Starbucks Looks for a Fresh Jolt

Howard Schultz is back at the helm of the company that turned coffee into an iconic brand. Will his magic work a second time?

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John Keatley / Redux for TIME

The Starbucks executive team at the Starbucks coffeehouse at Starbucks Support Center, Seattle Washington.

I'm walking up to a starbucks with Howard Schultz when we spot a barista standing in the parking lot, passing 11 cups of coffee through a car window. "I've never seen that," says Schultz, who took over Starbucks in 1987 and transformed it from a six-shop seller of beans into a thread that runs through our social tapestry. He asks the barista what she's doing. She says the drive-through order was so large she decided to bring it out. Schultz waves to the driver to roll down her window--"Where are they going with 11 beverages?" he wants to know--but as he approaches the car, the driver speeds away. Sometimes it's tough to connect with your customers. But Schultz is trying. Very, very hard.

Starbucks has been so successful, it may seem unassailable, untouchable--unavoidable. It's not. In fact, the company has had a very difficult year. Traffic at U.S. stores dropped for the first time in its history, and then comparable-store sales--a key measure of a retailer's health--turned negative too. Its stock has slid some 40% in the past 12 months, shaving more than $400 million from Schultz's personal bean pile.

But perhaps most hurtful have been the mounting complaints from customers, employees and even Schultz himself that in its pursuit of growth, the company has strayed too far from its roots. As Schultz memorably wrote to the company's top execs on Valentine's Day, 2007, "We have had to make a series of decisions that, in retrospect, have led to the watering down of the Starbucks experience and what some might call the commoditization of our brand." The company that taught us that coffee is not a commodity has itself become one.

So Schultz is taking it upon himself to restore the cult of caffeine. On Jan. 7, the passionate entrepreneur--whom employees call Uncle Howie--again became CEO, a position he ceded in 2000 for a seat on the board. He has lured back some apostles from the start-up years, and they've designed a plan to yank Starbucks' focus from gaining efficiency and appeasing Wall Street back to selling exemplary coffee with the kind of service and ambiance that makes a $4 latte worth the price.

"We are doing everything we can to differentiate Starbucks from everyone else that is attempting to be in the coffee business," Schultz said at the company's annual meeting in March, alluding to McDonald's, Dunkin' Donuts and several convenience-store chains that have been making a run at Starbucks' customers. Starbucks will once again grind beans in its stores for drip coffee. It will give free drip refills, offer latte upgrades and provide two hours of wi-fi to anyone with a registered Starbucks stored-value card. Soon the company will roll out its new armor: a sleek, low-rise espresso machine that makes baristas more visible and gives them more control over the process. It has launched for consumers to talk to one another and the company. "This," says Schultz, "is just the beginning."

He says it with the zeal of an empire builder. And that's precisely the issue: having built one, Schultz is trying to alter the momentum of a company with $10 billion in yearly sales and 16,000 stores in 44 countries. But creating intimacy and authenticity on that scale may be beyond expectation. "They have come about as close as you possibly can to being big yet still retaining some uniqueness," says John Moore, who was a marketing manager at Starbucks until 2003 and now runs the blog Brand Autopsy. "I can't think of a company that's done it better--but can it really be done?" We are about to find out.

Diluting the Coffee

After the woman with the 11 coffees drives away--running a recognized brand apparently doesn't mean you get recognized--we head inside and walk through the store with Harry Roberts. Roberts helped Schultz build Starbucks from 1987 to '96 and heeded the call to return as chief creative officer. The three of us stand and look at the area by the cash register--a clutter of CDs, breath mints, chocolate-covered graham crackers, chewing gum and trail mixes. "There's no story," Roberts says. Schultz adds, "We're selling a lot, but the point is to take a step back and ask, Is it appropriate? We've been selling teddy bears, and we've been selling hundreds of thousands of them, but to what end?"

Partly to the alienation of customers. "If I go in there first thing in the morning, it smells like McDonald's, not a coffee shop," says blogger Jim Romenesko, who runs referring to the egg-based breakfast sandwiches the company started selling a few years ago. When he posted Schultz's Valentine's Day e-mail, Romenesko was shocked by the worldwide media pickup: he thought the things Schultz was saying were obvious since he had heard them so many times before from the Starbucks workers and customers who post to his blog.

Of course, every change that Starbucks has made over the past few years--automated espresso machines, preground coffee, drive-throughs, fewer soft chairs and less carpeting--was made for a reason: to smooth operations or boost sales, two inescapable goals for a publicly traded company. Those may have been the right choices at the time, Schultz wrote, but together they ultimately diluted the coffee-centric experience. "We want to have the courage to do the things that support the core purpose and the reason for being and not veer off and get caught up in chasing revenue, because long-term value for the shareholder can only be achieved if you create long-term value for the customer and your people," Schultz says. "We have to get back to what we do."

The Origin of Café Culture

In 1981 schultz was working in his native New York City for a housewares company when he first traveled to Seattle and stepped inside Starbucks--a narrow store with a worn wooden counter and bins of coffee beans--which sat across the street from Seattle's waterfront Pike Place Market. The aroma and romance captured his imagination, as the well-told story goes, and after a year of begging for a job, he was hired to do marketing. Two years later, a trip to Milan led to more inspiration. He returned to Seattle convinced that Starbucks should start opening espresso bars and bring café culture to America. The founders of Starbucks, who had been trained by the legendary coffee retailer Alfred Peet, weren't so sure about expansion--wouldn't that obliterate the intimacy they'd established? So Schultz left to start another company, Il Giornale, but he returned in 1987 with $3.8 million that he'd raised to buy Starbucks and turn it into the company he envisioned.

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