Transformation Agenda Communication #3

Earlier this month, we communicated our plan to transform Starbucks for the future, and we said action would come fast. It has, and I am writing today to share with you what has happened so far, and what’s next.

The new senior leadership team and I have met almost every day over the last few weeks, creating the action plan to transform our company that not only resonates with our customers, but with our people. We are dramatically changing the way we manage the company and make decisions. We are laser focused on the customer, which will enable us to transform Starbucks.

The three parts of our transformation agenda are: improve the current state of our U.S. business; reignite the emotional attachment with our customers; and make foundational changes for the long term.

We have now assigned accountabilities to our leadership team and their direct reports. They will own everything about their business and be responsible for specific projects to drive us forward in all three of these areas. We have also validated a number of programs that were already in the pipeline that will support and further our vision for the Starbucks Experience.

Some of the actions we’ve identified will occur in the near future and we have a short timeframe to make them happen. We expect that the initial result of our work will be seen in our U.S. business. Other changes will take place in the coming months.

Currently, we have identified the following action steps:

Slow the pace of U.S. store openings and accelerate internationally
We now plan to open a total of 1,175 net new stores in the U.S. this year, down more than 34 percent from our fiscal 2007 openings. That includes closing approximately 100 underperforming stores. In addition, for 2009 we plan to open less than 1,000 new U.S. stores. This fiscal year, we will also open an additional 75 net new stores in international markets, increasing the international store opening target to approximately 975 stores. In 2009 that will rise to over 1,000 stores internationally, and mark the first time that our International store openings will outpace those in the U.S.

This will allow us to optimize our resources and potentially reduce cannibalization from existing stores.

By the end of fiscal year 2008, discontinue warmed breakfast sandwiches at our North American stores
We made this decision because, in short, the scent of the warmed sandwiches interferes with the coffee aroma in our stores, which is key to the coffee experience that forges our connection with customers. Moreover, while our customers liked our sandwiches, they told us that they missed the aroma of coffee. We will continue offering warmed pastries and selling lunch, but there will be some modifications to the line up, as is our normal practice. The highest priority for our food team is to develop the right offerings to complement our superior coffee and espresso beverages.

Manage our business the right way
We are giving ourselves and the financial community a new way to measure our progress, which we believe is a more thoughtful approach to managing our business for the long term. Going forward, we will not report same store sales comps as they will not be an effective indicator of our performance and we will no longer give annual guidance beginning in 2009 and beyond. I believe that this will help us make better decisions and focus on the customer, while building long-term shareholder value.

Reinvent partner training
In the coming months, you will see a renewed level of commitment to providing superior training for our retail partners. We will invest in tools and provide them with the resources they need to exceed customer expectations.

Reinstate regularly scheduled open forums
As you know, we believe passionately that when we invest in our people, build an emotional connection with each other and fully engage every partner in our strategy and agenda, we see positive results. Therefore, effective immediately, we are reinstating regularly scheduled open forums in the field.

Bring back the Leadership Conference
We believe that this is the most important and strategic event that we can hold for our store managers and above, because this is another way to build understanding of our vision and strategy, as well as connect and help continue career development. We will hold our leadership conference in Fall 2008. Details will be forthcoming, so stay tuned. And I promise you that it will not be cancelled!

These and future actions will reaffirm for customers and the market that, unlike others, we are not a reseller of commodity-based coffee roasted by a third party. We never have been and we never will be. We will utilize our 35-plus years of ethically sourcing, buying and roasting the finest coffee in the world to reaffirm our coffee authority.

We will continue to communicate with you about our progress. We plan to do so, once again, at our Annual Meeting of Shareholders on March 19, when we will lay out five specific, bold “consumer-facing” initiatives that will be a major catalyst for change and transformation. They will extend our coffee leadership; ensure that our stores are the third place for the next decade; encourage a deeper dialogue with our customers; and further strengthen our partners’ and customers’ relationships with one another. And this is just the beginning!

On another note, we have received a lot of attention in the last week about the $1 brewed coffee 8 ounce short test. Testing is a way of life for us as we continue to find ways to enhance the customer experience. Right now, as a test, it makes sense to us. I’d like to reiterate that Starbucks is built on premium coffee and a premium experience. We intend to maintain our leadership position at the high end, while broadening our appeal. And similar to other leading global consumer brands, we believe there are opportunities to create segmentation, provide an entry point for new customers, and generate trial in a way that will also maintain the value of our core brand proposition.

What you can expect in the near term
Over the next several days, you will hear from your manager about the specific role you and your team plays in executing our transformation agenda. We will continue to conduct a thorough and rapid review of every part of our business to ensure we are using our resources as effectively as we can to continually improve the Starbucks Experience.

Most importantly, I ask everyone to please keep your ideas coming and your enthusiasm high. It is the passion and dedication of our partners that are critical elements in bringing to life the creativity and innovation that will drive our ongoing success. Our customers see your commitment, your excitement – and they respond.

Executing our agenda takes each and every one of us. Thank you for your excitement, and your continued focus on helping to build the best Starbucks Experience for our customers and for each other. We know what we need to do to be the best, and we will do it.

Onward,

Howard

Voicemail to Partners

Here’s the voicemail to all Partners announcing my transformational agenda and return as CEO:

Hello partners, this is Howard Schultz. Today, Starbucks is announcing a series of strategic initiatives to increase shareholder value and capitalize on our significant U.S. and international opportunities.

Going forward, we will be refocusing our entire organization on the Starbucks Experience, by going back to our heritage and what made us so successful in the first place; putting the customer back at the center of everything we do.

The execute this transformation, the Starbucks Board of Directors has asked me to return as your chief executive officer, in addition to serving as chairman, effective today. This is not an interim role for me. I’m in it for the long-term and I promise to be decisive and do all I can to lead Starbucks to new heights.

Jim Donald will be leaving the Company and let me just pay special tribute to Jim who has been a passionate and tireless advocate of the company. I’m grateful and I thank him for his significant contributions and I wish him nothing but the best in the future. He’s been a business partner and a dear friend and I’m sorry to see him leave and I think it’s clear to say that his contribution to our Company cannot be overstated.

The success of Starbucks rests on the emotional connection we have with each other and with our customers. It also rests on how we implement our strategy and innovate to stay ahead in a competitive marketplace and tough economic environment.

I think recently we have become victims of our own tremendous success. We are emerging from a period in which we have invested heavily in infrastructure ahead of the growth of the company and, although necessary, it has lead to bureaucracy that has both slowed us down and cost us money. We now shift our emphasis back to consumer facing initiatives, betting aligning our back end costs with our business model.

In refocusing our Company, we are going to play to our strengths – to what has made Starbucks and the Starbucks experience so unique; ethically sourcing and roasting the highest quality coffee in the world, the relentless focus on our customers, the trust we have built with our people, and the smart, entrepreneurial risk-taking, innovation and creativity that are the hallmarks of our company.

To this end, in the coming months you will be seeing internal changes and exciting new developments at Starbucks.

We’ll share the specifics as soon as we can. But in general, I can tell you that our transformational agenda will have three objectives:

- To improve the current state of the U.S. business

- To re-ignite the Starbucks experience through driving improvement and change in all areas that “touch the customer”; and

- To build for the long term; this has two distinct pieces;

- Realign our organization and streamline the management of the organization to support customer focused intitiaves and

- Accelerate our International success story and growth even further

In closing, let me say that we are truly in this together. Every partner plays a critical role. I am asking that each of us focus on carrying out our responsibilities in the best way possible, and help to create welcoming and distinctive places that are truly a “third place” for customers and the communities that we serve.

Let me just say to everyone who is listening, I am sincerely excited and energized by the challenges and the opportunities we have. I am here for the long term. I’m here to help every one of you succeed and to restore the company to the greatness it has been.

But our success is up to you, not only me, but all of you and all of us. We know what we need to do to win and we will do so.

Thanks for all you do and all you have done and for contributing so much to Starbucks and to all those people who work so hard and tirelessly behind the scenes who contribute to so much.

Thank you very much. All the best.

Howard

Leadership Team to have Laser Focus on the Customer Experience

We released the first of many changes. Here’s the official document as “Transformation Agenda Commnication #2:

Howard Schultz, chairman, president and chief executive officer of Starbucks Coffee Company (NASDAQ:SBUX), today announced the Starbucks leadership team who will be directly responsible for executing the Company’s transformation agenda. The changes are designed to focus the organization on providing customers with a superior Starbucks Experience and building on Starbucks legacy of innovation.

Schultz will continue to work with Martin Coles, chief operating officer; Pete Bocian, chief financial officer and chief administrative officer, and Paula Boggs, executive vice president, Law and Corporate Affairs; as well as the following direct reports in new roles and/or positions:

- Terry Davenport will be promoted to senior vice president, marketing, and will lead a new Marketing and Brand Strategy function. Davenport and his team will be responsible for the Company’s overall marketing plan and calendar, product development, consumer insights and innovation for food and beverage and unifying Starbucks brand to the customer;

- Harry Roberts, a former Starbucks executive, is returning to the Company as senior vice president and chief creative officer. In this newly created role, Roberts and his team will be responsible for the customer in-store experience, including creative expression, merchandise strategy and the overall “look and feel” of the Company’s stores;

- Michelle Gass will assume the role of senior vice president, Global Strategy, office of the ceo, and will work to implement all aspects of the transformation plan;

- Chet Kuchinad has been promoted to executive vice president, Partner Resources, and will lead the Company’s development and execution of its innovative human resources strategy;

- An executive will be hired to lead Global Real Estate Design and Architecture and an executive will be identified to head the Public Affairs function, which includes Global Communications and Corporate Social Responsibility.

With the Company’s renewed focus on customer engagement, Chris Bruzzo has been named to the newly created position of vice president, chief technology officer, and will also serve as acting chief information officer. Bruzzo will leverage technology to create innovative ways for Starbucks to connect with our customers and build loyalty programs. In this capacity, Bruzzo will report to Coles.

“As the leader of this talented senior executive team, I accept full responsibility for and am totally committed to the in-store customer experience,” Schultz said. “I will be directly engaged in ensuring a superior experience for our customers. Everything that touches the customer will be a priority. Change will not happen overnight. It will evolve over time, but I ensure you a positive change will occur. I, along with our dedicated partners (employees), will strive to exceed the expectations of our customers every day.”

Transformation Agenda Communication #1

Twenty-five years ago, I walked into Starbucks first store in Seattle’s Pike Place Market, and from that day forward we have taken the road less traveled. Working with an exceptional group of people and summoning all the courage we could muster, we created a new kind of place – one that served the kind of coffee that most people had never tasted, an environment that didn’t look like any other store, and hiring people who were fanatically passionate about coffee and celebrated their interaction with customers. To do this, we focused every ounce of our beings on creativity and innovation.

Over the years, together we have built one of the most recognized and respected brands in the world. When we went public in June 1992, we had 119 stores. We now have more than 15,000 stores and a significant and growing presence in 43 countries, serving 50 million customers a week. These customers have placed their trust in us, and for them and for each other we need to ensure that our future is as exciting as our past.

If we take an honest look at Starbucks today, then we know that we are emerging from a period in which we invested in infrastructure ahead of the growth curve. Although necessary, it led to bureaucracy. We will now shift our emphasis back onto customer-facing initiatives, better aligning our back-end costs with our business model. We are fortunate, though, that the challenge we face is one of our own making. Because of this, we know what needs to be done to ensure our long-term future success around the world.

Transforming the Starbucks Experience

The Board decided that I should lead this transformation. Given this, effective immediately, in addition to my existing role as chairman, I have returned as chief executive officer for the long-term. Jim Donald is leaving the Company. I want to pay tribute to Jim’s leadership. He was a passionate and tireless advocate for Starbucks, and his contribution to our company cannot be overstated.

Looking ahead, the reality we face is both challenging and exciting. It’s challenging because there are no overnight fixes. Rather, our success will come in the rigorous execution of several new strategic initiatives – that capitalize on our heritage to drive our successful future. And our reality is exciting because there is so much opportunity ahead for Starbucks.

Our new transformation agenda includes:
- Improving the current state of the U.S. business: by giving our store partners better training and tools, launching new products – some of which will have an impact as significant as Frappuccino® products and the Starbucks Card – and introducing new concepts in store design, among other enhancements to the Starbucks Experience. At the same time, we will slow the pace of our U.S. store openings and close a number of underperforming locations, so we can renew our attention on store-level unit economics and be laser-focused on flawless execution.

- Re-igniting our emotional attachment with our customers by restoring the connection our customers have with you, our coffee, our brand, and our stores. Unlike many other places that sell coffee, Starbucks built the equity of our brand through the Starbucks Experience. It comes to life every day in the relationship our people have with our customers. By focusing again on the Starbucks Experience, we will create a renewed level of meaningful differentiation and separation in the market between us and others who are attempting to sell coffee.

- Building for the long term, which has two distinct pieces: re-aligning Starbucks organization and streamlining the management of the organization to better support customer-focused initiatives by ensuring our support and planning functions — from back-end IT systems to store operations — are most effectively dedicated to the customer experience. This will help us to make smarter decisions about new products and initiatives and bring them to market more quickly than ever in our past.

- Expanding our presence around the world, by building a profitable business outside the U.S., and capitalizing on the enormous, untapped potential for our brand. We will redeploy a portion of the capital originally earmarked for U.S. store growth to the international business. Though we have 5,000 international stores today, we are just at the beginning.

Taken together, these initiatives will help drive our enduring success. And they will come with changes in our organization…some big and some small. I will be decisive in making them. Right now, I can tell you they will include a realignment of our leadership structure, as well as a series of actions to reduce costs and reallocate resources to customer-focused initiatives.

But even as we execute this transformation, there are certain integral aspects of our company that will not change at all. These include our commitment to treating each other with respect and dignity, providing health care and Bean Stock for all of our eligible full- and part-time partners, and our commitment to our community efforts, our ethical sourcing practices and encouraging our coffee suppliers to participate in our CAFE practices program in our origin countries.

Stay Tuned
I know that you may have a number of questions. Attached is a brief Question and Answer document that answers some of them. And you have my commitment that there will be more information to come over the next few weeks and I will keep you informed. Specifically, I will be meeting with the leadership of the Company in the near future to discuss our transformation agenda, and in the coming weeks we will communicate these details with you, including your role in it.

In the meantime, I want to thank you for your dedication to Starbucks and for your commitment to earning the trust of our customers every day. Our success is up to us. We know what we need to do to win, and we will do it.

Onward,
Howard