Onward (25 page)
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.
“Starbucks’ reward program, beginning in mid-April,” I said to our shareholders, slipping the card back into my pocket. “And this is just the beginning.”
Four more partners joined me onstage that day to announce initiatives.
Chris Bruzzo walked shareholders through our new website,
MyStarbucksIdea.com
. Then he officially launched the site onstage and online. Behind the curtains, Alexandra Wheeler sat at a laptop uploading ideas that had been verbally collected from shareholders that morning as they entered the auditorium. Back at the office, some of our moderators sat ready to respond. Within minutes after going live, more ideas came streaming in—”give customers a free coffee on their birthdays,” “free Wi-Fi for all”—from people listening to the meeting's broadcast or reading the rolling blog posts. In the next 24 hours, 7,000 ideas were posted to
MyStarbucksIdea.com
. Seven thousand! The implications for Starbucks would be huge.
Andrew Linnemann, donning a green apron and standing with his colleague Leslie Wolford behind a table set for a coffee tasting, introduced Pike Place Roast, and together we announced that Starbucks would once again grind whole beans in our stores. To my surprise, Andrew also introduced a short video that had captured the reactions of shareholders as they sampled Pike Place Roast before entering McCaw Hall that day. Their spontaneous feedback—”smooth,” “well balanced,” “lighter,” “it doesn't bite”—was music to my ears, exactly what we'd hoped to achieve with the new brew.
Finally, Clover. “What if a company could create a commercial way to replicate the benefits of the French press?” I asked the audience before Zander Nosler humbly described to the largest group he had ever spoken to how the machine that his company had invented made such a fantastic cup of coffee, which he brewed on camera for everyone to see on the huge overhead screens.
That was it. Six transformation initiatives.
The Mastrena.
Conservation International.
The Rewards Card.
Pike Place Roast.
Clover.
“I hope that you can see that we are deeply, deeply committed to the work at hand,” I said, looking out into the auditorium.
Yet even as I spoke, the company's situation was getting bleaker. Our stock price, which had begun the day at $18.34, closed at $17.50. Day by day, sales would continue to decline. And so would the United States’ economic indicators—consumer confidence, unemployment,
housing starts. The only things going up seemed to be labor costs and prices for commodities like dairy products, further eroding our margins. A storm was brewing as the world's financial systems teetered on the brink, and while I believed the situation would get worse before it got better, no one, not the smartest economists or the federal government, could know just how bad it might become.
But going forward with fear would not allow our company to thrive. Some corporations are built, or rebuilt, on data-driven business plans and hired guns with formulaic strategies. They may succeed, but they lack soul. Starbucks is, by its founding nature, different. There was no doubt that the company had to mature, conducting its global operations with more rigor and discipline, hiring new talent, and consulting with outside experts. But for this organization, transformation was not only about tightening nuts and bolts. If we did not also
feel
, if we did not have conviction in our values and believe that we really were in the business of human connection—on our farms, in our offices, in our stores, in our communities—then the company was doomed.
We had to preserve our humanity.
To get the company to forge ahead and win, I had been trying to rekindle in our partners the love and pride that had fueled Starbucks for so many years. That's why the last 11 weeks had been so important: Discussing The Beatles at our first brainstorming summit. The first-ever retreat for Starbucks’ top 200 leaders. Open forums. My memos. Crafting the Transformation Agenda and launching a new mission statement. The annual meeting. All of these were engaging tools that were helping us navigate our way through and share in this unpredictable journey, one milestone at a time.
“I hope you can see that what we wanted to do today is celebrate our company. Celebrate the passion we have for our customers. Celebrate our coffee and our people and bring it to life. . . . The celebration of our company, I think, needs to be done.” McCaw Hall filled with applause.
It had been a good morning. A shot of confidence that Starbucks’ partners and I had been hungering for.
Yet it had been only one morning.
The initiatives we introduced each heralded a return to our core—coffee, customers, innovation, values—but they would not be enough to bring Starbucks home again. The time had come for all of us to get in the mud and get our hands very, very dirty.
Part 3:
Pain
Starbucks was entering a tremendously chaotic period.
In the first half of 2008, as we pushed new products and programs into the marketplace, we were making many decisions with little or imperfect information, in large part trusting instinct. There was a lot the company could try to control, but so much—the economy, competition, our critics—that we could not.
Everyone was so very anxious to see the needle move, but behind closed doors our people worried whether we'd gotten carried away about just how quickly we might be able to make a real difference for our customers and to the business. Was it too much? Had we overextended ourselves? Bombarded our baristas? Would it all work? Would any of it?
Rarely did I sleep more than four hours a night as I tried to predict what onslaught of opportunities, successes, and dilemmas the next day might bring.
I had just flown to Bologna and was driving with a small team to a northern Italian town. Just a few days earlier, a friend had called me from Italy singing the praises of a sweet, smooth, cold Italian-made beverage that was not ice cream or sorbet or a smoothie but—whether mixed with fruit, milk, or yogurt—tasted absolutely delicious and like nothing else available in the United States. I had been intrigued, but with so much unfolding in Seattle I was hesitant to fly abroad, so I had sent a colleague in my place. “Howard, you should get over here,” he insisted after tasting the drink for himself. “We may have found the next Frappuccino.”
I flew to Italy to taste it for myself at the sprawling headquarters of the company that made the product. Its offices were chic, its factory and research facility technically advanced, and our hosts could not have been more welcoming.
Cliff and Michelle were among those in the tasting room with me trying one cold, creamy blend of the drink after another.
Absolutely fantastic
, I thought. Everyone agreed. It really was unique. During the trip we ran some back-of-the-envelope numbers, and the product's potential profit margin was hard to ignore. Given the simple ingredients and easy preparation we'd witnessed, the margin could be as high as 70 percent if the product was priced right. Serious logistics had to be considered—we'd have to airfreight the base ingredient from Italy and find a US company to manufacture the machines that mix all the ingredients—but once we'd figured out the gritty details, the product had the potential to be very successful.
The taste and potential profit coupled with the urgency I was feeling to spark sales and rejuvenate the brand with innovation culminated in our decision that Starbucks would bring the drink to the United States by that summer.
I fast-tracked the Italian beverage's development and rollout. Rather than quietly testing it in a few stores to work out production kinks and polling our partners about the product's viability, we would launch it with promotional punch in more than 300 stores in Los Angeles and Orange County, California, ideal markets for jump-starting a trend for America's next refreshing drinkable treat. We named it Sorbetto, and I had high hopes that it was going to be a big success.
In April 2008, after the glow of the annual meeting, the partners in our home office had gone back to work to deliver on our promises. We'd set big goals for ourselves—I'd told
USA Today
that Starbucks would bring more innovation to the market in the next 18 months than the company had brought in the past five years—and set some incredibly tight deadlines.
Public reaction to the six initiatives we'd announced at the annual meeting was mixed, and to my annoyance, but less and less to my surprise, a vein of cynicism ran through much of the coverage in the traditional media and online.
Investment bloggers were particularly harsh, yet not completely off base. “It hardly seems that a new coffee blend and an automated beverage machine will be the cure-all for your economic woes,” wrote Sarah Gilbert of
BloggingStocks.com
, calling us “desperate.” “Rather than a return to what they do best,” wrote Todd Sullivan on
SeekingAlpha.com
, “Starbucks seems intent . . . on running around in more directions.”
The Wall Street Journal
quoted an investor who estimated that her own shares’ value had lost $80,000: “I should have sold.”