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Friday, February 22, 2008

The Trouble with Tully's

Running at "half-caff" in a caffeinated world.

In the first of a series of "From the Outside Looking In" articles I will give my take on how I would address challenges that different companies face.

For those of you not from Seattle or familiar with Tully's, it is a regional coffee chain based in Seattle. It probably has the distinction of being the second largest coffee chain in Seattle, although that doesn't really help it a whole lot.

Tully's has a big problem, or should I say a small problem. Tully's is too small to compete with Starbucks' buying power, but too big to be seen as a credible Starbucks alternative in the mind of those who refuse to patronize chains and instead favor local coffee houses. As a result Tully's struggles to differentiate themselves from their larger competitor, and continues to lose money.

Tully's has chosen to differentiate itself based on factors such as Free WiFi and Green Coffee. I don't mean green as in color, but instead that they only use 100% Certified Fair Trade Organic Espresso and a cup that is 100% compostable. They also carry tasty treats from Alki Bakery, and premium soft serve ice cream and ice cream shakes.

The trouble is that is where the differentiation stops. Walk into your average Tully's and unless someone told you, you might think you were in a Starbucks (only maybe slightly less nice). Tully's needs to do more to differentiate itself from the competition. If I were running Tully's here is what I would do:

Turn Tully's into a destination rather than just the closest coffee shop:

  1. Install 802.11n and take steps to ensure its reliability

    • Tully's has free WiFi already, but it's not very reliable and it's slow. Starbucks may charge, but their WiFi is faster and more reliable. If you're going to try and differentiate on a point, you have to delight customers not frustrate them.

  2. Consider having a small conference room available for use in some locations

    • Some smaller coffee shops use this to great success in driving hot beverage and food sales, but more importantly to drive loyalty

  3. Don't sell any food unless you are going to sell best-in-class options

    • Do a deal with Krispy Kreme to distribute their donuts, and not just for individual sale, but dozens and half-dozens as well

    • Do a deal with Organics to Go or other compatible vendor for sandwiches

    • Do a deal with an iconic bagel manufacturer

    • Switch from Ghiradelli to Green & Blacks Organic as a chocolate supplier (hint of luxury) -- Godiva might make a good second choice

  4. Focus on service, encouraging employees to make personal connections with customers and take small actions to loyalize customers

    • Randomly select regular customers for free upsizing (Grande for the price of a Tall) or free upgrading (you've been chosen for a free flavor shot)

  5. Look to eliminate queueing

    • Touch 'n' Go Tully's Card embedded with Favorite Beverage (one-touch ordering and payment)

    • SmartPhone application (see Starbucks blog entry from Feb2008)

    • Phone ordering -- system recognizes phone number, favorite drink, and Tully's Card PIN

    • Web ordering -- Cookie recognizes user, favorite drink, prompts for Tully's Card PIN (or allows customized orders)

    • In-store kiosks for distributed ordering for people paying by credit card and Tully's card

  6. Look to improve efficiency in other ways

    • Introduce cup printing system (increase speed, reduce errors)

    • Pass through toaster (we put the bread/bagel in and you take it out)

  7. Space is King

    • Not having access to Tully's financials, a quick analysis of Starbucks financials as a proxy shows that on a revenue per square foot basis, food delivers 20%, whole beans 10%, and coffee-making equipment 5% the revenue per square foot of hot drinks. This space needs to be worked harder or freed up for other purposes.

      • Eliminate hot foods

    • 65% of all coffee is consumed during the breakfast hours

      • Work the space more efficiently by working hard to create a second and maybe even a third spike

      • Do a deal with Jamba Juice to expand revenue without subsantially increasing space requirements

  8. Continuous Innovation is the key to continuous differentiation

    • I would help implement necessary organizational and cultural changes to engage the entire workforce in the process of helping Tully's establish and maintain an industry leadership position based on differentiation

OK Tully's, so now I've given eight differentiating points you can focus on. Brilliant execution will get you to the IPO you so desperately seek. Do you have the courage to take some of these steps?

What do the rest of you think out there? Are these ideas full of hope or full of folly?

Sound off!

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Hot Spots of the Valley

Curious where some of the big deals have gotten done in Silicon Valley?

For a bit of Friday fun, check out this video:



Of course you won't get a deal by just hanging out in these places, but if you slip your one-pager into the menus, who knows. ;-)

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Wednesday, February 20, 2008

Second Unnovation Award Winner - HP and Costco


I'm in the middle of trying to buy an HP Pavillion dv6700t Special Edition. I tried to buy it from Costco because you can configure it at costco.com for about 10% less than buying through HP directly.

Days passed, the promised ship date passed and an e-mail arrived saying that the wireless mouse I had "ordered" was out of stock. I was told my shipment would arrive late with a wired mouse followed by a month later by my wireless mouse.

Wireless mouse I ordered? I didn't order a wireless mouse. Phone calls ensued.

It turns out that HP, convinced people will only buy a laptop if a free wireless mouse is involved, had decided one must be included with every laptop order before it can ship. So I called, and asked for the laptop to be shipped on time sans mouse - no dice. Apparently, HP laptops are built and shipped directly to the customer from China, so Costco is only able to place or cancel orders, never modify.

Then this week an e-mail arrives in my inbox from HP announcing a Presidents' Day sale including 25% off the very laptop I had ordered from Costco. So, I promptly place an order on shopping.hp.com (at a $260 savings), and called and cancelled my Costco order.

Imagine my surprise when 36 hours later I get an e-mail from Costco saying that my order had shipped (my order from January 23). When I cancelled my Costco order they said I would either get a shipping or a cancellation confirmation but they had no idea which one. Which brings me to my points:
  1. In 2008 how can this happen?
  2. How can a transaction that should be nearly instantaneous, still not be executed 36 hours later by an undisputed technology leader and seller of technology consulting services?
Financially this snafu won't effect me (I can get an immediate refund at my local Costco), but it will affect Costco and HP. Costco will lose money executing the return. HP will lose money executing the return and also lose $260 because of their delay that allowed me to re-order at a lower price.

All because of a "free" mouse.

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Thursday, February 07, 2008

Following the Line to Innovation - Mobile Applications


I came across a queue reduction application for the iPhone and iPod Touch yesterday that was intriguing. The application isn't quite finished or certified for use yet by Apple and Starbucks, but from what I gather it works something like this:
  1. User comes in range of a Starbucks WiFi Hotspot
  2. Application recognizes the Starbucks WiFi Hotspot or user initiates application
  3. Application engages the user interface portion of the application
  4. Application makes a connection
  5. Application prompts user to order a Starbucks beverage
  6. Application user interface facilitates the selection and transmission of the drink order (including a list of saved favorites to speed the process)
  7. Application connects to the user's iTunes account
  8. Application deducts funds from the user's iTunes account
  9. Application creates a visual barcode with the information necessary to register payment
  10. User places iPhone or iPod Touch with visual barcode under a reader at the pickup counter
  11. User collects their beverage

The visual barcode (semacode) and scanner portion of the system could be made unnecessary (or relegated to backup system status), by instead transmitting a payment confirmation to Starbuck's on-site systems directly via the WiFi connection. In the backup scenario, the visual barcode would serve as an electronic receipt to show proof of payment in case the systems in the store doesn't receive the systematic payment immediately.

Imagine the convenience of getting a block or two from your favorite Starbucks, connecting, clicking 'The Usual' and proceeding directly to the drink pickup counter instead of waiting in line to order and pay.

Of course there is no reason why companies like McDonald's or Cinemark couldn't create similar applications to eliminate some of the queueing from our lives. If people could order this easily with their phones then businesses could reduce staffing or reallocate resources from order taking and payment processing to more value-added activities like preparing food or beverage orders.

Apps like this could be extended to the Web through the introduction of a store number field or store locator mini-application or pulldown at the beginning of the application sequence. This would allow you to order out of range of the in-store WiFi over your cellular network or from your home or office internet connection.

Less time spent waiting in lines?

Oh what a beautiful world.

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