Building Something to Admire

Each year Interbrand conducts a brand valuation and love study and each year Starbucks ranks among the most beloved. As proud as that makes us, what’s telling are the categories in which we rate highest and the company we keep.

• Which brands inspire you most: Apple, Nike Coca-Cola, Google and Starbucks
• What brand can you not live without? Apple, None (tough category), Coca-Cola, Google and Starbucks

What these brands have in common are an outstanding experience, innovation, passion and a team of people behind the brands that show up every day to make the brand worth admiring.

Onward

Announcing Pike Place Roast

Next week we will experience one of the most significant moments in the history of our company. After much anticipation, we will introduce our new coffee, Pike Place Roast, which we will serve everyday in our U.S. company-operated stores. In my opinion and that of several others who have tasted this incredible coffee, Pike Place Roast is truly one of the best coffees we have offered our customers in our 37-year history and it will reinvent brewed coffee. It is so good that when we discussed names, it felt only right that it should be named after our home in Pike Place Market. We would never have considered naming the coffee after Pike Place unless it achieved all of our expectations in the cup…and it did that and more. And the original logo acknowledges our pride in our past and embraces our heritage as the world’s leading purveyor of specialty coffee.

As you know through various internal conversations about Pike Place Roast, it is a unique blend of the highest quality, sustainably grown beans. It is our first coffee to carry the new mark that symbolizes Starbucks renewed commitment, with Conservational International (CI), to support farmers, workers and their communities and help ensure that our coffee is responsibly grown and ethically traded. Pike Place Roast features Starbucks signature bold flavor with a smoother finish and showcases our 37 years of coffee roasting experience, knowledge and passion. Starbucks master coffee blenders and roasters have “done us proud.” And I would like to thank the following coffee and roasting technology partners for their dedication to creating a superb blend, with a flavor profile that reflects input from customers and baristas: Andrew Linnemann, Anthony Carroll, Geory Kurtzhals, Leslie Wolford, Dave Wickberg, Brad Anderson and Brian Hayes. In addition, I would like to recognize Katie Simons, Mindy Sagez and the other members of the Beverage team, who also helped to launch Pike Place Roast.

That said, please know that words can’t really express just how pleased we are with this wonderful coffee. The proof of its excellence is not in my words, marketing or hype … the proof is in the cup. It truly represents the best of who we are! I ask that you do everything you can to sample and put a cup of Pike Place Roast in the hands of every customer you encounter next week. I encourage all U.S. partners in company-operated stores to have a conversation about this exceptional coffee as well as our new quality standards for freshness, hand-scooping, and smaller brewed coffee batches with no more than 30-minute hold times. Pike Place Roast takes us one step closer to achieving our goal of transforming the in-store experience by restoring the connection our customers have with our coffee.

Pike Place Roast also gives us another opportunity to celebrate our history and heritage that takes us “back to the future.” We are so very proud of what we have achieved, so let’s talk about it! And we will be doing just that across the U.S. next week, with major coast-to-coast celebrations beginning in New York City and ending in Seattle. This is such an exciting and important time for the company, and I can’t say enough about how proud I am of what we have accomplished with the introduction of this outstanding coffee.

Although Pike Place Roast will not be available in our international markets at this time, they will migrate to 30-minute hold times for brewed coffee in the coming months, while a longer-term brewed program is being determined. U.S. licensed stores and Canadian locations will freshly brew House Blend every 30 minutes and will be introducing Pike Place Roast within the year. However, I am happy to tell you that our international, licensed store and Canadian partners are anxious to join our brewed coffee reinvention and share our enthusiasm for Pike Place Roast. They also recognize that it exemplifies everything that we are experts in: buying, blending and roasting the highest quality arabica beans in the world, as well as providing an excellent experience for all of our customers.

So I will close now by extending my gratitude to you, once again, for all that you do on behalf of Starbucks and invite you to raise a cup of Pike Place Roast in a coffee toast to the future success of our great company.

Onward,

Howard

March 19 Annual Shareholders Meeting

Eleven weeks ago, I made a personal commitment to every one of our customers and partners (employees) to reaffirm our place as the world’s coffee authority. By embracing our heritage, returning to our core – all things coffee – and our relentless commitment to innovation, we will reignite the emotional connection we have with our customers and transform the Starbucks Experience. I am confident that the ground-breaking initiatives we’ve announced today demonstrate our laser focus on living up to that commitment. We know that this is just the beginning, but we also know that there has never been a more exhilarating or promising time in our history.  Continue to  learn more  about our initiatives including  the  acquisition of  an innovative  brewing system.

The Commoditization of the Starbucks Experience

This internal memo went to Jim Donald and copied Anne Saunders; Dave Pace; Dorothy Kim; Gerry Lopez; Jim Alling; Ken Lombard; Martin Coles; Michael Casey; Michelle Gass; Paula Boggs and Sandra Taylor

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…

The Starbucks Experience Begins with Training

As part of our ongoing efforts to transform the company and renew our focus on the customer, we have announced an historic in-store education and training event for our more than 135,000 store partners across the United States. We will close each of our nearly 7,100 company-operated stores in the U.S. on Tuesday, February 26 at 5:30 p.m., local time, to conduct a nationwide hands-on espresso training experience, designed to energize partners and transform the customer experience. Stores with evening hours will re-open at 8:30 p.m.

Our unprecedented level of commitment to and investment in our people will provide them with the tools and resources they need to exceed the expectations of our customers. We believe that this is a bold demonstration of our commitment to our core and a reaffirmation of our coffee leadership.

The comprehensive educational curriculum for all U.S. store partners will provide a renewed focus on espresso standards that will help ensure the exceptional quality of every beverage. As a result, baristas will be better prepared to share their passion and knowledge with customers. Customers will be able to truly enjoy the art of espresso as Starbucks baristas demonstrate their passion to pull the perfect shot, steam milk to order, and customize their favorite beverage.

This unique in-store education event signals the company’s focus on transforming the Starbucks Experience for both our customers and our partners. We hope that any customers inconvenienced by the early closures will see this as an investment that will have long term benefits. Starbucks partners will have an opportunity to connect and deepen their passion for coffee with the ultimate goal of transforming the customer experience.

I am really excited about this and the impact it will have on you and our customers. And don’t be surprised if I stop by one of the stores during this time!

Onward,

Howard

What I Know to Be True

As I sit down to write this note (6:30 a.m. Sunday morning) I am enjoying a spectacular cup of Sumatra, brewed my favorite way – in a French press.

It has been three weeks since I returned to my role as ceo of the company I love. We have made much progress as we begin to transform and innovate and there is much more to come. But this is not a sprint – it is a marathon – it always has been. I assure you that when all is said and done, we will, as we always have, succeed at our highest potential. We will not be deterred from our course – we are and will be a great, enduring company, known for inspiring and nurturing the human spirit.

During this time, I have heard from so many of you; in fact, I have received more than 2,000 emails. I can feel your passion and commitment to the company, to our customers and to one another. I also thank you for all your ideas and suggestions … keep them coming. No one knows our business and our customers better than you. I have visited with you in many of your stores, as well as stopping by to see what our competitors are doing as well.

It’s been just a few days since my last communications to you, but I wanted to share with you

what I know to be true:

• Since 1971, we have been ethically sourcing and roasting the highest quality Arabica coffee in the world, and today there is not a coffee company on earth providing higher quality coffee to their customers than we are. Period!

• We are in the people business and always have been. What does that mean? It means you make the difference. You are the Starbucks brand. We succeed in the marketplace and distinguish ourselves by each and every partner embracing the values, guiding principles and culture of our company and bringing it to life one customer at a time.
  

• Our stores have become the Third Place in our communities – a destination where human connections happen tens of thousands of times a day. We are not in the coffee business serving people. We are in the people business serving coffee. You are the best people serving the best coffee and I am proud to be your partner. There is no other place I would rather be than with you right here, right now!

• We have a renewed clarity of purpose and we are laser-focused on the customer experience. We have returned to our core to reaffirm our coffee authority and we will have some fun doing it. We are not going to embrace the status quo. Instead, we will be curious, bold and innovative in our actions and, in doing so, we will exceed the expectation of our customers.

• There will be cynics and critics along the way, all of whom will have an opinion and a point of view. This is not about them or our competitors, although we must humbly respect the changing landscape and the many choices facing every consumer. We will be steadfast in our approach and in our commitment to the Starbucks Experience – what we know to be true. However, this is about us and our customers. We are in control of our destiny. Trust the coffee and trust one another.

• I will lead us back to the place where we belong, but I need your help and support every step of the way. My expectations of you are high, but higher of myself.

• I want to hear from you. I want to hear about your ideas, your wins, your concerns, and how we can collectively continue to improve. Please feel free to reach out to me. I have been flooded with emails, but believe me, I am reading and responding to all of them.

As I said, I am proud to be your partner. I know this to be true.

Onward …

Howard

P.S. Everything that we do, from this point on (from the most simple and basic), matters.

Master the fundamentals. Experience Starbucks

P.S.S. Continue the conversation in public by posting your thoughts and comments below.

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