Onward (17 page)

The project's code name was Consistent Brew.

They'd set up camp in the tasting room across from my office on the eighth floor, and through the room's large viewing window anyone could stop and watch their trials. For two weeks, shot glasses were lined up along countertops as our tasters blended, roasted, cupped, and commented on sample after sample. Their first coffees used beans from Colombia, Guatemala, and Sumatra, which they roasted at a combination of temperatures to discover the perfect match between time and heat, a relationship called the roast curve. During the first two weeks, the team created more than a dozen combinations.

Some were too tart or sour.

Others metallic or aggressive, papery or acidic.

By the end of the month, after experimenting with almost 30 recipes and roast curves, most had been eliminated.

Then, in a consumer taste test on December 3, one sample stood out as superior. Consistent Brew 19 was round, smooth, and balanced and exhibited a mild, sweet finish. Jackpot . . . almost. It was not yet perfect, so throughout the 2007 holiday season, right up until New Year's Eve, the team roasted Consistent Brew 19 again and again and again.

Finally, in January 2008, they hit the mark with a flavor profile that did not abandon Starbucks’ roasting philosophy but, whether it was served black or with cream and sugar, delighted more people's palates. The winning blend was balanced but rich in flavor.

We named it Pike Place Roast, after our first store. I thought the name should be as symbolic as the coffee. In theory as well as in flavor, Pike Place Roast was a nod to our past while embracing our future. It was one of the most transformative blends we had ever created, in part because it spoke to an audience that had yet to become part of the Starbucks community. And we were excited to welcome them.

Our challenge, however, was to elevate Pike Place Roast so it would not be perceived as just another new product. No, Pike Place had to come out of the gate screaming not only that it was a new brew, but also that Starbucks was back and dead serious about recapturing our coffee authority.

We positioned Pike Place Roast as nothing less than our reinvention of brewed coffee, and to further back up that claim we did indeed reinvent our brewed experience.

Once again we would grind beans in our stores, a ritual we'd
abandoned in order to serve customers more quickly. Now, in lieu of being ground at the plant and delivered to stores in sealed bags, all beans for brewed coffee would arrive whole and be scooped and ground by baristas. To further improve upon freshness, no more would batches of brewed coffee sit for up to an hour before being served. Thirty minutes was the new maximum “hold time.” Any coffee that remained after half an hour was to be thrown out. Finally, to give customers the consistency they desired, Pike Place Roast—regular and decaffeinated—was to be the first brewed coffee we would offer every day, 365 days a year, always alongside a rotating bolder alternative.

These were significant changes that were sure to jolt our operations in ways that we could prepare for but not fully predict. Our roasting plants needed to adopt Pike Place's new roasting technique. Our supply chain had to establish a new system for packing and delivering whole beans, and our baristas needed to be trained how to scoop, grind, and introduce customers to the new roast, effectively communicating its special qualities. Meanwhile, the marketing and communications department had to coordinate a coast-to-coast coffee-tasting campaign for the scheduled launch day, April 8, 2008. We only had a matter of months, and our partners went to work to deliver on their respective mandates.

Losing was not an option.

Strategically, Pike Place Roast had the potential to be a powerful catalyst for and symbol of our transformation. For partners, the new brew was an accomplishment, the first in a while, to rally around, savor, and celebrate. For customers, Pike Place Roast ushered back in some of what had been missing in our coffee experience. Aroma. Freshness. A little theater. And for shareholders, Pike Place would be proof that the company was actively reclaiming its coffee authority.

I was determined to demonstrate to our partners that Starbucks was going to push for self-renewal and reinvention. Pike Place Roast was just the beginning.

“You would have to agree that the consumer is in a recession,” I stated on the afternoon of January 30, 2008, during Starbucks’ first-quarter earnings conference call.

I had seen this difficult day coming since the end of December and now, as I sat at the head of our boardroom conference table having returned only three weeks before as ceo, I mustered optimism in the face of so much discontent.

Only 1 percent. That was how little our same-store sales—that alltoo-important measure of retail success—had gone up by in the first three months of our fiscal year.
One percent
after 16 years of 5 percent or better comps. It was Starbucks’ worst performance since the company went public in 1992. At the office, my personal frustration was fueling my desire to put Starbucks back on top, yet every day brought new challenges. I felt as if the team and I were racing to fix a sinking ship while at the same time charting its course and setting sail. And it didn't help that the economic waters were getting rougher.

Outside our walls, seemingly fail-proof financial institutions were doing what had seemed impossible: failing. Amid staggering losses, America's largest mortgage lender, Countrywide Financial, was being taken over by Bank of America in a risky $4 billion deal. On January 15, banking giant Citigroup posted the largest quarterly loss in history, a staggering $9.8 billion. Less than a week later, stocks had their biggest one-day loss in six years. These and other daunting trends—the tightening credit crunch, foreclosures, rising food and gas prices, an uptick in unemployment—fostered more uncertainty. Consumer confidence continued to slide and people started limiting spending to essentials.

Starbucks was hardly the only retailer suffering. Home Depot was closing locations. Sales had crumbled at high-end department stores like Nordstrom. Even consumer favorites Target and Wal-Mart posted lower than expected same-store sales.

In addition to Starbucks’ disappointing comps, I was about to make two unexpected announcements on the earnings call—news that was sure to alienate customers as well as investors.

The first was a choice I had made unilaterally.

“By the end of fiscal 2008, we will discontinue warm breakfast sandwiches in our North American stores,” I said into the speakerphone somewhat triumphantly. This was, after all, a move I had wanted to make for more than a year but had been unable to bring about as chairman. Despite the sandwiches’ loyal following, and disagreement among Starbucks’ top managers, I was convinced that this was right for the business. “We are committed to a replacement
category,” I reassured the analysts who asked about the sandwiches’ impact on sales, which was about 3 percent per store for the 3,700 stores that sold them.

The second unanticipated announcement that day was even more contentious, at least among the financial community: Starbucks, I said, would no longer report its same-store sales. Our comps would no longer be made public. Had the analysts not had their phones on mute until they wanted to speak, I likely would have heard a collective groan, not to mention a few four-letter words, of irritation.

“I would really love to know,” asked David Palmer of investment bank UBS, not mincing his words, “why you think it would help your stock, the company, investors, or anybody to remove disclosure at a time like this?”

I agreed with David that comps were an appropriate measure for gauging a retailer's health. But for Starbucks, comps did not take into account the company's revenues from packaged whole-bean coffee in grocery stores or beverage sales at thousands of our licensed store-within-a-store counters in supermarkets and bookstores and in airports. This gap did not matter much during times when our stores were thriving, but if our US comp store sales continued to decline, we would not get any credit for sales in other venues.

But there was an even more important reason that I chose to eliminate comps from our quarterly reporting. They were a dangerous enemy in the battle to transform the company. We'd had almost 200 straight months of positive comps, unheard-of momentum in retail. And as we grew at a faster and faster clip during 2006 and 2007, maintaining that positive comp growth history drove poor business decisions that veered us away from our core.

The fruits of this “comp effect” could be seen in seemingly small details. Once, I walked into a store and was appalled by a proliferation of stuffed animals for sale. “What is this?” I asked the store manager in frustration, pointing to a pile of wide-eyed cuddly toys that had absolutely nothing to do with coffee. The manager didn't blink. “They're great for incremental sales and have a big gross margin.” This was the type of mentality that had become pervasive. And dangerous.

Eliminating comps from the radar was my attempt to send a message to Starbucks’ partners: We will transform the company internally by being true to our coffee core and by doing what will be best for customers, not what will boost comps.

The financial community was not pleased with this latest wrinkle because it made it more difficult to assess our present performance and predict Starbucks’ future. Many assumed we were hiding. But contrary to perception, I was not trying to be arrogant or obtuse or slick. I was, however, attempting to establish new priorities inside the company.

Both decisions—eliminating the sandwiches and the comps—were worth risking public backlash. Especially the comps! It is difficult to overstate the seductive power that comps had come to have over the organization, quite literally becoming the reason to exist and overshadowing everything else. Releasing us from their shackles, especially at this very fragile stage of my return, demonstrated to our people that things really were changing, that “transformation” was not just a word I was throwing around. It was a grand gesture that freed everyone to enthusiastically focus on our coffee and our customers. And there was so much in that arena that demanded our immediate attention. In addition to the upcoming national launch of Pike Place Roast, I had elevated another internal coffee-related initiative that, at the time of the earnings announcement, was in a very private process of unfolding.

Back in March 2004, a young engineer in Seattle set out to improve how brewed coffee is made. Zander Nosler was 32 when he quit his job at an industrial design firm and asked investors to fund a dream. Zander wanted to invent a coffee machine that brewed the best cup of coffee possible—one that equaled the quality of a French press. Even more ambitious, the machine and the brewing process had to be enchanting, even beautiful, something worth watching and waiting for. It was a niche wide open for innovation.

Zander heard “no” many times before finding a few investors who believed in him. Together with his partner, Randy Hulett, a multitalented engineer who oversaw the small product development team, they built a lab in the back of a friend's woodworking shop in a garage in Ballard, one of Seattle's oldest, most eclectic neighborhoods, about six miles from Starbucks’ support center. Together his team began to build a high-end machine. After several false starts, they had their prototype. Made out of particleboard and hoses, it was the reverse of a French press, with a plunger that pushed ground coffee up instead of down.

They named their machine the Clover brewer.

By 2007 the company had sold 150 Clovers, all handmade. With its creative mix of automation and manual attention, the sleek Clover machine was beloved by its customers, which were mostly small, independent coffeehouses. It began to amass a loving following.