Curing what ails Starbucks

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: To: Howard Schultz

From: Joe Nocera

Re: Your, er, return

Dear Howard,

It’s 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 website, Starbucksgossip.com, and was quickly picked up by the national media. You know which one I’m referring to, don’t you? The one in which you bemoaned what you called “the watering down of the Starbucks experience.” The one where you defended each 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 neighbourhood store.” As a hard-core Starbucks customer, I couldn’t have agreed more.

So what’s happened since then? Well, let’s see. In 2007, Starbucks expanded by an astonishing 1,700 stores—hardly the path a company takes if it’s serious about recapturing its “soul”. You’re now up to 15,000 stores, and from what I’ve read (alas, I couldn’t 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 don’t.

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%. “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 haven’t 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, you’re 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.”