OK, this might seem obsessive, but I've been wondering like a lot of people about Starbucks's problems, particularly since I've probably given thousands of dollars to the company. This is a good article about turning things around. The most important thing that Nocero points out is that the food must improve. Really, the stale pastries have got to go. Also, Starbucks needs to makes sure it has more of each item available. I can't say how many times I've ordered a cranberry orange scone (one of the few food items I like at Starbucks) and been told they're out. This week around 10 a.m. I was told they were out of "any A.M. items." What the @#%$? I disagree with Nocera that the egg sandwiches are bad. Really, when I was in Washington/Oregon, they were pretty good, much better than an egg McMuffin, for instance. Where I live now, the sandwiches aren't even offered. So that means I have to go one place for my coffee, and another for food! Overall, the food must improve. Also, I think they need to figure out how to make more interesting drinks that aren't milk-based. I'm starting to really not like milk with my espresso, or at least not to like 16 oz. with it.
The training -- while better than almost every other chain, also must improve. Really, I ordered a pound of espresso roast at espresso grind at one store and was SEVERAL times given like some frickin' Turkish grind. Complete powder that @#%$ up my machine.
The New York Times
January 12, 2008
Talking Business
Curing What Ails Starbucks
By JOE NOCERA
To: Howard Schultz
From: Joe Nocera
Re: Your, er, return
Dear Howard,
Its been almost a year since you wrote that famous memo to your executive staff, the one that caused such an uproar when it found its way onto a Starbucks-obsessed Web site, Starbucksgossip.com, and was quickly picked up by the national media. You know which one Im referring to, dont you? The one in which you bemoaned what you called the watering down of the Starbucks experience. The one where you defended each individual decision that had led to that diminished experience like the switch to automated espresso machines yet still urged your executives to find a way to recapture the romance and theater that was once Starbucks.
Starbucks stores, you wrote, no longer have the soul of the past and reflect a chain of stores vs. the warm feeling of a neighborhood store. As a hard-core Starbucks customer, I couldnt have agreed more.
So whats happened since then? Well, lets see. In 2007, Starbucks expanded by an astonishing 1,700 stores hardly the path a company takes if its serious about recapturing its soul. Youre now up to 15,000 stores, and from what Ive read (alas, I couldnt get you on the telephone this week), you still think you can someday get to 40,000 stores, a number no one has ever come close to. How do you train enough people to staff 40,000 stores? How do you maintain quality? How do you keep your 40,000 stores from becoming just another nondescript chain? You dont.
Meanwhile, despite adding more than four new stores a day, your growth rate slowed, same-store sales started slipping, and your stock was absolutely hammered: in the months after the memo, Starbucks shares dropped more than 40 percent. (The stock closed Friday at $19.79.) Starbucks was destroying value, not creating it, said Howard Penney, an analyst with FBR Capital Markets.
So what did you finally do? Earlier this week, you canned your chief executive, Jim Donald. Then you installed yourself as chief executive, a title you havent held in years, while still holding onto your post as chairman of the board. Like Steven P. Jobs, Michael S. Dell and Charles R. Schwab, youre hoping to be that rarest of birds: the founder who brings his baby back from the brink. As one analyst said on the conference call Starbucks held after the announcement: Welcome back.
Except you never really left, did you? Even after stepping down as chief executive in 2000, you never stopped acting like the guy who was running Starbucks. That door that separated your office from Mr. Donalds how often did you swing through it each day? Five times? Six? You were the one who went on CNBC to promote Starbuckss latest quarter. You were making the big strategic decisions. And you most decidedly were pushing for growth at all costs.
I hear that after Nikes founder Phil Knight fired his newly installed chief executive, William Perez, a few years ago, Mr. Daniel started asking you practically every day whether he was doing a good job. That is hardly the sign of a chief executive confident of his ability to set the strategic direction.
Thus the inevitable question: Are you really the right guy to bring Starbucks back? I have my doubts. On the one hand, your return has a certain undeniable appeal. You are so closely associated with the brand, and so trusted by both the rank and file and the investment community that as Mr. Penney put it, as long as Howard is alive he is the only person to do it. The day after the announcement, the price of Starbucks shares rose over 8 percent the Howard rally, Wall Street was calling it. At Starbucksgossip.com, Starbucks employees weighed in ecstatically. I have faith in Howard, wrote one.
On the other hand, what I kept hearing all week was that youre not a very good manager. Most of the core executives, the ones who bled French Roast, have left, many in frustration. You complained in the conference call that the company spends too much time on process and focusing on the internal. Good managers know how to keep bureaucracy from congealing. People who have been in meetings with Starbucks executives in recent years say that there is often a sense of confusion over what the company is trying to do.
Still, lots of fast-growing companies hit the wall eventually. In recent years, for instance, McDonalds and Coca-Cola have both been where you are now. In time, both turned things around. Thats the task you have now. So where do you start?
Our entire organization will be focused, laser-like, on the customer, you said in that conference call. Thats a good start. Your insane growth has caused you to hire lots of people for your stores who dont know what they are doing. You need to do a better job of training. You need to drastically improve the food. (Can you please get rid of those awful egg sandwiches, which, in addition to being inedible, have the perverse side effect of overwhelming the rich smell of coffee that once permeated a Starbucks shop?) The stores need to be clean and bright again. Even the coffee could use a little improving.
Heres a shocking fact: when I called Jim Romenesko, who runs the Starbucksgossip Web site, he wasnt in a Starbucks. Heres a guy who started the Web site because he was spending most of his waking hours in one of your stores. Now, he told me, he drinks about half his coffee in non-Starbucks shops. So do lots of other former Starbucks die-hards.
But revitalizing the Starbucks experience is not going to be enough. Not even close. You also have to accept certain realities that right now still seem beyond your grasp. You talked, for instance, about slowing the growth rate in the United States, and even closing some stores. Thats good so far as it goes. But if you are just cutting back by a couple of hundred stores, that wont cut it. The basic model of opening stores and fueling expansion should stop in the U.S., said Marc Greenberg, an analyst at Deutsche Bank.
What was particularly discouraging was hearing you tell investors to look to the international markets, where Starbucks has only 5,000 stores, for accelerated growth. That suggests to me that you still dont get it. You cant fix a car going 60 miles an hour. If you are going to fix what ails Starbucks you have to forget about growth. And you have to stop thinking of your company as a sexy growth company. Those days are over.
Then theres the competition. Perhaps it was a coincidence that Mr. Donald got the ax the day The Wall Street Journal ran a big story about how McDonalds plans to install espresso machines and offer lattes. Indeed, it was striking how little you spoke of the new competition that has sprung up, not just from McDonalds and Dunkin Donuts, but from lots of small cafes that now brew espresso that is as good if not better than yours. Your essential point is that if Starbucks takes care of its own business, everything else will fall into place.
But it wont. The old days, when you were the only game in town, are gone, and the new competition is here to stay. You did a wonderful thing, teaching Americans the difference between good coffee and bad. But now that they know the difference, everyone is making better coffee. You dont own that experience anymore.
Thus, one of your greatest challenges is coming to terms with the new competition. That is a very hard thing to do. At Coca-Cola, top executives used to boast about how their main competition was water. Meanwhile the world was changing around it, and Pepsi was becoming a tougher rival. But Coke was too filled with hubris to notice. Even after it hit the wall, Coke spent years floundering because it simply could not accept that Coke wasnt it anymore. I fear the same is going to happen at Starbucks.
Howard, it is completely understandable that you would feel nostalgic for the Starbucks that was a company that offered both a great cup of coffee and a highflying stock. But this is the problem with founders trying to turn around their own ships it is so hard to let go of what was. Jeffrey A. Sonnenfeld at the Yale School of Management reminded me recently of the example of Kenneth Olsen, the founder of Digital Equipment. He built his company on midsize computers, and long after it was clear to the rest of the world that computing was shifting to desktops, he clung to the notion that if only Digital could make even better midsize machines, it could regain the magic. Instead, it wound up being bought by Compaq, a desktop company.
Why is this business model presumed innocent? asked Mr. Greenberg. His point was that for Starbucks to succeed, it will have to begin doing things differently. It is never again going to be a third place, as you used to call it, where people could linger and relax. Its too big and needs too much traffic to increase sales. It may well have to start competing on price. It is going to have to find a way to lure back the customers who will gravitate to McDonalds.
And it is going to have to find a different strategy to get the stock moving again. McDonalds used to be a growth stock, too. But after its wrenching turnaround, its not anymore. Its stock goes up because shareholders expect something different from it: stable, steady earnings. In the best-case scenario, that is where Starbucks is headed.
Starbucks can come back financially, said Sarah Gilbert, who has written about the company at BloggingStocks.com. But its never going to be cool again. For you, that has to be the most painful reality of all. But only when you accept it will the Starbucks turnaround begin in earnest.
The training -- while better than almost every other chain, also must improve. Really, I ordered a pound of espresso roast at espresso grind at one store and was SEVERAL times given like some frickin' Turkish grind. Complete powder that @#%$ up my machine.
The New York Times
January 12, 2008
Talking Business
Curing What Ails Starbucks
By JOE NOCERA
To: Howard Schultz
From: Joe Nocera
Re: Your, er, return
Dear Howard,
Its been almost a year since you wrote that famous memo to your executive staff, the one that caused such an uproar when it found its way onto a Starbucks-obsessed Web site, Starbucksgossip.com, and was quickly picked up by the national media. You know which one Im referring to, dont you? The one in which you bemoaned what you called the watering down of the Starbucks experience. The one where you defended each individual decision that had led to that diminished experience like the switch to automated espresso machines yet still urged your executives to find a way to recapture the romance and theater that was once Starbucks.
Starbucks stores, you wrote, no longer have the soul of the past and reflect a chain of stores vs. the warm feeling of a neighborhood store. As a hard-core Starbucks customer, I couldnt have agreed more.
So whats happened since then? Well, lets see. In 2007, Starbucks expanded by an astonishing 1,700 stores hardly the path a company takes if its serious about recapturing its soul. Youre now up to 15,000 stores, and from what Ive read (alas, I couldnt get you on the telephone this week), you still think you can someday get to 40,000 stores, a number no one has ever come close to. How do you train enough people to staff 40,000 stores? How do you maintain quality? How do you keep your 40,000 stores from becoming just another nondescript chain? You dont.
Meanwhile, despite adding more than four new stores a day, your growth rate slowed, same-store sales started slipping, and your stock was absolutely hammered: in the months after the memo, Starbucks shares dropped more than 40 percent. (The stock closed Friday at $19.79.) Starbucks was destroying value, not creating it, said Howard Penney, an analyst with FBR Capital Markets.
So what did you finally do? Earlier this week, you canned your chief executive, Jim Donald. Then you installed yourself as chief executive, a title you havent held in years, while still holding onto your post as chairman of the board. Like Steven P. Jobs, Michael S. Dell and Charles R. Schwab, youre hoping to be that rarest of birds: the founder who brings his baby back from the brink. As one analyst said on the conference call Starbucks held after the announcement: Welcome back.
Except you never really left, did you? Even after stepping down as chief executive in 2000, you never stopped acting like the guy who was running Starbucks. That door that separated your office from Mr. Donalds how often did you swing through it each day? Five times? Six? You were the one who went on CNBC to promote Starbuckss latest quarter. You were making the big strategic decisions. And you most decidedly were pushing for growth at all costs.
I hear that after Nikes founder Phil Knight fired his newly installed chief executive, William Perez, a few years ago, Mr. Daniel started asking you practically every day whether he was doing a good job. That is hardly the sign of a chief executive confident of his ability to set the strategic direction.
Thus the inevitable question: Are you really the right guy to bring Starbucks back? I have my doubts. On the one hand, your return has a certain undeniable appeal. You are so closely associated with the brand, and so trusted by both the rank and file and the investment community that as Mr. Penney put it, as long as Howard is alive he is the only person to do it. The day after the announcement, the price of Starbucks shares rose over 8 percent the Howard rally, Wall Street was calling it. At Starbucksgossip.com, Starbucks employees weighed in ecstatically. I have faith in Howard, wrote one.
On the other hand, what I kept hearing all week was that youre not a very good manager. Most of the core executives, the ones who bled French Roast, have left, many in frustration. You complained in the conference call that the company spends too much time on process and focusing on the internal. Good managers know how to keep bureaucracy from congealing. People who have been in meetings with Starbucks executives in recent years say that there is often a sense of confusion over what the company is trying to do.
Still, lots of fast-growing companies hit the wall eventually. In recent years, for instance, McDonalds and Coca-Cola have both been where you are now. In time, both turned things around. Thats the task you have now. So where do you start?
Our entire organization will be focused, laser-like, on the customer, you said in that conference call. Thats a good start. Your insane growth has caused you to hire lots of people for your stores who dont know what they are doing. You need to do a better job of training. You need to drastically improve the food. (Can you please get rid of those awful egg sandwiches, which, in addition to being inedible, have the perverse side effect of overwhelming the rich smell of coffee that once permeated a Starbucks shop?) The stores need to be clean and bright again. Even the coffee could use a little improving.
Heres a shocking fact: when I called Jim Romenesko, who runs the Starbucksgossip Web site, he wasnt in a Starbucks. Heres a guy who started the Web site because he was spending most of his waking hours in one of your stores. Now, he told me, he drinks about half his coffee in non-Starbucks shops. So do lots of other former Starbucks die-hards.
But revitalizing the Starbucks experience is not going to be enough. Not even close. You also have to accept certain realities that right now still seem beyond your grasp. You talked, for instance, about slowing the growth rate in the United States, and even closing some stores. Thats good so far as it goes. But if you are just cutting back by a couple of hundred stores, that wont cut it. The basic model of opening stores and fueling expansion should stop in the U.S., said Marc Greenberg, an analyst at Deutsche Bank.
What was particularly discouraging was hearing you tell investors to look to the international markets, where Starbucks has only 5,000 stores, for accelerated growth. That suggests to me that you still dont get it. You cant fix a car going 60 miles an hour. If you are going to fix what ails Starbucks you have to forget about growth. And you have to stop thinking of your company as a sexy growth company. Those days are over.
Then theres the competition. Perhaps it was a coincidence that Mr. Donald got the ax the day The Wall Street Journal ran a big story about how McDonalds plans to install espresso machines and offer lattes. Indeed, it was striking how little you spoke of the new competition that has sprung up, not just from McDonalds and Dunkin Donuts, but from lots of small cafes that now brew espresso that is as good if not better than yours. Your essential point is that if Starbucks takes care of its own business, everything else will fall into place.
But it wont. The old days, when you were the only game in town, are gone, and the new competition is here to stay. You did a wonderful thing, teaching Americans the difference between good coffee and bad. But now that they know the difference, everyone is making better coffee. You dont own that experience anymore.
Thus, one of your greatest challenges is coming to terms with the new competition. That is a very hard thing to do. At Coca-Cola, top executives used to boast about how their main competition was water. Meanwhile the world was changing around it, and Pepsi was becoming a tougher rival. But Coke was too filled with hubris to notice. Even after it hit the wall, Coke spent years floundering because it simply could not accept that Coke wasnt it anymore. I fear the same is going to happen at Starbucks.
Howard, it is completely understandable that you would feel nostalgic for the Starbucks that was a company that offered both a great cup of coffee and a highflying stock. But this is the problem with founders trying to turn around their own ships it is so hard to let go of what was. Jeffrey A. Sonnenfeld at the Yale School of Management reminded me recently of the example of Kenneth Olsen, the founder of Digital Equipment. He built his company on midsize computers, and long after it was clear to the rest of the world that computing was shifting to desktops, he clung to the notion that if only Digital could make even better midsize machines, it could regain the magic. Instead, it wound up being bought by Compaq, a desktop company.
Why is this business model presumed innocent? asked Mr. Greenberg. His point was that for Starbucks to succeed, it will have to begin doing things differently. It is never again going to be a third place, as you used to call it, where people could linger and relax. Its too big and needs too much traffic to increase sales. It may well have to start competing on price. It is going to have to find a way to lure back the customers who will gravitate to McDonalds.
And it is going to have to find a different strategy to get the stock moving again. McDonalds used to be a growth stock, too. But after its wrenching turnaround, its not anymore. Its stock goes up because shareholders expect something different from it: stable, steady earnings. In the best-case scenario, that is where Starbucks is headed.
Starbucks can come back financially, said Sarah Gilbert, who has written about the company at BloggingStocks.com. But its never going to be cool again. For you, that has to be the most painful reality of all. But only when you accept it will the Starbucks turnaround begin in earnest.
