The Schultz memo floating around

the business of coffee houses

The Schultz memo floating around

Postby James Hoffmann on Fri Feb 23, 2007 12:48 pm

Anyone else seen this? If not some may find it an interesting read...

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


Taken from Starbucks Gossip blog
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Postby Kyle Larson on Fri Feb 23, 2007 1:09 pm

commander: he asks the impossible. i need more men.
darth vader: perhaps you can tell him when he arrives.
commander: the emperor is coming here?
darth vader: that is correct, commander. and he is most displeased with your apparent lack of progress.
commander: we shall double our efforts.
darth vader: i hope so, for your sake, commander. the emperor is not as forgiving as i am.
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Postby Jason Haeger on Fri Feb 23, 2007 2:15 pm

...So I guess this means the independent effort has been noticed.

I'm not sure what else to take from that.
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Postby xristrettox on Fri Feb 23, 2007 2:48 pm

i don't think that is from howie
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Postby James Hoffmann on Fri Feb 23, 2007 2:57 pm

There was some scepticism (including my own) but I found several sources claiming its authenticity before posting it up.
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Postby Mark Prince on Fri Feb 23, 2007 4:16 pm

It's floating around news.google.com too.

Reuters confirmed the authenticity. Maybe La Marzocco should start "courting" Starbucks again... there still could be good room there for both the newest-wave of machines and the Swift. Or who knows - dare I say Synesso? With that kind of capital infusion, maybe Mark can get serious about a 1 group, 110v machine again :)

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Postby Kyle Larson on Fri Feb 23, 2007 4:33 pm

well, you can't fault a guy for wanting to improve the quality of his coffee.

i wonder what the catalyst to this memo was. or the final straw, i should say.

should be interesting to see what happens a couple years down the road. a nice shout out to la marzocco, though.
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Postby Andy Schecter on Fri Feb 23, 2007 5:00 pm

Kyle Larson wrote:well, you can't fault a guy for wanting to improve the quality of his coffee.


But he didn't say he WANTED to improve the quality of his coffee.

He said that the superautos removed the romance, theatre and intimate relationship with the barista. He said that the stores lacked soul and didn't have a neighborhood feel. He said it was hard for a casual customer to even know that Starbucks roasted their own coffee.

He DIDN'T say that there was anything wrong with their coffee quality. It was all about marketing the brand. You'd have to conclude that he likes their coffee, he just feels they've strayed from their original marketing focus.

:shock:
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Postby bz on Fri Feb 23, 2007 7:05 pm

But he didn't say he WANTED to improve the quality of his coffee.

He said that the superautos removed the romance, theatre and intimate relationship with the barista. He said that the stores lacked soul and didn't have a neighborhood feel. He said it was hard for a casual customer to even know that Starbucks roasted their own coffee.

He DIDN'T say that there was anything wrong with their coffee quality. It was all about marketing the brand. You'd have to conclude that he likes their coffee, he just feels they've strayed from their original marketing focus.


precisely. nuthin' about taste. nuthin' about the quality of drinks. nuthin' really even about coffee.

just a stunning acknowledgement, really, that whereas they used to be a cozy, evocative place to enjoy crappy coffee, now they're a cold, crappy place to enjoy crappy coffee.
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Postby Jimmy Oneschuk on Fri Feb 23, 2007 9:26 pm

I find it odd that kind of message would go out in an email.

Dontcha think he'd state this in a meeting? Or at least, after stating this, perhaps suggest a course of action?

Or perhaps that's not his role with the company anymore?
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Postby Rich Westerfield on Sat Feb 24, 2007 5:49 am

Didn't SBUX announce just yesterday that they're launching the vending machine business the announced last October that will put their coffees in places they can't fit a cafe? I saw that coverage on two morning programs, so I have to think thats not a hoax.

I don't see that directive and this email coming from the same leadership.
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Postby Klaus on Sat Feb 24, 2007 6:04 am

Interesting read James.
Of course you can't help thinking if Starbucks slipped it out on purpose...
Strikes me as well that the memo mentions nothing about the craftsmanship of the 'partners' involved or the quality of the coffee itself. However, I do think it's a very clear observation on some of the aspects where independent coffee shops has been successful in competing with Starbucks. Now I'm just wondering if we're gonna see Starbucks pack without one-way valves, losing all the last freshness just to get some smell into the stores, and un-trained baristas trying to pull shots from a manual machine. Kind of a lose-lose situation for the big green, the way I see it.

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Postby Jim Schulman on Sat Feb 24, 2007 7:50 am

Purported memo wrote: ... make sure we had the ROI on sales to investment ratios that would satisfy the financial side of our business.


This makes no sense. All the "clearlies" and "versuses" are also odd for someone who fancies himself a writer. Finally, it's "commodification," not "commoditization."
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Postby barry on Sat Feb 24, 2007 10:48 am

...do the things necessary to once again differentiate Starbucks from all others



i would think having a bazillion stores worldwide would be sufficient differentiation. ;)
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Postby Marshall on Sat Feb 24, 2007 12:06 pm

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.


Doesn't this mean "no more Mr. Nice Guy?" It will be interesting to see what Starbucks-with-the-gloves-off is like.

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Postby Peter Van de Reep on Sat Feb 24, 2007 3:21 pm

jim_schulman wrote:
Purported memo wrote: ... make sure we had the ROI on sales to investment ratios that would satisfy the financial side of our business.


This makes no sense. All the "clearlies" and "versuses" are also odd for someone who fancies himself a writer. Finally, it's "commodification," not "commoditization."


Commoditization is in my dictionary. It's considered an acceptable alternative to commodification. But I agree with you Jim, it does seem a bit odd for this to be Schultz.

Also... is this really a big deal? I'm pretty sure the whole coffee side of the business is downplayed and it's a response to the experience in their stores.
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Postby Robert Csar on Sat Feb 24, 2007 4:27 pm

The memo, according to the media - is real.
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Postby nick on Sat Feb 24, 2007 4:34 pm

Back in the day, I had a job doing web-design for a small consulting company. I don't remember exactly what they did, but it was fairly specialized.

I was meeting with their COO, and I asked, "So who's your main competition?" He answered, "I believe it to be Microsoft.""

I was surprised, because what this company did, Microsoft didn't.

"I don't understand."

He replied, "Because if Microsoft ever did decide to enter into this particular area of expertise, we'd be finished."

Now while I don't think it'd be a slam dunk (for a number of reasons), and though I don't think it'd mean that the indie 3W shops out there would be "finished," I do think that Starbucks has the potential to make another significant impact in specialty coffee. In a way, the current "ripples" from Starbucks' accomplishments are waning, but they do have the resources to make another big impact.
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Postby Rich Westerfield on Sat Feb 24, 2007 5:56 pm

nick wrote:Now while I don't think it'd be a slam dunk (for a number of reasons), and though I don't think it'd mean that the indie 3W shops out there would be "finished," I do think that Starbucks has the potential to make another significant impact in specialty coffee. In a way, the current "ripples" from Starbucks' accomplishments are waning, but they do have the resources to make another big impact.


Wasn't it you who said not that long ago that their logical next move would be "Black Apron cafes" or something to that effect - launch of a more upscale brand, presumably with better coffees & bar skills.

I'm not sure how they accomplish that, but I think it would take the repurchase of a whole lot of stock to enable that to happen.

Once you're publicly traded and of a certain size, it's tough to retrench.

Then again, USAirways wants to buy Delta for a couple billion. Who'd have thought that possible three years ago?
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Postby aaronblanco on Sat Feb 24, 2007 6:39 pm

jimmyo wrote:I find it odd that kind of message would go out in an email.

Dontcha think he'd state this in a meeting? Or at least, after stating this, perhaps suggest a course of action?

Or perhaps that's not his role with the company anymore?


exactly not. he's no longer in many/any of those executive meetings anymore and hasn't been for maybe four or five years. he's chief global strategist, meaning he probably wrote that email from mumbai or moscow or, maybe more likely, from home on mercer island.

the director of coffeeness is not doing his job up at the support center...
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Postby Jim Schulman on Sat Feb 24, 2007 8:55 pm

aaronblanco wrote:
jimmyo wrote:I find it odd that kind of message would go out in an email.

Dontcha think he'd state this in a meeting? Or at least, after stating this, perhaps suggest a course of action?

Or perhaps that's not his role with the company anymore?


exactly not. he's no longer in many/any of those executive meetings anymore and hasn't been for maybe four or five years. he's chief global strategist, meaning he probably wrote that email from mumbai or moscow or, maybe more likely, from home on mercer island.

the director of coffeeness is not doing his job up at the support center...


I didn't know he'd been kicked upstairs.

That opens up an interesting possibility: Howard Schultz, after failing to convince the current leadership, breaking away to found a more genuine Starbucks.
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Postby Jimmy Oneschuk on Sun Feb 25, 2007 2:14 pm

Heh. I was actually really surprised when they bought Torrefaz then proceeded to phase out its retail operations. Just as they were rolling out the superautos at starbies, I thought they might make Torrefaz their "Acura" brand, w/ traditional machines, etc.

Nick is right, they *could* still have a positive impact on the market. To me a premium brand wouldn't be a bad thing for the rest of us, especially if this included premium pricing for a premium brand, higher than starbucks drinks. Theoretically, this might raise the price ceiling in the market.

Certainly, their growth model has proved to be unsustainable - and I don't think they could ever go back to Marzoccos. Reintroducing quality in a company of that size is akin to supertanker doing a u-turn.

.02
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Postby Brent on Sun Feb 25, 2007 7:34 pm

jimmyo wrote:... I don't think they could ever go back to Marzoccos. Reintroducing quality in a company of that size is akin to supertanker doing a u-turn.

.02


cynic.

never say never - it could all be done one store at a time, just like they grew in the first place.

i will agree that your cynicism is well founded though :)
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Postby phaelon56 on Mon Feb 26, 2007 8:34 am

Reuters verification or not - to me that memo doesn't ring true as something that any CEO of a company such as Starbucks would issue.

As for La Marzocco "courting" Starbucks? It's my understanding from a reliable source that after the switch to superauto's there was still a relationship between Starbucks and ESI. I was told that the 'bucks was still buying and installing traditional espresso machines and grinders in certain foreign markets where the push-button fast-coffee experience would not be conducive to building brand and establishing cachet for it in that country (or countries).

And even if they do make some changes here and there... there are thousands of new Starbucks stores that simply can't be changed back and won't be.
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Postby Ryan Mason on Mon Feb 26, 2007 8:56 am

Kyle Larson wrote:...i wonder what the catalyst to this memo was. or the final straw, i should say....




That was my first thought. There have been a few emails leaks from our boy the past few months that have people raising an eyebrow. I'm sure we've all read them. That's why I didn't doubt that this email wasn't real from the leaks I read, it seems as things are becoming a little uncomfortable for him and he has become very reflective at the same time. I mean, of course there will be a lot lost in an 'experience' when you grow that rapidly. But it gives hats-off to the people to remain true to our product.
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