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

by Howard Schultz

  When Arthur first joined as head of store development in 1991, we had only about 100 stores, and Arthur understood better than I did that real estate needed to play a critical role in the company's expansion and branding. For Arthur—an architect with an MBA's perspective and a psychologist's sensitivity to how space resonates with people—a smart store-development strategy was about a combination of mutually dependent elements: negotiating leases for properties in high-traffic, highly visible locales near other desirable retailers; brand-reflective store design; premium yet cost-effective construction; and prudent asset management. For 10 years, Arthur oversaw the integration of these elements as the company grew.

  But after Arthur left, the company deviated from his approach. Store site selection was no longer as deliberate. Designs developed in the mid-1990s were being merely tweaked, not reimagined or even appropriately updated or diversified. Keeping costs low was paramount, and no one was rewarded for intelligent design. Starbucks became the envy of the retail industry for its ability to quickly retrofit a store with one of several “palettes”—a family of colors, furniture, fixtures, and wall graphics—but this core competency also fed our reputation as a soulless, ubiquitous chain.

  Meanwhile, competitors old and new went to school on us. McDonald's as well as independent coffeehouses all upped their games, adopting our successes and taking advantage of our shortcomings.

  Bringing Arthur back was about reestablishing our coffeehouse authority. I knew he did not need to return. He had a successful consultancy. He'd coauthored a book and was enjoying an entrepreneurial life free from the pressures of Wall Street. What intrigued him, however, was a desire to win back what Starbucks had lost. His aspirations to turn the company around were as optimistic and ambitious as mine. Like other partners who had helped build Starbucks from its infancy, Arthur took the transformation very personally, and when he came back he did so with a vengeance.

  His first act was to relinquish the large office he was assigned and designate it a communal meeting room. He tore down the corporate cubicles and turned the department's space into a creative studio. Within months he culled the concept design staff of 60 down to nine and elevated or recruited new talent.

  Arthur's initial priority was, with Mike Malanga, to rightsize our portfolio of stores—the difficult process of closing stores and winding down leases.

  Simultaneously, his global design team, led by the talented Liz Muller, began birthing Starbucks’ new store designs. For artistic inspiration, Arthur and Liz looked to Starbucks’ brand and new mission statement, asking themselves how to bring our core principles to life in a manner that, once again, differentiated Starbucks in the marketplace. They found their creative anchor in sustainable construction, which had long been championed by our own Tony Gale, and in Starbucks Shared Planet, the philosophical umbrella for our renewed focus on community, environmental stewardship, and ethical sourcing.

  Sustainability. Green. Organic. Recycled. Repurposed. Local. Community. And, of course, coffee. These became the creative watchwords for Starbucks’ new store designs.

  The dramatic design of First and Pike—along with those of other new concept stores planned for Paris, London, New York City, Hong Kong, and Madrid—would not be replicated but rather used as a beacon to inspire future stores. By fall 2009, Arthur and his team would finalize three new directional designs to be used as creative touch-stones and translated to our stores around the world. Each design would, through the mixing and matching of elements, balance sustainability with the comfort and essence of the third place, creating a quieter, simpler, more contemporary approach that showcased coffee and the coffeehouse experience. That meant long communal tables for group conversations and community boards for posting information. Softer colors, exposed architectural features, and less artwork; more symbolic, authentic, and carefully placed pieces would become standard—as would sustainable, recycled, and repurposed materials; more formalized seating arrangements; and child-friendly areas. And under the creative influence of Tim Pfeiffer, senior vice president of global design, unique furniture and lighting were also designed exclusively for Starbucks stores.

  I thought our new creative direction, in look as well as philosophy, was exhilarating and truly separated us in the marketplace. But it could not be implemented haphazardly; rolling it out globally to thousands of stores would require a disciplined, phased approach. Once again, we had to marry creative liberty with cost limitations and brand considerations.

  Arthur also had more in store.

  Without fanfare, Starbucks was also going to open two coffee shops in Seattle that were not like any of our existing stores. Each would serve Starbucks coffee but be unique in design and product mix, offering a heightened local experience. They would not look like traditional Starbucks, nor would they be called Starbucks, but rather named after their street addresses.

  The first new store, 15th Ave. Coffee and Tea, would open in July 2009 in a former Starbucks space on a relatively quiet street in Seattle's eclectic Capitol Hill neighborhood. The second store, Roy Street Coffee and Tea, would open a few months later further west, at a busy intersection and kitty-corner from one of Seattle's best independent movie houses. Each store's interior and furniture would be an original design, and on their rather inconspicuous brown-and-white signage, the words “Inspired by Starbucks” would appear below the coffee-house's official name.

  There was tension within Starbucks as some people questioned why we would deviate from our identity, in look as well as name. Were we hiding? Trying to masquerade as an independent coffee shop? Did I think Starbucks wasn't good enough?

  We were not trying to hide anything, only to explore, and to learn. The idea to experiment with other retail concepts that would further elevate our coffee authority had actually been touched on in early transformation brainstorming sessions, but it was Arthur, as well as our in-house coffee enthusiast Major Cohen, who had run with it. “Break the rules” was my only directive.

  Many cities have rich coffeehouse traditions, but during the past 15 years there had been a proliferation of independents in the United States. Their existence, I firmly believed, was an offshoot of Starbucks’ ability to foster more savvy and enthusiastic coffee consumers. Many independents had essentially gone to school on us, and I gave them a lot of credit. But I also thought that as we transformed our company, we should continue to explore different ideas and approaches of our own, and to prove to ourselves—not just the marketplace—that Starbucks could deliver a coffee experience on different levels, not just the ones to which we had grown accustomed.

  These two mercantile stores, as we referred to them internally, would function as independent businesses as well as learning environments, allowing us to experiment in an active retail setting and gain more insight into what consumers want as their own tastes evolve. It was research. It was creative. It was also a great deal of fun.

  The stores operated outside our traditional marketing and supply chain, and many of the rules that allowed a 16,000-store organization to function and prosper did not apply to the mercantile stores. Their managers and baristas and our in-house designers were free to try things that ordinarily Starbucks could not do. At 15th Ave., for example, the pastries would come directly from Seattle's own Essential Baking Company and the soup from the kitchen of local restaurateur Tom Douglas. Wine and beer from regional wineries and breweries allowed us to further vary our menus—which also included salmon, cheese, even a sardine platter—and capture more evening customers.

  The stores would sell whole-leaf Tazo teas and more than a dozen freshly scooped whole-bean coffees. Rare, small-batch coffees could also be prepared in one of several ways: Clover, coffee press, or a manual pour-over, where the barista literally pours boiling water in a circular motion through fresh grounds, one cup at a time. The baristas would not wear aprons, but instead could dress however they chose. At 15th Ave., tables and chairs were fashioned from reclaimed wood, and book pages served as c
reative wallpaper. At Roy Street, some chairs in the sprawling space would be upholstered in plush cranberry fabrics; thick curtains would separate cozy seating sections in the almost 2,000-square-foot space. Both stores would host coffee cuppings and poetry readings as well as movie nights, and even play customers’ own CDs. Personally, I thought these stores were beautiful. Exciting. Not better than a traditional Starbucks, just different. A unique expression of the Starbucks Experience. We were learning, innovating, and, again, having fun as creative merchants. And it was likely that some mercantile elements would find their way into our stores around the world.

  When the 15th Ave. store quietly opened its doors in July 2009, we anticipated some attention, especially in Seattle, and by now I was somewhat less surprised when news trucks from national TV news outlets actually showed up. When Starbucks acts, people care. Reminiscent of the attention Starbucks had received when we had closed 7,100 stores all at once for espresso training, a vein of shock ran through the initial coverage and critiques, as if Starbucks had somehow disrupted the natural order of things by not using its traditional icons and aprons. Instead of getting credit for taking risks with our business, we were viewed with suspicion.

  That said, it was refreshing for me, after the mass store closures a year earlier, to talk about a single store opening instead of hundreds of stores closing. We had come a very long way.

  I believe that the shop can still justify its existence if the staff put their experience and [professionalism] at the disposal of the customer. That is not just a commonplace catchphrase. It is the communication of one's passion for one's work. . . . A presumptuous person lets slip every opportunity to pass on to his workmates the knowledge he derives from his sales activity and interrupts that precious exchange of information that always takes place through contact with the customer. Each one of us is necessary; isolating oneself in the shop is negative.—Aldo Lorenzi, That Shop in Via Montenapoleone

  It was barely daylight when I walked into the Starbucks Commerce Center store in Vancouver, Washington, just off Interstate 205, and shook hands with Amy Bernash, the store's manager.

  “How long have you been with Starbucks?” I asked Amy.

  “Almost seven years.” Amy had joined the company as a part-time barista after working for a small investment firm. She is friendly and genuine but has a no-nonsense approach and had quickly been promoted. Amy had been a store manager for the past two years.

  I looked around at her and the 11 other partners who were either working the drive-thru window or serving customers at the bar. Something about the place looked and felt slightly different from the dozens of other Starbucks stores I visited every month. A little calmer, maybe, and the layout of products and equipment was not typical. Yet everything also seemed to be in its rightful place.

  I'd flown in from Seattle early that morning to visit several stores in the Portland area that were conducting experiments to improve customer service and partner engagement.

  I'd harbored doubts about this so-called Lean program, which was relatively new to Starbucks but not to the business world. “Lean” is a generic term for a nontraditional way of managing and working that claims to reduce redundancies and waste while making conditions easier for employees and improving product and service quality for customers. Lean has its roots in the assembly lines of the automobile industry, and for decades its principles have been adapted by other industries.

  In 2005 one of our partners in Seattle, Scott Heydon, who joined Starbucks as director of North American strategy in 2002 from McKinsey and Company, took it upon himself to learn about Lean and incorporate it into various corners of the company. What most captivated Scott was that Lean's philosophy hinges on involving employees by asking for their opinions about how to improve their own work and environment. Scott believes that Lean is not about management telling employees how to do their jobs; rather, its core principle adheres to Starbucks’ culture of respect and dignity by asking partners to take more control over their working lives.

  Over the years, Scott's work had yielded some small-scale but impressive results. We regularly put together a promotional workbook in Seattle and send it to every store, and Lean techniques helped reduce the book's production time from 23 weeks to 13 and cut its page count from 300 to less than 40. Even though Lean was not widely embraced as a big idea inside Starbucks, Scott continued to champion it as part of his regular job, eventually applying its principles in some stores.

  Admittedly, for me, applying a manufacturing-based process seemed cold and impersonal for a business based on human interaction, which was why I had flown to Portland with Scott and a few others. I wanted to see Lean from our store partners’ perspectives.

  I followed Amy into the back room where, against the backdrop of supply boxes, she talked plainly about the improvements that had taken place at her store since Scott and his team had introduced her to some basic Lean concepts and given her freedom to problem solve.

  Amy explained that for years her store had followed protocols, arranging all of their products and equipment—milk, syrups, extra cups—in the exact places the company's manuals and photographs instructed. Her store had also ground all of the whole beans for the day's brewed coffee every morning because the prevailing company wisdom was that it was most efficient to grind coffee in batches.

  “I knew there was a lot of waste,” Amy admitted to me, but she did not go after it until Scott and her district manager gave her permission to do so.

  For a second, Amy stopped talking. “I just wanted to apologize,” she said to me. I had no idea what for. She explained. “When I started working with Lean, one of the first things I did was step back and watch my team work. Usually I'm with them behind the counter helping serve customers, but when I took the time to observe from the floor, I saw things, so many things, that were not right. Maybe someone didn't make a beverage correctly, or forgot to hand a customer a straw or shake an iced tea,” she said. “I'm sorry that, as hard as we've been working, I missed opportunities around customer service.”

  I was touched by her dedication. “I like that,” I told her with a smile. It meant a great deal to me that she cared as much as I did.

  Amy's mood perked up as she described their results. The store's partners had rearranged the supply room, putting the items they replenished most often closest to the door instead of stashed in the back, so they were more accessible. At the cold beverage station, they posted color-coded preparation instructions to ensure consistency regardless of who made a drink. But the most impactful improvement was the decision to stop grinding all brewed-coffee beans in the morning and to do it instead before each new urn was brewed. “In reality it was faster to grind coffee throughout the day,” she said. “Plus, the store smells like coffee!” Customers also began complimenting the baristas on the coffee's taste.

  Amy said her partners were happier and felt less stress during rush times. In the six months since they had begun piloting Lean to reconfigure their work, their customer satisfaction and quality scores had improved. The store's turnover, which historically had hovered at around 60 percent, went to zero. For six months, not one of the store's 40 partners had left!

  My scheduled 20-minute visit turned into an hour as I talked to Amy and her team, peppering them with questions. “How has your job changed?” “Why are you happier?” “What else can be improved?” I was truly impressed by the physical changes they had made in the store, but even more by the pride I heard in their voices.

  Amy's store was not an anomaly.

  In Portland, another manager testing Lean, Josh Howell, was shocked when he decided to track how many times in a day customers requesting a decaf or a bold brewed coffee were told, “Sorry, we don't have it right now. Do you mind waiting a few minutes?” Josh knew it happened occasionally, but until he counted he had no idea just how often: anywhere from 10 to 30 times. Thirty times a day a barista had the uncomfortable task of telling a customer no. Thirty times, Starbucks disappoi
nted someone and risked losing his or her business.

  If the same shortages occurred at other stores, a fairly safe assumption, the company could be losing millions of dollars in sales every year.

  For Josh and his fellow partners, fixing the problem became a puzzle they were determined to solve. First, they considered the current situation. Like other stores, they had two brewed-coffee machines and four coffee “shuttles”—each designated to hold a specific brewed coffee throughout the day. An easy solution was to buy more shuttles and heating pads to hold more coffee for customers, but a store's budget and counter space are limited.

  The team tried different work-arounds, but nothing stuck until a few of the store's partners sat down, did some creative math, and discovered a system that would eliminate coffee outages without adding costs, equipment, or a lot more work for baristas. First, they undesignated the four shuttles so each one could brew any coffee—bold, Pike Place, or decaf. Second, after some number crunching, they considered brewing a new pot of coffee every eight minutes. They experimented with the rotation and it worked! They called their system the Eight-Minute Cadence, and Josh began sharing it with partners in other stores who also suffered coffee outages. Some adopted it directly, others adapted it to their own store's patterns. Eventually, Scott asked Josh to come to Seattle to help the Lean team more formally introduce the system to all Starbucks stores as a starting place to improve customer service. For baristas, the fact that their peers had voluntarily come up with the idea and were leading its development—and were being supported by executives and engineers—seemed to make it more acceptable.