The Starbucks memo.

On 24th February this year, the international press had a field day with the discovery that Howard Schultz, top man at Starbucks and the man who masterminded the entire growth from the company's days as a tiny business in Seattle, had written a memo to his senior officers apparently questioning his own decisions. 

Amazingly, not one of the international business press who were happy to take the mick out of Howard Schultz, writers who perhaps should know better, bothered to mention that it is a very good thing for a chief executive to step back and question the way he does things - many business consultants would applaud the ability to do that, and would charge a fortune in consultancy fees for telling top management to do so.  (And for what it's worth, we agree).

Here we offer an edited composite of what appeared in the international press, followed by what is reported to be the text of the original memo.

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The Wall Street Journal has reported an astonishing internal memo from Starbucks’ chairman to his staff, in which he says that the chain is in danger of ‘commoditization’.    

Howard Schultz told staff that they had created "stores that no longer have the soul of the past.... some people even call our stores sterile.”    The bizarre aspect of this, of course, is that Mr Schultz was the driving force behind the whole Starbucks growth – when he joined the company, his far-sighted vision scared the daylights out of the original founders!   The Wall St Journal now says – “But now Mr. Schultz is questioning whether Starbucks' drive for growth and efficiency has diluted the experience. His 800-word memo questioned whether Starbucks' automatic espresso machines, new store designs and elimination of some in-store coffee grinding may have compromised the ‘romance and theatre’ of a visit’.”

The American press says:

Starbucks Corp. built its broad appeal on what Chairman Howard Schultz labelled an 'experience,' including baristas who know customers' orders by heart and an atmosphere that entices patrons to linger for hours. That experience has enabled the coffee chain to charge the premium prices that fuel its robust earnings growth.

But now Mr. Schultz is questioning whether Starbucks' drive for growth and efficiency has diluted that experience. In a blunt Feb. 14 memo, he warned executives that the chain may be commoditizing its brand and making itself more vulnerable to competition from other coffee shops and fast-food chains. The nearly 800-word memo questioned whether Starbucks' move to automatic espresso machines, new store designs and elimination of some in-store coffee grinding may have compromised the 'romance and theatre' of the business.

The criticisms pinpoint Starbucks' biggest challenge. Mr. Schultz, the company's resident visionary, wants Starbucks to become one of the world's most recognized brands, with 40,000 locations around the globe, or more than triple its current count of about 13,000. But to do that, Starbucks must improve its efficiencies and make other changes that threaten to erode the virtues that made it so successful -- which in turn could jeopardize its ability to charge premium prices.

"Over the past ten years, in order to achieve the growth  to 13,000 stores and beyond, we have had to make a series of decisions that, in retrospect, have lead [sic] to the watering down of the Starbucks experience, and, what some might call the commoditization of our brand," Mr. Schultz wrote in the memo.

Starbucks spokeswoman Valerie O'Neil confirmed that Mr. Schultz wrote the memo. She said it reflects his "passion" and is "a reminder of how success is not an entitlement." She said the company hadn't yet implemented any changes as a result of Mr. Schultz's memo.

Mr. Schultz declined to comment to the American press. or this article. He sent the memo to his senior staff in an e-mail, and it then appeared on the website starbucksgossip.com.

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Text of Starbucks Memo
February 24, 2007 1:28 p.m.

From: Howard Schultz
Sent: Wednesday, February 14, 2007 10:39 AM Pacific Standard Time
To: various managers whose names we have deleted

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…