University of West of England

MBA

Managing Human Resources

Cafe Espresso

Case study

2011

Cafe Espresso

Cafe Espresso is one of the main players in the European ‘coffee house’ industry, and has

more than 550 stores (bars) across Europe, of which 400 are in the UK, and employs around

3800 staff. The company was founded in the UK in the late 1980s by Stephen Lester who

bought five retail sites in London and began to create his vision for a premium, continental-

style cafe in Britain. By the late 1990s Cafe Espresso was named the 18th fastest growing

company in Europe by a top business magazine, and was one of the three leading European

coffee houses. In 1999 Cafe Espresso joined the London Stock Exchange and became a

publicly listed coffee house company in the UK.

The coffee industry has been particularly robust, with coffee shops making up one of the

fastest growing parts of the restaurant business, with a 7% annual growth rate. World coffee

production is estimated at 110 - 120 million bags per year. However, the coffee house

business is also very competitive and the number of coffee bars in the high street has

increased significantly in recent years. Coffee bars are constantly looking for innovative

ways of achieving sustainable competitive advantage to remain ahead of their rivals.

Since 2005 however Cafe Espresso has been losing its market share to rival competitors who

have copied Cafe Espresso’s business model and poached key staff to deliver it. The loss of

market share has forced the company to rethink their strategy. In 2007 Stephen Lester

retired and a new charismatic chief executive (CE), Marcus Mitchel, was appointed to turn

the business around. He was tasked with making Cafe Espresso once again one of the top

European coffee houses in the market place.

In reviewing Cafe Espresso’s current strategy, Marcus embarked on a European fact finding

tour of the organisation’s coffee bars. He met staff and customers in order to get a feel for

the nature of the business, and visited rival coffee houses to gain an understanding of their

source of competitive advantage. This review identified customers who were mainly loyal to

the brand of Cafe Espresso but had been enticed away by the experience, the variety of

coffee and level of customer service offered by competitors. His review of human resources

found a high level of staff turnover, which he partly attributed to the minimum wage offered

and the high percentage of employees on short term contracts. The recent loss of market

share and high employee turnover had led to low morale amongst remaining staff, who felt

Cafe Espresso bars were dated and the range of coffees limited. The CE review of

competitors supported this as he identified the significance of the ‘coffee drinking

experience’ which was delivered through appropriate decor, ambiance, variety in the range

of products and most importantly of all, the barista or coffee seller. Increasingly key

competitors were also taking environmental responsibility seriously and Marcus felt it

essential that his company adopted a fair and ethical approach to business. He identified all

these issues as key sources of added value and competitive advantage.

Marcus Mitchel decided to relauch Cafe Espresso’s business strength with a new vision: ‘To

be the number one coffee house of choice in Europe’ and identified the following mission:

‘Experience Cafe Espresso, we won’t just sell coffee we provide customers with an

unforgettable experience’. This was encapsulated in his value statement: ‘Nowhere else

makes you feel this good’ which he believed should apply to staff as well as customers. To

achieve his vision Marcus wanted to create a unique atmosphere in his coffee shops. He

wanted the coffee houses to be a friendly place to meet that had a ‘buzz’ about them, and is

quoted as saying ‘I want Cafe Espresso to be a place where you feel comfortable meeting

your friends and family, working on your laptop, or just somewhere to relax and read the

paper. A neighbourhood gathering spot’. However he also wanted each coffee house to be

different and reflect the local community.

He was convinced that the success of coffee bars lay not just in selling coffee as a produce,

but in selling a unique ‘coffee house experience’. Marcus felt that one of the most

important things that would make Cafe Espresso unique was its people. He wanted staff to

have a warm and positive outlook on life who genuinely enjoyed working directly with

people and had a passion for coffee. He recognised that Cafe Espresso’s human resources

would be crucial to the success of his overall strategy, and that the baristas (coffee sellers)

were critical to the selling of the coffee house experience. Nevertheless, he was aware that

that HR would face a difficult task as the coffee house industry was traditionally renowned

for low pay (minimum wage being the norm), and high employee turnover (50-100% being

the norm).

He identified the following priorities:

Business

To be the number one coffee house in Europe

To have a fair and ethical approach to business

To attract new customers though reputation for providing the coffee house

experience

To retain existing customers through loyalty service

Customer service

Commitment to excellence

Internal and external customers valued

The coffee bars to reflect the neighbourhood and be a part of it.

Sell the barista experience

People

Diversify and individuality valued

Knowledge and talent encouraged and retained

Pride, warmth and enthusiasm valued

Reward to retain

To have fun at work and to get to know our regulars

Systems

Customer feedback

Learning, development and talent management

Performance management

Compensation and benefits

Marcus initiated a staged refurbishment programme starting with key stores and appointed

a new HR director, Kim Strong, who came from a major airline, with a remit to introduce a

new HR strategy to deliver Marcus’s vision of becoming ‘the number one coffee house

across Europe’ . Kim Strong recognised the need to develop an HR strategy focused on the

development and retention of key staff who could deliver the Cafe Espresso experience.

She introduced the HR strategy by relabeling the HR function as ‘Partner Resources’ and all

staff became know as ‘partners’. The HR team were re-structured around specialists in

training, learning and development, compensation and benefits, performance management

and employee relations. There were also HR regional operational advisors who gave advice

and support to store managers. Kim decided to focus on key areas of HR to deliver the

business strategy. These were resourcing and retention, learning and development, talent

management, employee involvement and communication and compensation and benefits.

In term of resourcing Kim focussed on recruiting new ‘partners’ through window advertising

and word of mouth. This was fairly successful and she acknowledged that a large number of

their ‘partners’ had grown to understand Cafe Espresso’s market and approach through

being a customer. An on-line assessment test was introduced to sift applicants based on

core behaviours, and store managers were responsible for face-to-face interviewing and

making selection decisions. Successful candidates were offered a half day trial period.

Reliance on short term contracts was reduced, and students and parents were targeted for

permanent flexible working hour contracts.

The retention strategy focussed on compensation and a range of benefits. Significantly,

baristas were to be paid above the minimum wage and store managers were offered a

broad pay spectrum according to knowledge, skills and abilities. Share option schemes were

offered to all partners to encourage shared ownership in the business and reinforce the

‘partner ‘ethos. A partner discount programme was also offered which entitled staff to 30%

discount in all stores. There was also a regional ‘Barista of the month’ recognition award. All

staff were issued with a free uniform (black); managers were differentiated by a green shirt.

All new recruits were encouraged to spend time ‘on the floor’ in the coffee bar, regardless

of rank. They also spend a day at a central Cafe Espresso development centre learning about

the company and the coffee industry, and encouraged to attend the coffee master

programme enabling them to become a Cafe Espresso ambassador. New recruits, both

baristas and managers, were appointed a ‘buddy’ to support them in their role and provide

further advice. The company were committed to gaining Investors in People (a nationally

recognised UK training award) and training modules, coaching and mentoring schemes were

available to support career progression.

A performance management system was introduced where all partners agreed objectives

and development needs both in terms of technical skills and knowledge and behavioural

skills. Individual performance was to be reviewed on a 6-monthly basis and the manager,

peers and customer reviews were included in the process. Customers, for example, had the

opportunity to give their views by the completion of a ‘Tell-Us’ card and a mystery ‘diner’

programme was also introduced using an external market research company. There was no

individual performance related pay.

Emphasis was given to team work and monthly team briefings were introduced to provide

regular information on the performance of the business and store, at which upward

feedback and ideas were encouraged. There were also 10 minute pre-session briefings

before each daily shift. A suggestion scheme was introduce where ideas subsequently

implemented were rewarded and recognised in the company magazine, ‘Partner Voice’. Kim

Strong also introduced an engagement survey annually and the results were published and

provided to all partners in ‘Partner Voice’. There was no recognised union or employee

forum.

Most coffee bar were open 7 days a week and most partners were expected to work

weekends. Rotas were published the week before but often subject to last minute change.

Recognising that it’s important that staff need to enjoy what they do and who they work

with and have fun at work, a range of social events were introduced throughout the year.

This includes parties, Barista of the Year events, softball, sports days, and wine and food

tasting nights.

Gradually customer service feedback improved and the market share improved. Employee

turnover reduced by 25% and Cafe Espresso moved to number two in the European market.

Marcus Mitchel and KIm Strong recognised that the HR strategic changes had supported this

improvement, contributing to better levels of service and customer attrition/retention.

Nevertheless, they were also aware that it would not be long before competitor’s copied

their initiatives, particularly in terms of reward and benefits and were concerned about how

they might maintain and develop the extent of the competitive advantage. They were also

concerned about feedback from the employee engagement survey which suggested

significant variability in team and store management behaviour. Kim was also aware that the

practice of interviewing varied greatly and whilst some store managers took this role seriously, for

others it was just a 1 minute conversation. In reality managers were given little training on

recruitment and interviewing skills.

In 2010 there were additional industry pressures as supply disruptions, rising demand and

speculative trading began to drive up coffee prices.