Kris Engskov: Starbucks serves up plans for UK growth
Chain has found the right ingredients to drive the brand ahead over the next five years, the coffee house's British boss tells James Thompson
Kris Engskov, the managing director of Starbucks UK and Ireland, learned a huge amount during his seven years working as the assistant press secretary and personal aide to the former US President Bill Clinton.
On his fellow Arkansas native, Mr Engskov says: "He had a vision for where to take people and how to lead. He was smart enough to know he didn't have all the answers."
The equally modest Mr Engskov, who was the model for the press guru Charlie Young in the hit TV series The West Wing, has also demonstrated a clear vision for where he wants to take Starbucks UK since the Seattle-based coffee giant parachuted him into the role last September. While Engskov denies it is a turnaround role – citing its growing underlying sales as the time – this theory holds some water, as his appointment coincided with another high-profile executive Michelle Gass becoming president of Europe.
Among the deluge of UK initiatives, 41-year-old Engskov has pushed on with its store refurbishments, has signed up its first franchise partners and has unveiled a partnership to create 200 drive-through and 100 conventional stores over the next five years, creating 5,000 jobs.
But Starbucks UK's biggest change – arguably the most significant since it landed on these shores in 1998 – came in March, when it broke with its long-standing policy of selling the same beverages globally. This momentous decision followed a huge piece of customer research. Mr Engskov says: "We needed to listen and listen pretty carefully to customers. The market had changed a lot and perhaps we needed to be listening a lot closer."
In short, customers told Starbucks they wanted a stronger taste, which convinced it to start selling its "tall" size lattes with two shots of expresso instead of one.
"It has been remarkably powerful," says Mr Engskov, an Anglo-phile who watches "a lot" of the TV series Downton Abbey. Since the morning of 14 March when Starbucks sold 350,000 lattes after it offered customers a free drink, the UK arm's sales of lattes have powered ahead by 9 per cent and this trend has continued to today, says Mr Engskov. Pulling no punches, he adds: "It is the holy grail of our business and to change that latte standard was a very big decision."
Certainly from a top-line perspective, the UK and Irish division looks in fine shape but dig below the surface and there is room for improvement. Starbucks UK made a pre-tax loss of £32.9m for the year to 2 October 2011, which was its fifth consecutive year of losses in this country.
While the bulk of the loss can be accounted for by £25.8m royalties and licence fees to its US parent, which it pays each year, Mr Engskov says: "The brand is in very good health. We are doing very well at the top line. The challenge is to get these naughty fundamentals of making sure the top-line success translates into the bottom line… We now have to pick up the pace."
To this end, Starbucks has been particularly active tackling its property portfolio, particularly stores on high streets characterised by sky-high rents. For instance, Starbucks this year signalled its intention to exit three stores on London's Oxford Street, as part of its strategy to concentrate on locations off the main streets of the capital, in search of more upmarket, an cheaper, sites.
On its wider property strategy, Mr Engskov says: "You have got a dated portfolio with very high rents [at Starbucks UK]. You have got in the places where we have chosen to grow over the past few years a high rent structure – and they are going up. Oxford Street is not going down, it is going up."
This does not mean that Starbucks UK is trimming its investment in the UK, as evidenced by its plans to revamp 70 London stores in time for the Olympics at a cost of £8m, including six high-profile sites.
Indeed, while it closed 12 in its last financial year, it opened 42. But its focus is now more on stores in new places, where it has previously been absent, such as next to roads, motorways and railway stations.
Reflecting this drive, Starbucks UK said in January it plans to open 300 outlets over the next five years, of which a third will come from its licence agreement with the petrol forecourt retailer Euro Garages. Despite this, Starbucks, at least in terms of store numbers, trails significantly behind the market leader Costa Coffee, which has 1,375 in the UK alone.
But after Starbucks UK fell on difficult times before the credit crisis of 2008, following a rapid period of expansion, matching Costa's store numbers no longer seems on its agenda.
Mr Engskov says: "Of course Costa is a very strong competitor in an incredibly competitive market, but I'd like to think that we were trying to do something different. We're not focused on knocking out as many cookie-cutter stores as possible across the country so that we can say we're the bigger than them – that's not our focus and it's not how we'll judge our success in the UK. We know we have to be in the right places, but we also have to be better and different to the opposition."
One way that Starbucks UK had started to make itself different under Engskov's predecessor, Darcy Willson-Rymer, was to change the design of its refurbished or new stores to make the local or relevant to the local area, such as stripping back decorations to reveal original brickwork.
Mr Engskov is well-versed in UK culture and has strong views on the native workforce in this country, having been based in Europe since 2005, including his stint as regional director for London between 2005 and 2007. Following this, he was then general managers for Starbucks Switzerland and Austria until 2008, when he returned to his home country as regional vice-president of Starbucks for the US north-west.
While some politicians and business leaders have openly stated that some British youngsters don't have the same drive to work, as counterparts from overseas, Mr Engskov disagrees. He says: "I don't subscribe to this idea that there are not talented British people available to retail. That is not true – certainly not at Starbucks." Working with organisations, such as The Prince's Trust, Starbucks started an apprenticeship scheme earlier this year, which has already recruited 19 and aims to hire 40 a month.
Certainly, Mr Engskov seems to have hung on to many of the lessons he learned with the former US President and the coffee chief's sense of a "noble purpose". He says: "Compared with government this is about making money, but you can still make money and inspire people." Ultimately, Mr Engskov will be judged on the more tangible measurement of Starbucks UK's bottom line.
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