Starbucks Closes Its Doors to Learn to Make Coffee

The story

Howard Schultz built Starbucks from a small Seattle coffee seller with four stores in 1982 into one of the best-known brands in the world. He was chief executive until 2000 and then stayed on as chairman. Through the mid-2000s, Starbucks opened new stores at an amazing pace, aiming for 40,000 locations someday. By early 2008 it had more than 15,000.

But Schultz worried that something important was being lost along the way. In a memo dated February 14, 2007, he warned the company's leaders about a "watering down of the Starbucks experience." He pointed to choices that had made sense one at a time, like faster automatic espresso machines and bagged coffee, but that together made stores feel less like a special coffeehouse and more like a chain. The memo leaked to the press, and Starbucks confirmed it was real.

By the end of 2007, fewer customers were visiting, and rivals such as McDonald's and Dunkin' Donuts were selling cheaper coffee drinks. Starbucks' stock had fallen by about half in a year. On January 7, 2008, the board announced that Schultz would return as chief executive, replacing Jim Donald. The company said it would slow its U.S. store openings and close some stores that weren't doing well.

Schultz's most famous move came a few weeks later. On the evening of February 26, 2008, about 7,100 company-run Starbucks stores across the United States locked their doors at 5:30 p.m. for about three hours. Roughly 135,000 workers stayed inside for training on how to pull a proper espresso shot and steam milk the right way. Closing every store at once cost the company sales, and some critics called it a publicity stunt. But it sent a clear message to customers and employees alike. "Tonight is about making sure our baristas have what they need," Schultz said.

The hardest decisions came next. In July 2008, Starbucks said it would close 600 U.S. stores, far more than the 100 it had planned earlier, affecting about 12,000 workers. About seven in ten of those stores had opened since the start of 2006. The company expected charges of more than $300 million. Admitting that so many recent stores had been mistakes was painful, and it happened just as the U.S. economy fell into a deep recession.

Schultz kept working on the basics: better coffee, a calmer store experience, and fewer, better new stores. Starbucks cut its plan for new company-run stores in fiscal 2009 in half, to fewer than 200, a huge change for a company that had recently been opening thousands a year. The results took time but did come. In November 2010, Starbucks reported record earnings for its fourth quarter, with profits up 86 percent from a year earlier. Schultz called the year "a defining year" for the company.

The Starbucks story shows that growth itself can become a problem when it is chased for its own sake. It also shows that a leader can admit mistakes in public, even ones the company made very recently, and that customers often respect that honesty.