Where Has Starbucks Steam Gone?

I make no secret of my business philosophy: People always come first and we sell experiences, not products and services. My philosophy is decades old but was sharpened during my tenure at Starbucks. Now I look back at my Starbucks experience and ask: Has the steam gone out of Starbucks?

Chairman and Starbucks guru and passion master Howard Schultz implies all is not well in Latte Land, as reported in Starbucks Gossip on Feb. 23, 2007. In an e-mail he says, "we desperately need to look into the mirror and realize 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." (See the entire e-mail below.)

Starbucks grew its brand by sourcing the best coffee beans in the world but by selling the Third Place Experience. Not home, not the office, but a place to relax and get away in the old coffee house tradition. But Starbucks has made some sacrifices in exchange for rapid growth:

1. More than a decade ago, it went to modular designs, allowing stores to be set up overnight and celebrate their grand openings in the mornings.
2. Starbucks installed automatic espresso machines to reduce line times.
3. Its packaging changed from fresh beans scooped from bins into bags to pre-packaged flavor-locked bags, again speeding up service and allowing self-serve for customers.

What has this done to the customer experience?

1. Modular designs mean a lackluster sameness to the stores. Character and local charm have gone missing
2. Baristas are automatons, meaning they no longer need to pull shots or to understand that the perfect shot is pulled between 18 and 23 seconds, and that the shot can never be allow to stand. And that their is a right way and a wrong way to steam. Not only are the sights and sounds gone, but so is the show.
3. The aroma of beans and pulled shots is gone. Starbucks no longer possesses its wonderful coffee smell.

Howard wants the experience back. But will a decade of changing the experience meet the new customers' needs of speed? And will the customers who left return? The brand has changed: Can it return to where it was in the mid-'90s.

Here is Howard's e-mail:

From: Howard Schultz
Sent: Wednesday, February 14, 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 of my 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 espresso 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 flavor locked packaging. Again, the right decision at the right time, and once again I believe we overlooked the cause and the affect of flavor lock in our stores. We achieved fresh roasted bagged coffee, but at what cost? 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 neighborhood 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 some 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 realize 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.

"Onward…"

Check out Seth's Blog for another CEO feeling similarly.