Starbucks strategy unchanged after memo: exec

CHICAGO (Reuters) - Starbucks Corp. SBUX.O has made no changes to its business strategy since Chairman Howard Schultz warned management last month about a "watering down" of the coffee shop chain's iconic brand, a senior executive said on Wednesday.

Michelle Gass, who leads Starbucks’ global product development, said Schultz’s February 14 memo had prompted reflection, adding that the issues raised were not new, but rather part of an ongoing conversation among top company executives.

“We’ve made no changes in the plan as a result of that memo,” said Gass at the Reuters Food Summit in Chicago. “Will we course-correct over time what our stores look like and what products? Absolutely. We do that all the time.”

Since it was leaked to the media late last month, the memo has prompted investor fears that Starbucks may be forced to curtail growth to avoid damage to its brand. Several Wall Street analysts, however, have called those fears unwarranted.


In the memo, Schultz warned that measures used to fuel Starbucks’ rapid expansion over the last decade threatened to “commoditize” the brand.

For instance, he said the introduction of automatic espresso machines had made service faster, but had removed “much of the romance and theater that was in play” with traditional espresso makers, which required baristas to pull each espresso shot themselves.

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On Wednesday, Gass said it was unlikely that Starbucks would ever do away with the automatic machines.

“Our customers have helped lead us to where we are today,” Gass said. “They want their beverage in under three minutes.”

Gass, who was on vacation in Hawaii when the memo was sent to her and other members of senior management, said she and Schultz have spoken frequently about the issues he raised.

“This isn’t a new conversation,” she said. “We don’t ever take our success for granted.”

Gass added that there are “things in the pipeline ... which very much do showcase some of the things that Howard is speaking about,” but she declined to give specifics.

Gass also said that efforts by fast-food giant McDonald's Corp.MCD.N and other chains to upgrade their coffee offerings have put pressure on Starbucks.

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“The landscape has changed,” she said. “For us, it puts added pressure to just continue to innovate, stay ahead of the game and really take advantage of our strengths.”


Fast-growing Starbucks has more than 13,000 stores globally and plans to open another 2,400 this year.

In the last two years, however, sales increases at stores open at least 13 months, a key retail measure, have slowed. Same-store sales rose 7 percent in fiscal 2006, compared with 8 percent in 2005 and 10 percent in 2004.

Last July, Starbucks posted its weakest monthly same-store sales rise since 2001 as heavy demand for cold drinks like Frappuccinos slowed service during busy morning hours.

On Wednesday, Gass said she was “pretty confident” that such an event would not happen again.

“We’ve got people locked in a room working on this,” she said, but declined to give specifics.

Starbucks shares were up 52 cents at $30.51 in afternoon trade on Wednesday on Nasdaq.