Starbucks warned on ‘watering down’ brand

Howard Schultz, chairman of Starbucks, has warned that the world’s largest coffee chain is “watering down” its brand by opening too many “sterile, cookie cutter” stores that lack soul and authenticity.

In a blunt memo to senior executives, titled “the commoditisation of the Starbucks experience”, Mr Schultz said the company’s expansion from 1,000 stores to 13,000 stores over the past decade had come at a heavy cost.

“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 commoditisation of our brand,” he said.

Mr Schultz joined Starbucks in 1982 and led its transformation from a small Seattle coffee bean business into a global brand with stores in 39 countries.

He said steps to make the company more efficient, such as the introduction of automatic espresso machines, had robbed stores of character.

“We desperately need to look into the mirror and realise 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.”

The memo, leaked to Starbucksgossip.com, an independent website about the company, comes as Starbucks faces increasing competition from rival coffee chains and fast food companies.

Earlier this month, Consumer Reports magazine ranked McDonald’s coffee ahead of Starbucks in terms of taste and value.

“I have said for 20 years that our success is not an entitlement and now it's proving to be a reality,” wrote Mr Schultz. “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.”

The memo was sent on February 14 to Jim Donald, chief executive, and 11 other senior managers.

Don Gher, chief investment officer at Codstream Capital Management, which manages $1.1bn of assets and owns Starbucks shares, welcomed the blunt language. “This is what management should be doing – constantly questioning whether they are doing the right thing,” he said. “Howard’s question is how do you get big but stay small?”

Mr Schultz said the streamlining of store designs was necessary to gain efficiencies of scale and “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 versus the warm feeling of a neighborhood store. Some people even call our stores sterile [and] cookie cutter,” he wrote.

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