Starbucks realised this back in 2007 when their Chairman Howard Schultz warned of “the commoditization of the Starbucks experience”. The authenticity of the memo below has been confirmed by Starbucks.
From: Howard Schultz
Sent: Wednesday, February 15, 2007 10:39 AM Pacific Standard Time
To: Jim Donald
Cc: Anne Saunders; Dave Pace; Dorothy Kim; Gerry Lopez; Jim Alling; Ken Lombard; Martin Coles; Michael Casey; Michelle Gass; Paula Boggs; Sandra Taylor
Subject: The Commoditization of the Starbucks Experience
As you prepare for the FY 08 strategic planning process, I want to share some thoughts with you.
Over the past ten years, in order to achieve the growth, development, and scale necessary to go from less than 1,000 stores to 13,000 stores and beyond, we have had to make a series of decisions that, in retrospect, have lead to the watering down of the Starbucks experience, and, what some might call the commoditization of our brand.
Many of these decisions were probably right at the time, and on their own merit would not have created the dilution of the experience; but in this case, the sum is much greater and, unfortunately, much more damaging than the individual pieces. For example, when we went to automatic expresso machines, we solved a major problem in terms of speed of service and efficiency. At the same time, we overlooked the fact that we would remove much of the romance and theatre that was in play with the use of the La Marzocca machines. This specific decision became even more damaging when the height of the machines, which are now in thousands of stores, blocked the visual sight line the customer previously had to watch the drink being made, and for the intimate experience with the barista. This, coupled with the need for fresh roasted coffee in every North America city and every international market, moved us toward the decision and the need for flavour locked packaging. Again, the right decision at the right time, and once again I believe we overlooked the cause and the loss of aroma – perhaps the most powerful non-verbal signal we had in our stores; the loss of our people scooping fresh coffee from the bins and grinding it fresh in front of the customer and once again stripping the store of tradition and our heritage? Then we moved to store design. Clearly we have had to streamline store design to gain efficiencies of scale and to make sure we had the ROI on sales to investment ratios that would satisfy the financial side of our business. However, one of the results has been stores that no longer have the soul of the past and reflect a chain of stores vs. the warm feeling of a neighbourhood store. Some people even call our stores sterile, cookie cutter, no longer reflecting the passion our partners feel about our coffee. In fact, I am not sure people today even know we are roasting coffee. You certainly can’t get the message from being in our stores. The merchandise, more art than science, is far removed from being the merchant that I believe we can be and certainly at a minimum should support the foundation of our coffee heritage. Some stores don’t have coffee grinders, French presses from Bodum, or even coffee filters.
Now that I have provided you with a list of the underlying issues that I believe we need to solve, let me say at the outset that we have all been part of these decisions. I take full responsibility myself, but we desperately need to look into the mirror and realise it’s time to get back to the core and make the changes necessary to evoke the heritage, the tradition, and the passion that we all have for the true Starbucks experience. While the current state of affairs for the most part is self-induced, that has lead to competitors of all kinds, small and large coffee companies, fast food operators, and mom and pops, to position themselves in a way that creates awareness, trial and loyalty of people who previously have been Starbucks customers. This must be eradicated.
I have said for 20 years that our success is not an entitlement and now it’s proving to be a reality. Let’s be smarter about how we are spending our time, money and resources. Let’s get back to the core. Push for innovation and do the things necessary to once again differentiate Starbucks from all others. We source and buy the highest quality coffee. We have built the most trusted brand in coffee in the world, and we have an enormous responsibility to both the people who have come before us and the 150,000 partners and their families who are relying on our stewardship.
Finally, I would like to acknowledge all that you do for Starbucks. Without your passion and commitment, we would not be where we are today.
Customers dragged down Starbucks Corp.’s fortunes for two years, buying fewer lattes and making fewer trips to its stores. This and the recession had a negative effect on the Starbuck’s balance sheet.
But they began returning to the world’s largest coffee chain late last year. And that helped the company be optimistic when it announced the increase in sales in shops open at least a year – its first since early 2008 – and a tripling in quarterly profit.
After a three-prong strategy of closing hundreds of locations, laying off thousands of workers and labouring to tweak its menu, the world’s largest coffee company’s revenue edged up too.
In February 2010 Startbucks earned $241.5 million, or 32 cents per share, for the three months that ended in late December 2009. During the same period last year, when the recession was in full force and Starbucks was closing stores and laying off workers to cut its costs, its profit was $64.3 million, or 9 cents per share.
“Despite our strong showing, we have much more work to do,” CEO and Chairman Howard Schultz said on a conference call with investors.
Now Starbucks executives plan to turn their attention to the company’s overseas business, where it plans several changes, including returning to a focus on customer service that was lost when the chain was at the height of its rapid expansion.
“The pace of growth was too much for us to do … and do it at the level of standards we had defined for ourselves,” CFO Troy Alstead told The Associated Press in an interview. “That’s really what broke down.”