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

Pick of The Week, Starbucks+iTunes

Wanted to pass this along to you as a tax-day bright spot: Starbucks & iTunes Bring Complimentary Digital Music and Video Offerings to Customers with Starbucks “Pick of the Week” More Than 1.5 Million Downloads Every Week Driving Discovery of New Music and Music Videos
Starbucks (NASDAQ:SBUX) and iTunes today announced Pick of the Week, a new program offering coffeehouse customers a chance to discover complimentary new music and music videos each week. Pick of the Week featured artists include a great line-up with Carly Simon, Duffy, Counting Crows, Adele, Sia, Hilary McRae and many more.

Each Tuesday, more than 7,000 Starbucks company-operated locations in the US will stock a new Pick of the Week download card redeemable on the iTunes Store (www.itunes.com) for a complimentary song or music video hand-picked by the Starbucks Entertainment team and iTunes. The first Pick of the Week, available starting today at participating Starbucks locations, is Counting Crows’ new song, “Washington Square.”

“With Pick of the Week, Starbucks will leverage its trusted curatorial voice in music and entertainment through its partnership with iTunes to provide our customers with a world-class digital discovery experience,” said Ken Lombard, president Starbucks Entertainment.

“Pick of the Week provides an incredible way for Starbucks customers to discover great new music and videos for free on the iTunes Store,” said Eddy Cue, Apple’s vice president of iTunes. “With the world’s largest online catalog of music and video there is truly something for everyone.”

In October 2007, Starbucks and iTunes teamed up to launch Song of the Day, which offered Starbucks customers the opportunity to pick up a new complimentary download hand-picked by Starbucks Entertainment and iTunes each day for a month. Customer response to Song of the Day was unprecedented and resulted in more than 6 million songs downloaded. Realizing that a large audience hungry to discover new music and entertainment content had been tapped, Starbucks and iTunes worked together to create an ongoing version of the program to drive discovery and sales for great artists.

Once Pick of the Week cards are distributed, customers will then have up to 60 days from the date they are available to redeem their complimentary digital entertainment offering on iTunes.

Pick of the Week is the next phase in a partnership between Starbucks and Apple which began with the launch of the Starbucks Entertainment Area within iTunes in October 2006 and the launch of the iTunes Wi-Fi Music Store at select Starbucks locations in October of 2007. The iTunes Wi-Fi Music Store at Starbucks lets customers at participating Starbucks use the Wi-Fi network to wirelessly download music onto their iPhone, iPod touch or computer with no Wi-Fi connection fees or hotspot login.

The iTunes Wi-Fi Music Store at Starbucks is currently available in select Starbucks locations in the New York, Seattle and San Francisco metropolitan areas on its way to a national service rollout. Starbucks also offers the exclusive Now Playing feature on the iTunes Wi-Fi Music Store, which allows customers to instantly preview, buy and download the music currently playing overhead in participating Starbucks locations.

Onward

Splash Stick Is A Metaphor

Filed under Transformation Agenda #13: Thank you for the truly remarkable achievements last week! It reminds me of our early days … great coffee (the likes of which you can only get at Starbucks), proud partners engaged and having fun, and customers embracing the Starbucks Experience. Pike Place Roast™ and the reinvention of brewed coffee are off to a fantastic start. The coffee performed as we knew it would and our partners in over 7,000 U.S. company-operated stores brought it all to life.

This is just the beginning of enhancing the customer experience through coffee, demonstrating our relentless commitment to innovation, and increasing partner engagement. Let’s keep the momentum going and show the world our best days are ahead — one partner, one customer, one cup at a time.

Our efforts to enhance the Starbucks Experience — no matter how big or small — are making an impact. Let me give an example:

Friday morning, I walked into one of our stores and watched as a customer inserted a “splash stick” into the lid of his coffee cup. He recognized me and went out of his way to acknowledge this little item that has made Starbucks® coffee more enjoyable. As he left the store, he thanked me and said, “Only Starbucks would think of something like this!”

The experience stayed with me and I now recognize that the “splash stick,” is a metaphor for what we do every day to exceed the expectations of our customers. I don’t know another company that would go to such lengths to design the perfect tool to elegantly prevent a customer from spilling coffee … and that is exactly what we have done. The “splash stick,” although small in size, and brewed reinvention, although large in scale, are threaded together to enable customers, and all of you, to have an exceptional experience that only we can provide.

For years now, I have said that everything we do matters, our success is not an entitlement and we have to earn it. Last week, we earned our success and presented to the marketplace what we do best –- creating a blend of coffee that is best of class, and providing our customers with legendary service that brings the Starbucks Experience to life.

During countless interviews this past week, members of the media asked about the coffee wars and competition. As you know, I have always been mindful and respectful of all competitors small and large, but I have also been resolute in my position that this is not about anyone else but us. The economy, and its affect on consumer confidence, is a major challenge and will probably become more fragile before getting better. Competitors will continue their attempts to interfere with the relationship we have with our customers. However, my faith and confidence in our company has never been greater than it is today. Pike Place Roast™ is the first of many initiatives that we have planned to enhance the customer experience. The response (despite the strong economic headwind) from our customers is quite encouraging.

We will continue to innovate in a variety of unique ways. (Wait until you see what we have planned for summer, and for our leadership conference when we unveil our coffee and merchandise plan for Fall and Holiday). You will be blown away …

We have taken a great step forward (the first of many). The road ahead, I promise, will be filled with the pride and excitement we are all feeling with the launch of Pike Place Roast™. Get ready for lots more. We are just getting started.

Thank you for all that you do.

Onward,

Howard

Customer Training Night?

Over at Starbucks Gossip –an outstanding site (although I take exception with their tagline) that may be more about the community of customers, partners, fans and haters/cynics than we could have created ourselves–this comment was brought to my attention:

“Maybe [Starbucks] should have a “customer training night”. Customers can attend and be taught how to properly order a drink useing the correct slangs, symbols and phonetics.”

That sounds like a great idea. What do you think? Once a year, quarter or month? With 87,000 different possible combinations of drinks, we’ve got a lot to cover. Let’s get started…

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

Keep The Tips

Official company release on tipping to address mischaricterization in media:

Recent litigation has resulted in misunderstanding among some of our customers and partners (employees) about tipping in Starbucks stores. Our tip policy allows hourly partners (baristas and shift supervisors) to receive their fair share of customer tips. Shift supervisors are not managers and have no managerial authority. Even the California Court recognized this distinction.

Listening

At the annual shareholder’s meeting last week we announced an initiative to listen to you better by creating our first online community, MyStarbucksIdea.com. It takes the Starbucks Experience outside the store and enables customers to play a role in shaping the company’s future. The reactions have been mixed, from supportive to defensive and all the spectrum in between. To be clear, this isn’t the only initiative bent on listening and broadening the debate from esoteric sites to a larger community of Starbucks stakeholders.

For SocialNet Communities, check out some of the ones created by and for the community:

• Addicted to Starbucks (70,000+ groupies as of this post)
• I Heart Starbucks (14,000 strong)
• Starbucks Partners (5,000+, 170,000 to go)
• And more

Thank you for keeping the conversation and connections going, which is ultimately more of the Starbucks Experience in The Fourth Place.

Onward, Howard

Mischaracterization in Media VM

Voicemail to partners: Hello partners, this is Howard calling.

I am calling regarding the recent press coverage that mischaracterizes Starbucks position as it relates to California’s court ruling in terms of the tipping issue and most recently the situation in Massachusetts over the last couple of days. Hopefully by now you have read the letter that I posted on Starbucks.com and the store partner portal last Friday that directly addresses the California courts ruling against Starbucks.

The ruling would take away the right of shift supervisors to receive the tips they earn for providing superior customer service.

I want you to know that we strongly believe that this ruling is extremely unfair and beyond reason. I could go on and on about how wrong I think it is.

Nevertheless, for the record and to really clarify the situation, Starbucks Coffee Company has never and will never take money from our baristas or any other Starbucks partners. This is so contrary to our values, our culture and just everything we stand for.

I can’t tell you how much it upsets me that we are being so grossly mischaracterized in the newspapers by the media and I want to personally let you know that we would never condone any type of behavior that would lead anyone to conclude that we would take money from our people. When I read these headlines about Starbucks skimming or stealing from our partners it’s just beyond my comprehension how irresponsible it is.

To the contrary, we put the highest priority for 35+ years on treating our partners with respect and dignity, and we do our best never to jeopardize the trust we have with one another. Are we a perfect company? Absolutely not. Do we make mistakes? Yes. But our heart has always been in the right place.

Now, unfortunately, there has been another copy-cat litigation, including the recent Massachusetts lawsuit that we have been advised about, but we have not yet been served and that has caused more press that has mischaracterized the situation.

The reason I am calling is that I want you to really understand the truth. I promise you that we will vigorously defend ourselves and appeal the recent California ruling as well as any other lawsuits that we believe are unjust.

We have built a wonderful company that all of you have helped to make successful, and I ask that you continue to do all the things that you do for Starbucks every day. I want you to hear my voice and understand both my concern about the mischaracterization, and most importantly, the truth, and really separate the fiction from the facts. So there you have it. I will leave it at that and if there are any questions or concerns, you can email me and I will respond and hopefully we will get through this in a way in which the truth will win out.

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.

Transformation Agenda Communications #10

Last week in Seattle, we held a global summit of Starbucks top leaders. It was a remarkable experience that will have a lasting and significant impact for a long time to come. We convened approximately 200 senior members representing our regions, Asia Pacific, Canada, EMEA, Latin America, greater China, and the U.S., in an unprecedented gathering. It was an intense, exciting and productive three days for the leadership of the company. We had a singular purpose to explore, imagine, and then commit to the future of Starbucks. Our objective was to build on the transformation work that has already begun and chart a new course for the future of our company.

I can’t recall any meeting (in our history) that had this level of strategic importance. It was a provocative and productive three days filled with lots of good discussion, debate, and agreement and I am proud to report to you that the leadership of the company demonstrated bold and courageous thinking, while embracing (every step of the way), the culture, values and guiding principles that have been at the foundation of our company. It reaffirmed my belief that as we go forward, Starbucks will be an even stronger company than it is today. Our conversations centered around the following points:

Our Case for Greatness. We started with a discussion about the need for great companies and great icons to challenge themselves — indeed, the mark of enduringly great companies is that they challenge themselves to never accept the status quo. As leaders of Starbucks, we believe it’s our responsibility to focus and fuel the success of our partners — because when we do, we do right by our customers.

Our Aspiration. Indeed, among the fundamental things our top leaders agreed on was our aspiration — to create one of the world’s most recognized and loved brands, known for inspiring and nurturing the human spirit. The focus of the meeting was how we should go about doing that.

Seven Bold Moves. I’ve talked a lot about the goals of the transformation — how we’re going to turn-around the U.S. business, how we’re going to reignite our emotional attachment with customers, and how we’re going to create foundational change for the long term. We used the three days of our meeting to work out how we’re going to do that. What emerged are seven bold moves that we’ll make in the coming weeks, months, and years:

1. Be the undisputed coffee authority
2. Re-engage and inspire our partners
3. Re-ignite our emotional attachment with customers
4. Expand our global presence — while making each store the heart of the local neighborhood
5. Be a leader in ethical sourcing and environmental impact
6. Create innovative growth platforms worthy of our coffee
7. Deliver a sustainable economic model

We charted actions we’ll take, step by step, for each of these seven bold moves. I think the most important thing to understand at this moment is that these seven form the backbone of our plan. We are now one company with one strategy. And, these seven are going to receive our attention, our investment, and our talent.

People Are the Outcome of High Expectations. We were all inspired by a presentation from Bill Strickland, who I met more than a decade ago. Then, he was a social entrepreneur in Pittsburgh, who had the audacity to build a training center in one of Pittsburgh’s toughest neighborhoods — just four blocks from where he grew up. Filled with light, art, jazz, jobs, and hope, his center was producing remarkable results. Boy, what a difference ten years makes! Bill’s ideas have taken flight in nearly a dozen cities around the world, where his centers and his thinking are sparking hope and futures for thousands of youth, most of whom society considers “at risk” or “disadvantaged.” Bill joined us at our three-day meeting, and he countered, “People are born in this world as assets, not liabilities. In the end, we are the product of expectation. Expect a lot, and you create amazing people.”

The meeting closed on an emotional note. We committed to one another to have a laser focus on our customers, to provide all of you with the tools and the resources to succeed, and to measure our actions by the quality of our coffee. I commit to you that I will hold myself to the same standards that I am asking of all of you. I can’t thank you enough for all you have done and continue to do on behalf of Starbucks.

 

Onward,

 

Howard

Transformation Agenda Communication #7

Since I returned as ceo six weeks ago, we have experienced a lot of change in a very short period…with our renewed focus on the customer experience and the return to our core—all things coffee–as evidenced by our decision to discontinue warmed breakfast sandwiches in U.S. stores by the end of Fiscal ’08; unprecedented Art of Espresso three-hour training for U.S. store partners on February 26; free Wi-Fi for partners and customers beginning in the Spring, and more to come. I hope you view these changes as positively as I do. Together, we have created a blueprint to transform the company, and I sincerely appreciate all that you have done and will continue to do every day on behalf of Starbucks.

I pledged to communicate with you about our efforts to improve the current state of our U.S. Business, reignite the emotional attachment with our customers and make foundational changes to our business; and I have done so in six previous emails. However, this is my most difficult communication to date.

As I have mentioned in previous communications, in order to reinvigorate our company we must continually analyze and review every part of our company operations. This rigorous look at our business will ensure that we are managing and optimizing our resources as effectively as we can in order to improve the Starbucks Experience.

We realize that we are operating in an intensely challenging environment, one in which our customers and partners have extremely high expectations of Starbucks. And we have to step up to the challenge of being strategic as well as nimble as our business evolves. Unfortunately, we have not been organized in a manner that allows us to have a laser focus on the customer.

Over the last several weeks, we conducted a thorough organizational analysis, which was, at times, very emotional and extremely stressful. But as I sit at my desk and think about my responsibility to over 170,000 partners and their families who rely on me and others to preserve and enhance our company, I know that I am responsible for ensuring the success of the company for the long term, which means that difficult decisions must be made. Personally, I continue to struggle with the outcome, because I realize how painful it will be for some partners.

As the result of our review, which was done with great thoughtfulness and respect for everyone concerned, organizational changes have been made. These changes will restructure the company, but they will also result in a decrease of both the number of positions and partners by approximately 600. This total includes the elimination of existing positions and open headcount, as well as the reduction of our current workforce. Within this context, approximately 220 partners have separated from the company. Nearly all were U.S. partners serving in non-retail support roles. We are thankful and proud of the contributions our departing partners have made, and we are committed to treating them with respect and dignity.

Today, we are announcing the following modifications to our organizational structure that are designed to strengthen our focus on the customer in our U.S. field operations, and centralize and/or consolidate many of our support functions to drive functional excellence and reduce redundancies:

U.S. Field Operations
Effective Monday, February 25, the U.S. field organization will begin transitioning from two divisions to four, with full implementation completed by March 24. The new divisions are: Western/Pacific, Northwest/Mountain, Southeast/Plains and Northeast/Atlantic.

Not only will this organizational structure create more capacity for our field teams, it will enable the company to align our leaders closer to our customers and partners. This will ensure a stronger level of support in partner development, coaching and accountability in the field. Establishing a customer-centric field support structure in the U.S. Business enables our field teams to focus on our partners, customers and our coffee.

Each division will be led by a senior vice president, reporting directly to the U.S. president. Within each division, partners supporting Store Development, Marketing, Partner Resources and Finance will report directly to their respective functions while still being accountable for results at the divisional level. These teams are being centralized to create an infrastructure with global span, capability and effectiveness. Senior leaders in the U.S. Business will provide specifics in their individual team Town Hall meetings that will be held later today.

Support Functions
The reorganizations of Starbucks support functions are designed to consolidate functional activities into teams that have a shared vision and goals to support the business.

The following support functions are being reorganized and/or consolidated:

• U.S. Store Development
• U.S. Licensed Stores
• U.S. Finance
• Partner Resources
• Marketing
• In-Store Experience
• Global Supply Chain
• Global Communications
• Partner & Asset Protection

As a result of these organizational changes, some partners may have new roles or new managers. Senior leaders in these areas will provide specifics to partners in their individual team Town Hall meetings that will be held later today.

Partner Care and Support
As I said earlier in this communication, while these decisions were necessary to move our business forward, I fully recognize the personal and professional impacts these actions have on individual partners, and we are committed to making the transitions as smooth as possible.

Once again, I would like to thank all of our dedicated and passionate partners for their numerous contributions to the company.

Onward,

Howard

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…

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

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