Starbucks Brews Up Changes

Back to the Future

Schultz, the man who made Starbucks a part of America's national culture, is back in charge again, and he's now taking decisive actions to reclaim the company's roots as a small, Seattle-based coffee roaster.

By measures large and small, he wants to put that heritage into the company's more than 15,000 stores and in the minds of its consumers.

"Our customers have forgotten that we are a coffee roaster and not all coffee is equal around the world," he said. "There are many people making claims about coffee. They are not coffee roasters and the art of what we do, that story has not been told in a very long time."

It starts with the name of the new coffee, Pike Place Roast, highlighting the company's first store, opened in 1971, in downtown Seattle's outdoor marketplace of the same name.

Next, Starbucks baristas will regularly grind beans to fill the cafés with the aroma of coffee and they'll also make fresh pots every 30 minutes. Gone are the breakfast sandwiches that, when heated, often overpowered the smell of coffee.

Starbucks will also install a new espresso machine called the Mastrena in every store by 2010. The Mastrena has a lower profile so baristas and consumers can see each other and connect during the espresso-making process.

To bring back some of the theater in brewing coffee, Starbucks also bought a small coffee manufacturer that developed a machine called the Clover, a sort of automated French press. A barista scoops out a precise amount of roasted beans, grinds them and puts them in the machine to make a single brewed cup of coffee.

"I'm more energized and excited about the future than I have been about the past," said Schultz reflecting on his goal to reclaim the past as the company rolls out future innovations.

Economic Worries

Those steps to reinvigorate the Starbucks' experience come, however, at a tough time for consumers as a whole.

Nationwide, depending on who is asked, the economy has either sunk into a recession or teeters on the edge of one. In either case, consumers are spending less. Retail sales in February fell 0.6 percent compared to January.

Schultz knows the timing is tough for Starbucks.

"We have a head wind now the likes of which we haven't seen in some time, and the consumer is in a recession," he said. "It's harder now to be relevant and important in the lives of the consumer. We have to earn that right and we have to earn their respect."

Part of the coffee chain's strategy is the focus on brewed coffee. It sells for less than $2, below the average price for espresso-based drinks.

In addition, for the first time, Starbucks will offer a loyalty card to its customers to bring them into the stores. Customers can receive free syrup flavors in their espresso drinks, free coffee refills and free coffee with the purchase of beans.

"We're in a tougher economic time and we need to do things a little bit differently," said Schultz.

Despite all the obstacles confronting Starbucks, investment strategist Edwards thinks Schultz can succeed in recapturing the soul of Starbucks. "Today, they are focused on being the best espresso in the neighborhood and that's important."

For the Brooklyn-born Schultz, he is ready to confront the challenges ahead for the company he has led for so long.

"It's easy to say we're down and they're never going to come back," he said. "There's part of me, I don't wish this, but there's part of me that kind of likes the position of people counting us out and being the underdog again, because we are going to prove them wrong, I promise you."

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