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Overhaul, Make It a Venti - New York Times http://www.nytimes.com/2008/01/30/business/30sbux.html?_r=1&ref=b...

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A Starbucks on Every Corner

Mark Sinclair for The New York Times

A Broadway Cafe cappuccino.

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Overhaul, Make It a Venti

Mike Sinclair for The New York Times

The Broadway Cafe in Kansas City, Mo., has outlasted a Starbucks next door.

By MICHAEL BARBARO and ANDREW MARTIN Published: January 30, 2008

KANSAS CITY, Mo.—When a Starbucks moved in next door, the coffee

fanatics who run the Broadway Cafe trembled. Sure, they roasted their

own beans and served up handmade espresso drinks to a loyal

clientele. But would it be enough to fight off a corporate behemoth?

That was nearly 10 years ago, and now

the results are in: the Starbucks is

about to shut down. The store had a

funereal air the other day as a handful

of loyal customers sipped beverages

and jotted goodbye notes in what

amounted to a book of condolences.

Next door, the Broadway Cafe was bustling. “You win

because of the coffee,” said Jon Cates, one of the owners.

After more than a decade of sensational buzz, Starbucks is

struggling nationwide as it faces slowing sales growth and

increased competition.

The man who built the chain, Howard D. Schultz, has

retaken the reins in an effort to revive it. He is scheduled to

roll out a plan on Wednesday that will almost certainly

involve shutting down more stores in the United States

while accelerating expansion overseas.

Mr. Schultz has said he wants to refocus on the “customer

experience,” recapturing some of the magic of the chain’s

early years, when employees — who had heard the term

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Overhaul, Make It a Venti - New York Times http://www.nytimes.com/2008/01/30/business/30sbux.html?_r=1&ref=b...

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barista before Starbucks came along? — made the drinks by

hand and customers were excited by top-notch coffee.

Mr. Schultz faces a difficult task: He has to slow down the

company to make stores feel more like hip neighborhood

coffeehouses while also delivering the steady growth that investors have come to expect

from Starbucks.

Can he pull it off?

Details of Mr. Schultz’s plan remained under wraps on Tuesday. Officially, he has not

given up the goal of opening 40,000 stores worldwide, which no food or beverage chain

has ever achieved. Wall Street will be watching closely on Wednesday to see how he

reconciles that plan with the need to close some stores and refocus the business in the

United States.

After going head-to-head with Starbucks for almost 10 years, Mr. Cates, the Broadway

Cafe owner, said he no longer worried much about competition from the company.

Starbucks, he said, has lost its focus on coffee, noting that the company switched from

making espresso by hand to robotic machines that pump out drinks with the push of a

button.

“For them, the move to fully automated machines was inevitable, but they lost something,”

Mr. Cates said. “If you are a barista, you have to roast your own coffee. It’s a necessity. You

cannot compete by selling music or WiFi.”

Even some loyal Starbucks customers here concede that something has changed, and not

for the better.

“It’s lost its mom-and-pop home-away-from-home feel,” said Aga Machauf, a 26-year-old

event planner, while sipping a grandé caramel macchiato. “It feels more corporate now.”

It was not too long ago that the arrival of a Starbucks was a major event, a recognition that

a town or neighborhood was worthy of the chic Seattle-based chain. But in the last five

years, every street corner, airport concourse and roadside rest stop in America seemed to

attract a Starbucks.

As the company grew and customer traffic increased, Starbucks expanded its food

offerings while introducing efficiencies like those automated espresso machines.

Gradually, complaints surfaced that Starbucks felt more like a fast-food restaurant than a

coffeehouse.

In five years, Starbucks nearly tripled the number of stores worldwide, from 5,886 in 2002

to 15,011 in 2007.

The company is by no means losing money: It earned $673 million in profit on $9.4 billion

in net revenue for 2007.

But Starbucks has been hurt by rising costs and stiff competition. Last summer, its

customer traffic declined for the first time since the company went public, sending the

stock tumbling.

By the end of the year, Starbucks stock, once seemingly invincible, had declined by 42

percent.

This month, Starbucks ousted its chief executive, James L. Donald, and brought back Mr.

Schultz to try to invigorate the company.

Mr. Schultz had already outlined many of the problems in a Feb. 14, 2007, memo that is

now famous. Entitled “The Commoditization of the Starbucks Experience,” the memo

acknowledged that rapid growth had diluted the Starbucks magic.

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