Has Starbucks Lost Its Soul?

The coffee king's former CEO says it has.

Tim Beyers
Tim Beyers
Feb 26, 2007 at 12:00AM
Other

Talk about tough love.

Here's some of what former Starbucks (NASDAQ:SBUX) CEO Howard Schultz had to say to current CEO Jim Donald about the state of the coffee king in a memo delivered on Valentine's Day:

"Clearly we have had to streamline store design to gain efficiencies of scale and to make sure we had the ROI [return on investment] on sales to investment ratios that would satisfy the financial side of our business. However, one of the results has been stores that no longer have the soul of the past and reflect a chain of stores vs. the warm feeling of a neighborhood store." [Emphasis mine.]

Whoa! Starbucks has lost its soul? Did Howard Schultz, author of the Starbucks bible Pour Your Heart into It, really just say that? Yes, he did. Starbucks vouched for the authenticity of the memo.

But there's no indication that management is taking Schultz's concerns seriously. For example, The Wall Street Journal reported that the memo would be unlikely to cause any major shifts in strategy. Instead, a spokesperson told the Journal that it might deepen the firm's focus on convincing customers to think of Starbucks as a maker of premium coffee.

Ohhhh-kayyyy.

Am I the only one who thinks that's a dangerous non-response response? Schultz is the spiritual leader of Starbucks. If he thinks the stores are losing their soul, they probably are.

And Schultz knows that management can't allow that to occur. Starbucks sells an experience first and coffee second. Lose the experience, goes the thinking, and Starbucks becomes Caribou Coffee (NASDAQ:CBOU) at best, and McDonald's (NYSE:MCD) at worst.

Then again, it may already be too late. Same-store sales growth declined from 7% in the fourth quarter to 6% in the first quarter. If Schultz is right, and nothing is done, then that number will continue to decline.

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Fool contributor Tim Beyers, who is ranked 1,720 out of more than 23,300 participants in our Motley Fool CAPS investor-intelligence database, will take a decaf venti latte with a splash of cinnamon, please. Tim didn't own shares in any of the companies mentioned in this article at the time of publication. All of his portfolio holdings can be found at Tim's Fool profile. His thoughts on Foolishness and investing in general may be found in his blog. The Motley Fool's disclosure policy is the lead car in Wall Street's soul train.