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Starbucks founder says brand is getting diluted

February 24, 2007|From Bloomberg News

Howard Schultz, the founder and chairman of Starbucks Corp., told executives at the world's biggest coffee chain that the company's expansion to 13,000 stores was "watering down" its brand.

Decisions to streamline store design, for example, might be more efficient and financially responsible, Schultz wrote in a Feb. 14 memo to Chief Executive Jim Donald and other managers.

"However, one of the results has been stores that no longer have the soul of the past and reflect a chain of stores [versus] the warm feeling of a neighborhood store," Schultz wrote. "Some people even call our stores sterile, cookie cutter, no longer reflecting the passion our partners feel about coffee."

Starbucks has said it would expand eventually to 40,000 stores worldwide, with half overseas.

His comments come as the company faces increased competition from Dunkin' Donuts and McDonald's Corp., which introduced premium coffee last year.

Schultz's memo was posted Thursday on the Starbucks Gossip website run by Jim Romenesko, who also oversees a journalism blog for the Poynter Institute. Its authenticity was confirmed Friday by company spokeswoman Valerie O'Neil.

Shares of Starbucks fell 26 cents to $32.75.

Schultz said he took part in the decisions that have eroded the "Starbucks experience," including a move to promote fresh-bagged Starbucks coffee that led customers to purchase prepackaged beans and not get a chance to smell it while it was ground.

"I take full responsibility myself, but we desperately need to look into the mirror and realize it's time to get back to the core," he wrote.

Schultz occasionally sends out memos to remind his senior management team to evaluate their decisions and consider new ways to grow the company, O'Neil said.

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