05 March 2007

Is Starbucks on the nose?

According to a weekend report in the Washington Post, Starbucks Chairman Howard Schultz believes his stores have lost their soul. Or is he really talking about their brand essence? (see our blog 20 October 2005 The defining essence. Getting a handle on Oroton)

Quoting a leaked internal memo to his CEO and other executives, the Post reported that Schultz believes his 13,000 stores worldwide stores no longer even smell like coffee because of "flavor locked packaging".

But now the chairman of the world's leading coffee retailer seems to be onto something that should have occurred to him long ago, describing how "some people even call our stores sterile, cookie cutter." In the 14 February memo entitled "The Commoditization of the Starbucks experience", Schultz laments the the loss of "the romance and theatre" of the traditional Italian espresso machines, which have been replaced by automatic machines (in this Starbucks are not alone). Schultz wrote that the new efficient machines now commonly used in the stores block customers from watching as coffee is made and sharing what he called an "intimate experience with the barista." He obviously hasn't really visited a store recently if he thinks his staff can really be described as "baristas", when anyone who has worked their knows that a real barista does not simply press a button.

But to give Schultz his due, he is very aware of the threat from competitors who have created a more authentic coffee experience (anyone who's every bought the freshly grounf from Toby's Coffee in Sydney's Wooloomooloo would know this). Though likening them to pests who need to be "eradicated" seems to a touch colourful. More importantly, Schultz doesn't really suggest any alternatives given the scale and scope of the problme.

Here at DIFFUSION, we think it might be a good idea if the Starbucks's chairman think more carefully about how the stores could better reflect their local communities, how they might build a genuine rather than simply a differentiated brand experience and not rely solely on technologies and store layouts to maximise ROI. After all they have had to have been doing something right building the brand for the past 20 years, they must have learnt something.

A full transcript of the memo can be found at Starbucks Gossip http://starbucksgossip.typepad.com/_/2007/02/starbucks_chair_2.html
It reads:

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.