Read the transcript of Wednesday's Starbucks earnings call

Some quotes from Howard Schultz:
* "Our food transformation begins with the launch of new, nutritious breakfast foods in September, continues with the replacement of our current breakfast sandwiches in the early part of Q1, and will be followed by the roll-out of a new, higher-quality, proprietary bakery and chilled foods program."
* "Clover is being very well received in our two test markets and we believe it provides another significant opportunity to differentiate the Starbucks Experience from all others. [Memo to Howard -- I was in St. Paul, MN last weekend and had Clover coffees at Kopplin's Coffeehouse; I couldn't get a Clover at Starbucks in the Twin Cities. So much for differentiation.] Our current plans are to bring the Clover experience to customers in more than 80 of our U.S. company-operated stores in Seattle, Boston and San Francisco by the end of the calendar year."
* "We know that we've got negative traffic. We are not accustomed to that. We're not happy with it. This is a management team in a company that is used to winning and we are built for that and we want to do that again." (Read the full transcript)

Comments

[cool beans]

Jim,

I spend a great deal of time at Kopplin's so it's nice to read that you've shared an experience that so many coffee drinkers in the Twin Cities are unaware of. If you have time, email me your thoughts and I'll pass 'em along.

[coffee_master]

can't wait...

[Marcus]

I live in Williamsburg, VA. We have two Starbucks (there are other licensed stores), but two real ones.

So, lately, it is sometimes so crowded that I just don't go in.

So I'm thinking--how in the world are they not doing well?

The employees are really nice here, we get good service, good products.

The only thing I dislike is that we used to have really good donuts: old fashioned cake, chocolate iced, and regular iced. Now the new ones called Top Pop are not nearly as good or fresh tasting. Some of the new scones are really bad too and taste more like biscuits.

[Joe]

Starbucks current struggles are a great example of the fallacies behind Starbucks previous strategy of sticking a store every five blocks. When times are good and sales are comping in double digit percentages, the inherent cannibalization has much less of an impact on fixed costs plus you're in a slightly better position to cater to demand.

But when traffic counts go negative and actual dollars head south, you're looking at having to cover the cost of two leases when, previous to the cannibalization, there was only one. Not to mention duplication of labor, utilities etc. just so there can be another Starbucks five blocks down the street.

This is just the tip of the iceberg on this issue. Howard mentioned the increasing impact of operating leases on the bottom line during the earnings call yesterday. Im willing to bet it won't be long before he'll be longing for the days of having one store doing 25k per week as opposed to two doing 32k per week within blocks of each other.

[Melody]

Joe, I assume you mean two stores doing $32 a week combined, not bringing in $64 a week in total. ?

Deep inside he must long for the days when there were less than 2000 stores. Pour Your Heart Into It is a about a Starbucks that doesn't exist anymore.

I'd bet he'd say though, "We cannot go back to the halcyon days of ..." I'm sure of it. All he can do is deal with the animal that Starbucks is now.

[P.R.I.D.E.]

Melody, while I always appreciate your opinion, I do believe that your assertion that the Starbucks referenced in "Pour Your Heart Into It" doesn't exist anymore-I think that is debatable. I think the times are tough, and we haven't solved the problems we had even before the times are tough. But in my world, we all are relentlessly passionate about the brand. We are eager and have good intent in every decision that I make. While things might seem a bit chaotic through this transition, I do believe that we approach spirited debate with respect and dignity.

Also, one of my favorite things about "Pour Your Heart Into It" is that Howard takes the time to share personal stories of the challenges and growing pains of building Starbucks. In actuality, it was helpful for me to read that it wasn't always rainbows and pots of gold. It helped me with perspective.

Just food for thought.

[Anonymouse]

I think I "get" what Joe's trying to say - whether two side-by-sides gross more than a single, there's still 2 leases to pay, it digs into profitability. And the way it actually happens in the real world is that one store gets more traffic for whatever reason, and the other gets less, for whatever reason. Around my neck of the woods, the less successful locations are ones that opted to be part of larger shopping center campuses, where driving access isn't convenient. The one that opted to be next to the interstate and have 3 different drive entrances to the property does about 2-3x the business as the others - yet there's still the leases and labor and capital costs to keep the other two in operation. The customers would still be there if the bottom 2 locations closed - the customers would be eating the cost of a mile or two of extra gas to drive there, but the #1 store would ultimately be more profitable because the company pays only one lease, one labor team.

Home Depot - the behemoth of chain hardware stores finally cut some fat today - for the same reasons. Too many to choose from, too many on-par competitors close by. There are 2 Home Depots within 5 miles of each other in my area, and there are 2 big regional name hardware stores right next to each of them within those same 5 miles. There aren't enough people living in a 10 mile radius to keep them ALL as profitable as they could be. They cancel themselves out.

I don't know enough about Starbuck's bottom line, but I wouldn't be surprised to hear of similar cutbacks over the next two years. You can't keep opening new stores in one country at a rate of hundreds a year in perpetuity and not expect to reach a finishing point. I think they've reached their bounce-back point - even if the economy weren't currently tanking.

[Joe]

Sorry...I wasnt real clear in my scenario. Yes, Melody, not 64k total but 32k total between the two stores.

A reasonable assumption would be the 25k store would drop to 20k and the new store would do around 12k. It used to be that Starbucks could cover that gap with ever increasing sales so, a year or two down the road the 20k store ends up back at 25k and the 12k store goes to 15-17k. That's enough to cover the additional fixed costs etc. while generating additional profits.

Even in times of exploding comps, this didnt always work and I suspect it did have some effect on earnings as in "why isn't Starbucks more profitable?". But the strategy accomplished two things, above all. It jacked the store count up and provided more stores to base comp figures on as well as a bunch of additional gross sales dollars. This all kept Starbucks going as a growth company.

Now, this is all coming home to roost. The closure of 100 "underperforming" stores is likely to be an attempt to mitigate the effect this strategy is having on the current state of affairs. They aren't going to be able to get out from all of them, though, any time soon. And as long as the cannibalizing stores exist, they are going to suck out a lot of whatever gains Howard is able to make with his transformation agenda.

This will have a very long tail, indeed.

[Coffee Soldier]

So do we think the company will scrap the Leadership Conference like Costa Rica a few years back to save money? I heard they were investing 30$ million into it....I just wish they would tell us the dates! The rumor mill says one of the last 2 weeks of October some of us have lives to plan!!

[Darleen]

So do we think the company will scrap the Leadership Conference like Costa Rica a few years back to save money?

I hope not, I think we all could use some time together re-connecting. I hear it will be in Seattle. That'd be awesome. Melody, you'd be meeting a lot of us face to face! How cool will that be.

[Ralph Jensen]

It should be noted that there is some talk near the top of Schultz's world of selling Starbucks to Coke-a-Cola, who benefit from bottling all of Starbucks cold drinks both in store and at market and have a century's experience of overcoming economic hard times.

This would explain the cannablization that is occuring at the store level.

DM's are being encouraged to fix their books, fire store managers at the top of their Salary Cap, falsify their Market-out Losses and drop Assitant Managers back to Baristas if they ask to move stores.

In our area, stores are going without Assistants, leaving the huge burden of running an 18 hour a day business to over-tired managers and shift Supervisors.

The shift from In House "Snap-shot" visits to "Customer Satisfaction Receipts" has been devastating.

It works like this: Every 65 ticket prints out a phone number/website. The receiver calls in with their complaints, or satisfaction.

Of those 65 reciepts printed out, very few people actually call. Those that do have NOTHING good to say. They just bitch. Whether it is the store's fault or not.

We have 20,000 customers each month. Of those customers, and printed receipts, we recieved 20 total replies.

Our DM is trying to set new store policy based on 20 people out of 20,000.

If everyone was having a bad experience, there would be no starbucks.

And of course DM's trying to fix this are blaming Managers, Asst's S/S's and Baristas - who are the ones are suffering from this horrific abuse of Customer 'Satisfaction' Process. Howard might as well rename it "Customer Bitch Line"

Somewhere along the line, perhaps between writing 'How To Suceed In Business' books, Howard Schultz has totally lost the plot. Or he is wrecking the business to sell it off as a desirable 'brand' bargain.

Look for this sale to occur in October of this year.

[Non Believer]

We just got an ASM after a bit of not having one. She's a transfer from another store.

[schniznikka]

the rumor mill is churning for sure. I'm hearing lots of stuff I've never heard before on this thread alone.
As far as firing managers at their cap and demoting asm's, thats just nonsense. If you happen to be in an under-performing market, you can obviously expect some desperate decision making. But if you're in New England or other areas where stores are still comping, it's business as usual. As far as the leadership conference goes, I think Starbucks would be foolish to scrap an opportunity for managers to connect during such tumultuous times. On a side note, I give pike place roast 3 months tops.

[Jim Lane]

"Negative traffic?" What a BS way to say Starbucks is losing customers to the chains and to local coffee houses that can put better food on the plate and fresher coffee in the cup.

On the last day of April I was in Yuma and the store's sign was touting the PPBthey were serving was roasted on March 25???

Hell, every local coffeehouse in San Diego does better than month-old coffee in the cup.

What a crock, Howie, get your lame-ass corporation a good JIT program and quit serving five-week old coffee.

jim

[jon]

Jim,

they are probably just too unorganized to update the roasted on date. On april 27th, we received PPB(which is EDB) roasted on the 18th. Thats 11 days fresh, pretty good for 10,000+ stores. Unfortunately freshness cant make up for mediocrity.

[Hmm]

Mediocrity? Not one complaint from the Pike Place Roast drinkers.

I really don't understand the complaining on this site. At my store, we haven't had an ASM in 6 months and she was only here for 3 months waiting for her store to open. We didn't have one since our store opened.

If I am not mistaken, we make 20,000 customer sales a week, and someone posted 20,000 customer sales a month? And some managers can't keep up with work and they need ASM's and stuff? I don't see how that makes any sense.

I also don't see how Howard Schultz is the one to blame for what every DM does. My DM doesn't want to change our store based on 20 comments a month we get, as well. So why should it be Schultz's fault?

[NorthEast]

20,000 customers a week? Wow...I dont want to think about how much money your store must make. We do about 5k customers a week and average 23-25k a week. So lets see...your store should be making somewhere around $100k a week. Wow, I think you might be the most profitable Starbucks in the world!

[Cali ASM]

I think you guys are mixing up customer count (# of transactions) and sales.

[Cali ASM]

I have been saying this forever! First of all there are too many stores. Secondly, there are too many stores too close together!

My town has 4 sbux's all within about 4-5 miles of each other. The next town up (which is much, much smaller than mine) has 3!

Am I the only one who sees a problem with this?

[Melody]

[quote]>The shift from In House "Snap-shot" visits to "Customer Satisfaction Receipts" has been devastating.

It works like this: Every 65 ticket prints out a phone number/website. The receiver calls in with their complaints, or satisfaction.

Of those 65 reciepts printed out, very few people actually call. Those that do have NOTHING good to say. They just bitch. Whether it is the store's fault or not.<[/quote]

I've been told that it is closer to one Customer Voice Receipt per 50 receipts, but I have no idea if that is right or not.

You say there is a phone number, but I'm pretty sure it is ONLY a web survey. The web site is here:
https://www.starbuckscustomervoice.com/

I've done SO many of them that I have it book-marked. I know almost every question on the survey. It is a structured survey, and at no point it there an open-ended opportunity for complaint. The free form section of it is limited to 250 characters.

And, by the way, I really think it could be improved and would very happy if you guys would vote for my customer voice receipt idea on mystarbucksidea.com. Use the search engine and type in "Customer Voice Receipt Survey" and look for the idea thread started by me on 4-29 called "Please improve Customer Voice Receipt Survey."

[quote]
And of course DM's trying to fix this are blaming Managers, Asst's S/S's and Baristas - who are the ones are suffering from this horrific abuse of Customer 'Satisfaction' Process. Howard might as well rename it "Customer Bitch Line"

Somewhere along the line, perhaps between writing 'How To Suceed In Business' books, Howard Schultz has totally lost the plot. [/quote]

Again, the Voice Receipts are hardly a means to bitch because it is a very structured survey, and it's definitely not a phone line. I suppose it is possible that your store is having people call in separately to Starbucks customer service and complaining, but I'm in disbelief.

And other than "Pour Your Heart Into It" what has Uncle Howard written? I'd love to know.

I'm not totally convinced that Ralph Jensen knows what he is talking about in his post ...the jury is deliberating.

Perhaps I was being a little harsh about the Starbucks of that era no longer existing. It's hard to stay positive sometimes when you're in love with coffee bean, and you're listening to Howard Schultz enthusiastic about something that involves a blender, bananas and protein powder.
[quote]
I have been saying this forever! First of all there are too many stores. Secondly, there are too many stores too close together!

My town has 4 sbux's all within about 4-5 miles of each other. The next town up (which is much, much smaller than mine) has 3![/quote]

I've joked many times that the Starbucks store locator on their website is useless. The smallest area you can search is within 2 miles, and now that there are so many stores, you'll get way too many hits. There are too many stores. If you type in 98104, you'll get like 60 stores within 2 miles. You now need to be able to search by an increment of a few blocks!

As to the most profitable store, that has got to be located at 1912 Pike Place. It's phenomenal watching tourist after tourist come in and buy mugs & tumblers & coffee that you only can get there.

Lastly, I can't wait to meet Darleen! :-) When is this leadership conference in Seattle? YEAH! We're going to be needing some tissue! ;-) ;-)

[Jake]

Just be glad it's only 1 in 65 reciepts. At Target, it's 49/50 reciepts with surveys, and we have Snapshots on top of that.

[Tracy]

Lol @ pike place lasting only 3 months. I second that. I can't tell you how many french presses we make a day for people wanting something bolder. We're thinking of brewing the bold all day, and pike only until 12pm.

[I Heart Scones]

Marcus,
Scones are *suppose to* taste more like biscuits. They're not meant to be sweet and cakey.

[StLouieDrip]

Melody:
It is a structured survey, and at no point it there an open-ended opportunity for complaint.

...

Again, the Voice Receipts are hardly a means to bitch...

Melody, although it's very structured, it's still structured so a customer can express extreme dissatisfaction. It's designed so a customer can indicate five levels of feedback, on a scale from very good to very bad. So yes, a customer could indeed use them to complain and bitch about their visit.

[Melody]

I agree with what you're saying StLouisDrip, and sure if a customer filled out the lowest level of satisfaction on a scale of one to five, that wouldn't look good for the store. I agree with you.

But when I hear someone talking about "bitching" I interpret that to mean open-ended ranting, which is a bit different from the voice receipts.

[PPB]

I love Pike Place. So there.

[EOTW]

The Seattle Leadership conference is a lot of hype --- get ready for a MAJOR announcement come the end of September!

[P.R.I.D.E.]

For anyone reading this site, I have to remind you that this is a GOSSIP site, so please don't take these assertions as fact in terms of the company as a whole.

Once my DM explained to me the basics of labor management in conjunction with the shrink of the economy, I understood that in order to retain my ASM in my store, I needed to increase the store sales by only $1500/week. Our management team put together a plan and within 6 weeks we were back to earning our ASM. It's one pound of coffee per barista. Or one recommended pastry per hour. we've made it fun, and everyone understands that why we're here.

And, for perspective, I happen to know a lot of people who are managers with other retailers. They've taken a different approach- a lot of them have had to fire all of their p/t staff, and it is only the management team left in the store, acting as the p/t sales associates. Here at Sbux, I am proud of the fact that we haven't had to do this. Rather, we are focused on expecting greatness. And sure, a few will self-select out, saying there is too much pressure, or that wasn't what they signed up for. Fine by me.

[Jim Lane]

Wish it was a case of not updating. I asked and that is what it was - March 25.

j.

[Jill]

Which starbucks store will be closed? I heard one in FL and one in NY. Does anybody know more??

[a non]

Jim,

they are probably just too unorganized to update the roasted on date. On april 27th, we received PPB(which is EDB) roasted on the 18th. Thats 11 days fresh, pretty good for 10,000+ stores. Unfortunately freshness cant make up for mediocrity.

Posted by: jon | May 1, 2008 6:24:00 PM

That is NOT fresh... I can go to my awesome local coffee shop and have them in there roasting every morning.

11 days is not fresh at all compared to that...

[StLouieDrip]

Coffee isn't like bread. Bread is stale after 1 day. But 1-day old coffee actually tastes worse than 3-day old coffee. That's because coffee needs to mellow and doesn't reach its peak of flavor until it has mellowed for 2-3 days. Then it's still good (at its peak) for a few days more. Some feel that 11 days is reaching the end of its peak, but other similarly picky folks are just fine with 2-week old coffee.

And my math is terrible, but I think some of you are even worse than I am...

Jim Lane:
On the last day of April I was in Yuma and the store's sign was touting the PPBthey were serving was roasted on March 25???

Hell, every local coffeehouse in San Diego does better than month-old coffee in the cup.

Um, from 3/25 to 4/1, I count that as 7 days. How did you come up with a whole month?

Jon:
On april 27th, we received PPB(which is EDB) roasted on the 18th. Thats 11 days fresh, pretty good for 10,000+ stores.

Actually, that's 9 days, not bad at all. But I agree, it doesn't help if it's not a coffee that excites me.

7 to 9 days is pretty fresh by my standards, especially since it all gets used up immediately. But still, a premiere coffee company that wants to be the biggest and the best in the world, a company that has total control over its own roasted beans should really be getting it to the stores even faster than that. But not straight out the roaster, because that's no good either.

[Clean Simple]

Looking forward to those new pastries. I can't stand the currrent crop of Starbucks pastries. They'll just icky, pasty and doughy, yuck. I'll get my cup o' drip there and then get something good to munch on elsewhere. Come on, Howie, get the ovens fired up!

[cupajoe]

If Coca Cola offered $30 a share, I'd take it. Even if Starbucks can be $40-$50 a share in a few years, to go from being $40 In November of 2006 to where it is now, it is just going to take too long for shareholders to remain patient. Sorry.

[jennifer]

just how good have the test markets been for the clover? when will they roll out in san francisco? you seem to be quite on top of things. i'll bet this page would love some comments from you.

www.squidoo.com/starbucks_clover

[Melody]

Jennifer:
To whom was your post directed?

I've heard Howard Schultz say that there will be 80 clovers by the end of the year. That must mean that something should be happening soon for San Francisco ... The year is nearly half over now!

[VentiSnark]

And my math is terrible, but I think some of you are even worse than I am...

Jim Lane:
"On the last day of April I was in Yuma and the store's sign was touting the PPBthey were serving was roasted on March 25???

Hell, every local coffeehouse in San Diego does better than month-old coffee in the cup."

Um, from 3/25 to 4/1, I count that as 7 days. How did you come up with a whole month?
------------

Dear, are you sure you didn't have a little too much coffee today? He said the LAST DAY OF APRIL, not the FIRST day of April.

[Joseph Spanker]

Another 100 employees get let go from the field marketing organization. Wow!Fact.

When does the IT Group blood letting begin? With 30 Directors running around, creating bottlenecks and perceived low value and high cost, why are the systems so messed up and their empires still standing? Take an axe to IT Standards and Services.

[StLouieDrip]

OOPS! Yes, VentiSnark, you're right. It definitely wasn't a good time for me to be reading and writing. Ack! But I think I needed MORE caffeine, not less! :-D

And sorry to Jim Lane, just ignore my post... haha, as you already have.;-)

[Jennifer]

Melody, I was addressing the writer of this blog. However, I should have addressed my question to everyone who reads this blog. You guys all seem so up-to-date about Starbucks!

Has anyone in San Francisco seen the Clover in a Starbucks yet?

www.squidoo.com/starbucks_clover