Schultz recognizes Starbucks' mistakes

Posted Feb 26th 2007 11:55AM by Kevin Kelly
Filed under: Management, Consumer Experience, Competitive Strategy, Starbucks (SBUX)

As previously covered on BloggingStocks by Georges Yared here, Starbucks chairman and founder Howard Schultz recently wrote an internal email to company executives regarding several issues. The most important issue is whether the Starbucks experience (think high quality, comfortable stores, fresh coffee) is declining and becoming commoditized as Starbucks continues to grow as a company. (You can read Schultz's memo in entirety here.)

Schultz covered many points related to how the company's brand and image has been hurt by decisions which "were probably right at the time." However, many of these decisions, in sum, have a much more damaging effect than any of these decisions alone.

In the memo the chairman got specific and discussed the implementation of the automatic espresso machine. Although these machines "solved a major problem in terms of speed of service and efficiency," the management did not realize these machines would eliminate the "romance and theater" of the previously used machines.

Another specific example Schultz provided was the addition of the "flavor lock" bag. This bag certainly has many benefits, mainly its ability to preserve the freshness of coffees that are shipped to nearly every city domestically and many cities internationally. However, this decision didn't address the long term ramifications for the brand and it has come back to hurt the overall image of Starbucks because, according to Schultz, the cost of this change was "the loss of aroma . . . the loss of our people scooping fresh coffee from the bins and grinding it fresh in front of the customer."

In addition, Schultz seems to regret the way in which store designs have evolved over the last several years. While he acknowledges Starbucks has "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," he believes the company might have sold out to the analysts and investors because Starbucks stores no longer bear the "the warm feeling of a neighborhood store."

Realizing these mistakes, Schultz believes 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."

Clearly Schultz has several regrets in the way in which he and the rest of management has led Starbucks over the last several years and he takes full blame for the decisions of the company ("I take full responsibility myself . . .")

What do you think? Has the Starbucks brand been diminished with the decisions made solely on the practicality of a new concept? Comment!

Tags: Howard Schultz, HowardSchultz, SBUX

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Reader Comments (Page 1 of 1)

2-26-2007 @ 3:43PM

Andrija Ifkovic said...

As a Starbucks customer for over 10 years, I can say that his comments are spot-on. In fact my friends know that, since I had same complaints about changes at Starbucks in the last few years. The change in taste is pretty considerable and as it stands, Starbucks is just another coffee franchise with unremarkable coffee to offer (though at least it's still consistent). I hope they go ahead and change at least some things back to old times, specifically espresso machines. Right now it's only the brand name that carries them.

2-28-2007 @ 11:51AM

EVELYN MEYER said...

All the Starbuck's Stores I go to always have a long line, which, I believe, due to the changes that Mr. Schultz feels are hurting the company's image and "soul", is not unbearable because the line moves quickly. I wonder how long the wait will be if the store returns to original ways. The only relief I see in wait time, if the original methods were reintroduced, would be to make the store work area larger so more personnel would be available to serve the customer. The stores are quite compact, which, I believe does not leave room for this kind of change. I look forward to the future both as a customer and stock holder.

2-27-2007 @ 5:18PM

Felicia Falk said...

Hi, I agree with this completely! I worked for the company from May 1995- October 1998 and I LOVED it back then!!!! I can see that things have finally caught up with the "growth." I always had my suspicions that growing so fast would ruin the quality. When my co-workers and myself learned that they would be flavor locking all the beans for purchase, I knew it was the beginning of the decline. I will always have passion for this company and I will always drink the coffee, but it was Howard himself that wanted to create the 3rd place experience and these days it seems like people just run in and run out and don't enjoy the place, just the product. I look forward to the changes! Felicia Falk

3-02-2007 @ 9:53PM

Paul DePace said...

You can't have your cake and eat it too... Starbucks HAD to make the changes they made in order to handle customers. How soon we forget that you used to stand there and stand there, especially in the mornings... My suggestion is to look for suble ways to give the stores more ambiance. And also to embark on a major remodelling program in stores that have lost their edge due to years of wear and tear due to customer traffic. No need to apologize Howard. You are one of America's premier entrepreneurs. And congratulations on even bringing up the subject... Most guys in your shoes would be foating on a boat somewhere. Keep building domestic stores at the current rate, and focus on in-store execution Pay your managers even more than they currently receive, because the stock option benefit is going to slow down as your company matures. The managers make the stores go...