future, it will be increasingly viable for retailers like Starbucks to install Web cams as the costs of wireless infrastructure and cameras fall.

Because wireless networks and Web cams use the Internet Protocol, camera feeds can be retrieved from any device with access to the Internet, say specialists such as Ron Seide, senior product line manager in Cisco Systems' Wireless Networking business unit.

That means notebook computers could immediately retrieve any images captured at checkout counters or inside stores. In addition, different applications are being developed for Web cams including, for instance, face recognition software. This could make it possible to identify patrons by structures as seemingly benign as cheekbones.

With such capabilities, a manager like Dohler won't be waiting for details of an altercation to come to his attention in "dribs and drabs'' by 1 p.m. the next day.

He could well see what happened and who is involved, immediately, without even leaving whatever store he's in.

Tom was editor-in-chief of Interactive Week, from 1995 to 2000, leading a team that created the Internet industry's first newspaper and won numerous awards for the publication. He also has been an award-winning technology journalist for the Dallas Morning News and Fort Worth Star-Telegram. He is a graduate of the Harvard Business School and the University of Missouri School of Journalism.
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