Published on: January 29, 2009A Commentary by “Content Guy” Kevin Coupe
To: Starbucks Board of Directors
From: Kevin Coupe
Re: CEO Howard Schultz
I write these words with some level of dismay, since it should only be in the most dire of circumstances that a parent should be separated from his or her child. And, I write these words from two perspectives – that of a pundit who has spent a lot of time and words pondering your brand, and, perhaps more importantly, as an unabashed fan who has consumed more than his fair share of lattes and spent countless hours in Starbucks cafés both in the United States and abroad. I love the Starbucks brand and, like millions of other people, love the coffee, with the same kind of passion that I love Apple’s various technology products – they give shape to how I live my life, becoming more than just a coffee shop or a computer. That’s what great brands do.
But write these words I must:
CEO Howard Schultz must go.
Sooner rather than later. Do it gently, do it kindly, because he is, after all, the person who had the original vision for what Starbucks became, and who nurtured it to become one of the world’s preeminent brands. He deserves respect. But do it.
It is not just yesterday’s dismal financial news about the company that prompts this call, though to be fair, a 69 percent drop in first quarter earnings – to $64.3 million from $208.1 million during the same period a year ago – is certainly enough to give anyone pause. The company also saw its Q1 revenue drop to $2.62 billion from $2.77 billion a year ago, and same store-sales were down nine percent for the period.
It isn’t just that Starbucks announced yesterday that, on top of the 600 US stores that it already said it would close, it now needs to shutter another 300 (200 of them in the US and 100 abroad)…and will lay off close to 7,000 employees, 6,000 of them from its network of stores.
And, it isn’t just that it was barely more than a year ago that Schultz returned to the CEO’s job, replacing Jim Donald and, by implication, blaming him for what was then a 48 percent decline in the company’s share price. For the record, on January 29, 2008, Starbucks’ share price was $20.37…and it hasn’t gotten back to that level since. It closed yesterday at $9.65.
It is not just these things, but it is all of them. And more.
(By the way, it seems to me that at some point Starbucks is going to look like a really attractive acquisition target…and it gets more affordable with every passing day. It has lots of great real estate and residual brand recognition, despite all the problems. Y’think Ron Burkle might be interested in adding a coffee company to a portfolio that already includes Whole Foods and Barnes & Noble? Y’think there might be some synergies there? And then what happens to the vaunted culture that Schultz has worked so hard to nurture?)
It is my sense that Starbucks has lost its way, and that blaming the economic downturn misses the point. After all, great brands and great thought leaders find ways to transcend these kinds of challenges, profound as they may be. They find ways to reinforce the differential advantages of the brand, and to see the challenges and opportunities for strategic innovation.
This doesn’t seem to be happening today.
Since Schultz took back the reins of the company a year ago, it has seemed like management has embarked on a series of tactical decisions designed for short-term fixes rather than long-term growth:
The breakfast sandwiches smell, so let’s replace them with new ones.
Nope, we figured out how to make them not smell. Keep them.
Let’s try smoothies.
How about self-service?
Let’s try oatmeal.
Let’s try tea.
Let’s put Clover coffee machines in some of our stores.
How about a loyalty card, even if we end up doing a lousy job of explaining why it is a good idea to have one…even to our best customers?
A couple of months ago, Starbucks was making pronouncements about how it wasn't going to fight McDonald’s – which has been aggressive about expanding its McCafé business – on price. This week, not so much…and Starbucks is talking about “breakfast pairings” at “attractive price points.”
Anybody else getting whiplash from all this?
Read the papers, and you see that Starbucks’ relationship with its employees, at least in pockets of the country, are not as good as they should be…and that there have been a variety of lawsuits related to union activities. Some companies can get away with that kind of bad publicity, but not Starbucks…because the price you pay for being a commercial paragon of virtue is having to make sure that these sorts of problems never occur, or at least occur as little as possible.
I suspect that part of the problem is that as problems got worse at Starbucks, Schultz’s grip of the reins got tighter…and he ignored the front lines of the company more than he should have.
It probably didn’t make things better when the company announced that it might not match 401 (k) contributions this year and in coming years.
And I’d be willing to bet that in the ranks, people are worried that Starbucks’ longtime commitment to providing health care benefits may be on shaky ground. (Even if it isn’t, which is what Schultz said in his memo to employees yesterday.)
Two things tore it for me.
One is when Starbucks announced this week that it would stop brewing decaffeinated coffee in the afternoon as part of its plan to save $400 million this year. There were all sort of problems with this announcement, not least of which is the fact that decaf is more popular in the afternoon. (There will be a lot more on this below, in “Your Views.”)
But the big problem – the symbol that Starbucks and Schultz have lost their way – is how the change was presented. Rather than turning it into an opportunity to make stores more in touch with local consumers’ needs – being a consumer-centric organization – the company presented it as a savings initiative. It put efficiency over effectiveness.
Which suggests to me that the statement had more to do with reassuring Wall Street analysts 48 hours before horrible numbers were released than it had to do with smart retailing. But maybe I’m just a cynic.
And then, there was the new company jet. Sure, the $45 million jet was ordered a couple of years ago, when the future looked rosy. But by Schultz’s own admission, it was more than a year ago that things were supposedly so dire that he had to retake control of the company. The stock price is in the toilet…and still the company closed on the sale of the plane and Schultz took it to Hawaii for Christmas vacation. Sure, he paid for the trip out of his own pocket, but the symbolism stinks. And now, Starbucks is selling the jet…but imagine how much more impressed we’d be if the company decided to cancel the order a year ago. Schultz looks reactive rather than proactive. He looks tone deaf.
(Here’s a good rule of thumb, by the way. Any corporate executive who is presiding over a company being affected by the recession should immediately cancel the order if he or she is awaiting delivery of a corporate jet. At this point, private jets are the kiss of death for corporate credibility. Just ask the big three US car companies or Citigroup.)
This is not a diatribe against Howard Schultz. He should be lauded for his vision and service to the company. He should be praised for the fact that he was willing to give up his million-dollar-plus salary and work for a dollar a year while getting the company back on track. But it is time for a change, to someone who can think and act strategically rather than tactically.
Who could replace him? Well, I’d think long and hard about bringing Jim Donald back. I have it from reliable sources that he still has a lot of support within the company’s Seattle headquarters, and one of his greatest skills was mining the stores for expertise and passion. He understands the importance of not being bigger than the front lines. But if not Jim Donald, there must be other great retail minds out there who would be interested in rescuing a great retail company from its own worst instincts before it is too late.
The bottom line is this. The current leadership at Starbucks is hurting a brand that does not, after all these years, really belong to them. It is a brand that belongs to me, and millions of people like me, for whom Starbucks has served as more that a cup of coffee and a place to drink it.
And until the company recognizes this, and integrates this hard truth into its thinking and strategizing, things will not get better – no matter what the economy does.
It pains me to write these words, but write them I must.
Howard Schultz must go.
- KC's View: