Image: Howard Schultz
Ted S. Warren  /  AP
Starbucks Corp. CEO Howard Schultz hopes a new blend of beans and new espresso machines will help revive the chain's performance.
By Allison Linn Senior writer
updated 3/21/2008 5:29:43 PM ET 2008-03-21T21:29:43

There was a time when the name “Starbucks” meant primarily one thing: a cup of coffee.

Over the past few years, however, Starbucks has used its brand name for everything from movie promotions to alcoholic indulgences, as it stocked its stores with an increasing array of choices including breakfast sandwiches, lunch items, books and music.

Now, Starbucks is pledging to get back to its roots, and fast. Call it the extreme makeover, Starbucks-style.

Faced with weakness in its U.S. business and a sagging stock price, the Seattle coffee company this week unveiled a series of big changes, including a new coffee blend and improved espresso equipment, a program to reward loyal customers and an interactive Web site.

Experts say there’s no question the coffee titan needed to shake things up and bring the company back to its coffee-focused roots. Still, they also note that foisting a series of new initiatives on a massive customer base — not to mention a huge number employees — also can backfire.

“The challenge in doing so many things at once is it becomes very hard to execute … and the risk is that you can do more harm than good,” said Tim Calkins, clinical professor of marketing with Northwestern University’s Kellogg School of Management.

Still, Calkins applauds the effort.

“There’s no question that they’ve let that brand erode over the last few years, and so they really have to take steps to reinforce that brand,” he said.

The question is how to do that. Joe Pine, co-founder of Strategic Horizons LLP and an expert on marketing experiences, said Starbucks is doing exactly the right thing by reaffirming its focus on coffee. But, he said, the effort will be for naught if the company doesn’t do a good job of explaining the changes to its army of baristas, who will be primarily responsible for answering confused customers’ questions.

“That is the point at which consumers interact with Starbucks, (and) it is that interaction that is the most important piece of the Starbucks experience,” he said.

That could be made more complicated by the fact that Starbucks also is grappling with a series of changes at the executive level. Just two months ago, Howard Schultz reassumed chief executive duties of the company he had largely shaped. Schultz, who also maintains his job as chairman of the board, quickly announced other executive reshuffling and some job cuts.

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At Wednesday’s annual meeting of shareholders, he also promised more changes to come, including plans to offer energy drinks and get into the health and wellness business.

“This is just the beginning,” Schultz told shareholders Wednesday.

Speaking to reporters after the meeting, Schultz acknowledged that the number of changes could be a concern, but he said the company would mitigate that problem by rolling out the announced changes over a longer period of time.

Next month, Starbucks plans to introduce a new coffee blend, Pike Place Roast, that will be brewed at every U.S. company-operated store. At the same time, he said Starbucks will begin a program to offer perks such as free shots of syrup flavorings for people who register their refillable Starbucks drink cards.

Meanwhile, new espresso machines designed to deliver a better, more consistent latte will be moved into 30 percent of U.S. company-owned stores by the end of this year, and in 75 percent of those stores by 2010. Another new machine, called the Clover and designed to make individual cups of premium drip coffee, also will roll out slowly and not necessarily make it to every store.

A new Web site, featuring executive blogs and calls for consumer feedback, launched this week.

The changes come more than a year after Schultz fretted in an internal memo that the company’s brand was being watered down by decisions made during its years of go-go growth. Starbucks has recently seen a drop in customer traffic to its U.S. stores, and its share price has fallen sharply. The company has since slowed somewhat the pace of store openings and closed some stores, in addition to the changes aimed to improving Starbucks business.

Michael Roberto, a professor of management at Bryant University in Smithfield, R.I., noted that one of the biggest challenges companies face is in deciding what not to pursue.

“Great firms make tradeoffs. They know when to say, ‘No,’” he said.

Over the past few years, he thinks Starbucks said “yes” to too many ideas. While he applauds Starbucks’ recent decision to stop serving breakfast sandwiches — which many people complained added an unpleasant odor to the stores — he has been surprised that the company has not talked more about what else they will do to simplify their offerings.

Roberto thinks the company would do well to cut back even more on its food offerings, and also to pare down the knick knacks, coffee mugs and other items that clutter its stores.

Still, there may be a question of how much impact any type of shakeup can have right now. For years, Starbucks was thought to be largely immune to economic downturns, with Schultz referring to its pricey coffee drinks as the type of affordable luxury people splurged on even in hard times.

But Schultz acknowledged Wednesday that the current economic downturn is taking its toll on Starbucks customers like never before. But while economic troubles may have made Starbucks’ problems even worse, Schultz said Wednesday that the company also needed to acknowledge its own role in weakening its business.

“We do not want to use the economy as an excuse,” he said.

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