Onward: How Starbucks Fought for Its Life Without Losing Its Soul

by Howard Schultz

  After we hung up, Chris dialed Marc in sunny Hawaii. The seeds of their Christmas Eve conversation would blossom just days into the New Year.

  One week later, the same week I put Ben Packard in charge of corporate responsibility, I appointed Chris Bruzzo Starbucks’ interim chief technology officer. My first directive to Chris was concrete: Build IdeaStorm, Starbucks style.

  Chris asked Alexandra Wheeler, his newly named director of digital, to oversee what they dubbed Project Greenstorm. A half dozen engineers from Starbucks and another dozen from Salesforce.com immediately signed on to bring Project Greenstorm to life. Fast. Of all the new initiatives that people inside Starbucks were working on—Pike Place Roast, rolling out the Mastrena—this was one project I felt certain we could and should announce at the annual shareholders’ meeting in 63 days.

  The digital team dove in, and very quickly one overarching notion became clear: More important than customers’ ideas would be the discussions that followed. Each idea was a door, an opening line for conversations on topics our customers cared about, like recycling or low-fat food. By using suggestions as opportunities to learn from and inform our customers, the new website would be more than a mere one-way suggestion box; instead, it would be a genuine opportunity to connect.

  Understandably, inviting uncensored, real-time conversations and criticisms made some people inside the company nervous. What if people posted false information? What if people maligned us? What if a partner wrote something inappropriate? What if we set expectations we could not meet? Conversations about Starbucks were already taking place online, we countered, on sites where we had little or no chance to contribute to the discussion.

  The digital team made two key decisions up front.

  First, instead of assigning one or two people to moderate the site full-time, they enlisted 50 partners from throughout the company to spend eight hours a week monitoring posts in their area of expertise—coffee, food, conservation, etc. Putting our corporate partners in direct contact with customers seemed risky, but it was the most authentic, honest way to communicate.

  Yet even with a posse of 50, Starbucks still wouldn't have enough manpower to personally respond to all the posts, let alone implement every good idea. But we also didn't want to alienate customers by asking for ideas and then ignoring them. The solution? Let the site's community vote on which posts would get our people's attention. Anyone who signed on to the website could literally give someone else's suggestion a thumbs-up. The ideas that racked up the most points, and that garnered a high degree of conversation, would cue our moderators to chime in, answer a specific question, or begin the process of making the idea a reality in our stores.

  Ironically, the toughest challenges were not technical. They were human, like convincing leaders throughout the company to dedicate resources to the new site. And allaying fears that Starbucks was opening itself up to unbridled criticism, which was reaching a fever pitch in the marketplace, or that the site would be hijacked by so-called haters. The digital team also had to train our 50 moderators so they would not inadvertently offend or reveal proprietary information when they posted replies.

  There simply was no time to debate every what-if scenario and, in the end, there was only so much we could affect—or, for that matter, should affect. Starbucks just had to go for it with faith that the site's participants, like guests at a dinner party, would act with decency and police themselves, encouraging excellent ideas and shunning ugly chatter.

  The Greenstorm team plugged away day and night on the seventh floor. Inevitable glitches arose, but they were overcome by the camaraderie among the Starbucks and Salesforce.com partners. They all believed that the team was building something fresh and fun to connect with Starbucks’ customers and that the site just might, using the influence of social media, drive more traffic into our stores, even as that traffic was dwindling. I wasn't privy to the project's daily hurdles—micromanaging usually is not my style, especially when it comes to technology—and I gave them freedom to innovate, but held them accountable. “I do not want this to be a jump ball,” I'd told Chris early on. We had one shot to get it right.

  By mid-March 2008, Chris felt confident that Starbucks’ first virtual community, no longer named Greenstorm, was just about ready to launch, both online and onstage at our annual shareholders’ meeting.

  Chapter 16

  Bold Moves

  Spring was just around the corner, but the chill on March 19, 2008, held little promise that winter was on its way out. I'd arrived at McCaw Hall in the predawn darkness and spent time rehearsing. Now, just minutes before 10 a.m., I was alone backstage, thinking.

  On the other side of the massive curtains, thousands of people were streaming into the auditorium to secure seats for Starbucks’ annual shareholders’ meeting. In the first few rows the company's leadership team, board members who had flown in from around the country, and members of my family were settling in for the two-hour program. Behind them, in row after row all the way to the far reaches of the auditorium, to the last aisle in the balcony, were thousands of shareholders and Starbucks partners. There were people in the room—moms and dads with kids in college, retirees, widows, and customers—who had owned our stock since the day we went public, plus a handful—Arnie Prentice, Cynthia Stroum, Steve Ritt, Carol Bobo, Jack Rodgers, and Harold Gorlick—who had invested in me back in the 1980s.

  For me, each annual meeting was sort of like an episode of the 1950s television series This Is Your Life, with people from my past hidden in a sea of faces. Never just business, these gatherings were inevitably quite personal.

  Unlike those of other publicly held companies, Starbucks’ shareholder events were far from stodgy, formal meetings to elect directors or vote on proposals. I had, over the years, used them as brand-building opportunities because the company's passionate, engaged shareholder and customer base flocked here, so much so that in some years we had to seat thousands of overflow attendees in Seattle Center's neighboring Exhibition Hall, where they watched the show on huge screens. And for years, it was a show.

  The company's stellar performance had always given us a tailwind going into each meeting. We'd created so much value for shareholders that most of us at Starbucks got swept up in the adulation and joy. Our biggest challenge was topping the previous year's meeting to thank and surprise people. Usually we brought out a surprise entertainer whose music we sold in Starbucks stores. One year Tony Bennett sang. Another year Paul McCartney joined us live via satellite. Today it would be my good friend K. D. Lang.

  Yet the meeting also had strategic purpose. In addition to being a brand builder, it also had a forcing function, pushing the company to bring various projects to fruition.

  Never had that push been more necessary than in 2008.

  This year I intended to use the stage to rebuild confidence in our future. We would announce six new consumer-facing transformation initiatives. Each fell under one of the seven Big Moves that formed the backbone of the Transformation Agenda. On their own merits and collectively, the six would, I hoped, illustrate Starbucks’ laser focus.

  Backstage I felt anxious. This was the first time that the company's earnings as well as our share price were lower—the stock was down 44 percent!—than at the same time the previous year. Starbucks was crashing, and shareholders had a right to be disappointed. Given our uncharacteristically dismal performance, I couldn't predict the audience's reception.

  My refusal to stick to a script that day made some of our people nervous—anything that was said onstage could be picked up by journalists and bloggers in the audience and plopped online immediately—but my rationale was simple. I wanted to react naturally, whether I was greeted with contempt or kindness. Letting my words flow according to the mood rather than a teleprompter freed me to connect sincerely with this important constituency in a very delicate period.

  A female's voice filled the quieting auditorium. “The meeting is hereby called to order, and the inspector of ele
ctions has advised us that we have a quorum.” She read the required disclaimer statement that begins all shareholder events, and for a split second, as I do every year while waiting in the wings for my cue, I thought of my parents.

  Without a doubt, this was the most important annual meeting in Starbucks’ history. I had prepared for the worst but hoped for the best.

  “Wow.”

  That really was all I could say. It might have sounded sophomoric, but it was my gut response to the loud applause and even whistles as I walked somberly to the center of the stage in a dark navy suit and tie. It was nearly impossible to see the entire audience with the bright stage lights. “Thank you,” I said calmly, shocked as well as relieved. “Thank you very much.” I felt myself getting emotional and tried to quiet the crowd. “Wow. I really didn't know what to expect.” People laughed, and that's when I knew. I knew that Starbucks and I had our shareholders’ support—at least for the next two hours.

  It was time to get down to business.

  I'm not quite sure we've ever had a meeting like this before. On one hand, you have an economy that really is in a tailspin, and many would say the consumer is in a recession. Just this week Alan Greenspan said that the economy is in its worst shape since World War II.

  On the other hand, you have a company's performance that has not met your expectations, nor mine. And let me say at the outset that I humbly recognize and share both your concern and your disappointment in how the company has performed and how that has affected your investment in Starbucks. And I promise you this will not stand.

  There are many challenges inside and outside the company that we have to address. But we are on it with relentless focus on the customer, the customer experience, and doing everything we can to differentiate Starbucks from everyone else attempting to be in the coffee business. . . . It's time to convince you and many other people who are not represented here, to give you all reasons to believe in Starbucks again. And that is exactly what we will do today.

  I took a moment to introduce the members of our board of directors. Each stood as I announced his or her name. Next, I recognized Starbucks’ retiring chief financial officer, a loyal 12-year partner, Michael Casey.

  “We have almost 200,000 partners around the world. They are obviously not all here today, but many of them are. Would the Starbucks partners please stand to be recognized?” Heads and bodies popped up to deserved applause.

  “Okay,” I said. “Let's gets started.”

  I stood in front of a large object covered with a mysterious black cloth.

  “What we want to unveil to you,” I explained to the audience, “is a new piece of equipment that we believe will advance the quality and consistency of Starbucks to a level that is second to none.”

  The cloth was lifted to reveal the Mastrena. To demonstrate it for our shareholders, I'd requested that Ann-Marie Kurtz, a 17-year partner who started her Starbucks career as a part-time barista, join me on stage. Now a manager in our coffee education department, Ann-Marie is a pro at pulling shots. Her eyes smiling under her red-framed glasses, she handled the Mastrena with grace and placed two shot glasses under the spouts.

  “Would you like to taste a shot?”

  “Love to,” I said as the glasses filled with espresso. “What is that sound I am hearing?”

  “That's the sound of the grinder,” Ann-Marie answered over a gentle whirring. “So every time shots are poured, coffee is ground fresh just beforehand. That's the biggest difference. With the Mastrena, as opposed to old-style machines, I am delivering freshly ground coffee every time.”

  She handed me a glass, and I took a sip.

  The Mastrena would give Starbucks a differentiated edge in the marketplace, and by the end of 2008 the Swiss-made machine would be in 30 percent of our company-operated stores in the United States, and in the majority of our stores by 2010. I gave a nod to Domenic Steiner and his family, who were seated in the first few rows, and asked them to stand. “It's not just a piece of equipment,” I said. “It's an unbelievable tool that will provide us with the highest-quality consistent shot of espresso that will be second to none and will transform the espresso experience in our stores.”

  I thanked Ann-Marie for her help and switched gears.

  “So I've talked about the coffee,” I said to the audience. “I think it's time to go back to the soil and really explain to you the relationship that we have had with farmers and growers in developing countries around the world, and our relationship, our unique relationship, with Conservation International. Please join me in welcoming the chief executive officer of Conservation International, Peter Seligman.” I embraced Peter as he walked onstage to address Starbucks’ shareholders in his own words.

  We joined with Starbucks in 1998 to demonstrate that a company could help protect biodiversity with shade-grown coffee produced with fair compensation and safe working conditions for coffee farm workers. I am proud to stand here with Howard to announce that we are building on the successes of the collaboration to address the most pressing issue facing our planet: global climate change.

  Protecting forests is an essential first response to climate change. The CI and Starbucks partnership is going to focus on protecting the land, water, and forests that surround and nurture the most important coffee-growing regions in the world by working with and providing incentives for farming communities to leave forests intact.

  We are at what historians call an “open moment,” when societies come together and real change is possible. Starbucks’ ability to reach millions of people in the market every day and connect them to the land and to the people that grow coffee is critical. Through this partnership, Starbucks is stepping up to support the well-being of farmers, protect ecosystems, and educate consumers to become part of the climate change solution—triple benefits.

  By the end of 2009, I then announced, with a bag of whole-bean coffee in my hands, it was our intent that all Starbucks espresso beans and espresso-based products would qualify for a new marking we had designed to articulate our practices: “Responsibly Grown. Ethically Traded. Proudly Served.”

  With my right hand, I reached into the breast pocket of my suit jacket and pulled out a small plastic card. “The next consumer initiative is going to be . . . a rewards program.” There was a rupture of applause that seemed to say, “It's about time!” They were right. It was about time Starbucks acknowledged our most loyal customers. Other than our Starbucks Card—on which someone put, say, 25 bucks for themselves or someone else—Starbucks had nothing.

  But one of the most important pieces of advice I'd heard upon my return came from a dear Seattle friend and one of the country's best retail executives, Jim Sinegal, the cofounder and CEO of Costco Wholesale Corporation. “Protect and preserve your core customers,” he told our marketing team when I invited him to speak to us. “The cost of losing your core customers and trying to get them back during a down economy will be much greater than the cost of investing in them and trying to keep them.”

  When our business began softening in 2007, our marketing team, led by Michelle Gass and Terry Davenport, started studying customer behavior and discovered something surprising. People did not just wake up one morning and decide not to go to Starbucks anymore. They were still coming, just less frequently. For example, the mom who once came in for a latte during her early morning walk and came back in the afternoon for a pick-me-up mocha had stopped returning for that second visit.

  This was a big insight: Our customers hadn't abandoned us, they were just coming by less often.

  Market research, and common sense, told us something else. A good portion of our drinkers had a favorite beverage they customized in ways I, personally, could never have imagined when I began the company. “I'd like an iced grande latte with nonfat milk to the bottom line only, ice to the top with super-stiff foam with a dome lid.” That's the drink Diane ordered almost religiously at our Coal Creek store in Washington. Brett in Bellevue was committed to two double-cupped v
enti breve, extra-hot, bone-dry cappuccinos.

  Customization was not only part of the Starbucks Experience, but also presented a fantastic opportunity to incentivize and reward our biggest fans.

  Beginning in April 2008, I told our shareholders, you and other Starbucks customers may use the Rewards Card to receive several benefits. A free beverage with every pound of coffee beans purchased. Free refills on brewed coffee. And Starbucks would customize beverages for free, picking up the added costs for extras like soy milk and flavored syrups.

  The Card recognized our most loyal customers while addressing an emerging need for value as the economy pinched consumers’ wallets. It was a way to bring a little relief to those who weren't coming into our stores as often or who were swapping their customized beverages for brewed coffee because it was less expensive.

  Assuming we marketed the Rewards Card effectively, its unique power for us would be its rapid rate of adoption. The biggest hurdle in launching a successful consumer rewards program is getting the cards into people's purses and wallets. But we realized that more than five million people already had Starbucks Cards in hand! All they had to do was register them online—which for our digitally savvy customers was not a big deal—and their Starbucks Cards instantly turned into Rewards Cards. This, as Terry liked to say, was the Trojan horse that would allow Starbucks to very quickly benefit from its first-ever loyalty program.