money

SEATTLE, Jan 21 — Young people wearing hoodies and chunky glasses are sipping microbrew beers and espressos, nibbling on cheese and baguettes made at a local bakery and listening to a guitarist strum and sing.

The scene could be at any independent coffeehouse around the United States. Instead, it is at a Starbucks-owned shop called 15th Avenue Coffee and Tea.

The new store, one of two in Seattle1s trendy Capitol Hill neighbourhood, grew out of a series of brainstorming sessions by a group of Starbucks employees after Howard D. Schultz, Starbucks1 chief executive, told them to “break the rules and do things for yourself.”

The directive was part of his effort, since he returned as chief executive two years ago, to turn the struggling company around by injecting the multinational chain with a dose of the urgency, nimbleness and risk-taking of a start-up company.

“We lost our way,” he said. “We went back to start-up mode, hand-to-hand combat every day” to find it. “And with the kind of discussion and focus that probably we had not had as a company since the early days — the fear of failure, the hunger to win.”

There are indications that Starbucks1 turnaround efforts are working. Yesterday, the company reported that in the first quarter, which included the important holiday season, net income was US$241.5 million (RM821 million), up from US$64.3 million in the year-ago quarter.

Revenue climbed 4 per cent, to US$2.7 billion. Same-store sales were up 4 per cent, reversing steady declines. In the last year, the company1s stock has nearly tripled to US$23.29, though that is still significantly below the record high of nearly US$40 in 2006.

But even if Schultz, who bought the first six Starbucks stores in 1987, still sees the company through an entrepreneur1s eyes, it is no longer a start-up and its stores are not local coffeehouses. Some analysts wonder whether Starbucks is refusing to accept its new identity.

“That kind of resonance it had at one point is going to be hard to recapture,” said Bryant Simon, a history professor at Temple University and author of a book about Starbucks titled “Everything but the Coffee.” “It1s his own sense of the brand overtaking what1s doable right now.”

When Schultz returned in January 2008, Starbucks had just posted its first quarterly decline in the number of transactions at stores in the United States. As the chain opened a record 2,571 stores in 2007, the onetime growth stock lost 42 per cent of its value.

Then, in a one-two punch, consumer spending plummeted, and Starbucks, selling a luxury rather than a necessity, was one of the first to feel the pinch. Meanwhile, competition emerged from a new corner of the market when McDonald1s began serving espresso.

When Schultz, standing at the bar in one of the new Seattle shops and sampling espressos with whole milk, talks about Starbucks, he uses phrases like “the authenticity of the coffee experience” and “the romance, the theatre of bringing that to life.”

But that does not match the reality of many Starbucks customers, who rush through each morning on their way to work, or many of its former customers, who have rejected the chain1s cookie-cutter shops in favour of small local shops that serve more carefully made coffee.

Schultz1s first job upon returning was to halt the marathon store openings, lay off 1,500 United States store employees and 1,700 global corporate employees and figure out how to get the remaining 150,000 to think like employees of a scrappy little company that just wants to serve a good cup of coffee. Starbucks1 coffee buyers, for example, had chosen only varieties of beans that were produced in large enough quantities to supply all Starbucks stores. They rejected coffees made in small batches, which artisanal coffeehouses specialise in. Schultz changed that. “We1re not one size fits all.”

Even as Schultz tries to manage more like a start-up founder, he has given in to traditional big-company ideas that he had previously resisted. Last year, Starbucks embraced customer research surveys and ran its first major advertising campaign.

Entrepreneurs, more than traditional chief executives, “keep shaking things up and pulling the stakes out of the tent because they like the mud and the chaos of reinventing, and Howard has a bit of that in him,” said Warren Bennis, founder of the Leadership Institute at the University of Southern California, who has known Schultz since the mid-1990s.

But he has also noticed that Schultz has developed “more gravitas, more depth.”

Bennis added: “I don1t think he1s going to become the classic entrepreneur who can invent but doesn1t manage.”

Schultz brought Cliff Burrows, who was managing stores abroad, back to Seattle to run American operations. One of the first discoveries he made talking to customers seemed basic, but had been lost in Starbucks1 push to open stores.

Coffee drinkers in the Sun Belt, it turns out, prefer cold drinks, while those in the Northeast generally like drip coffee and those in the Pacific Northwest drink more espresso. Yet the executives in charge of regions of the country were divided along time zones and out of touch with what different customers wanted.

Burrows shifted the geographic divisions. “All of a sudden you start to see it1s not a numbers game — it1s about consumers influenced by where they live,” he said.

Schultz also recruited Arthur Rubinfeld, who had left the company in 2002, to return as president of global development in charge of choosing sites and designing stores. To shed the sameness, Rubinfeld is trying to give each store a feeling of “local-ness,” he said, reflecting the neighbourhood and its architectural history.

At the University Village store in Seattle, for example, there is a long communal table hewn from an ash tree that fell in the Wallingford neighbourhood of Seattle, and it is lined with electrical outlets because at night it is filled with students studying.

At the Starbucks stores in the Capitol Hill neighbourhood, bunches of wildflowers sit in mismatched jugs on tables found in antique shops. Beans are ground to order and poured through a cone like those used in artisanal coffeehouses. On the outdoor patio, coffee grounds are piled in a bucket with a handwritten sign encouraging neighbours to take them for composting in their gardens.

One customer, Joshua Covell, was visiting from San Francisco, where he said he never went to Starbucks. “All the Starbucks have that cookie-cutter feel,” he said. “It1s natural not to like corporate giants, but you can see they1re trying.”

But Sylvia Lee, a doctor who lives in the neighbourhood, said she was excited when she saw the shop was opening — until she discovered it was owned by Starbucks. “No one wants to be the duped customers won over,” she said.

For Starbucks, the stores are partly learning laboratories. Some of the things they sell, like small-batch beans and brewed-to-order cups of coffee, will appear in other stores.

But they are also venues for Schultz to scratch his start-up founder1s itch. He said he planned to open similar stores in other cities, complete with local artists1 work and salvaged furniture. “I think we1ll be able to scale this in a similar fashion at a lower cost.” — NYT