Howard Schultz Transformation Agenda Communication #1

Letter To: All Partners
From: Howard Schultz

Twenty-five years ago, I walked into Starbucks first store in Seattle's Pike Place Market, and from that day forward we have taken the road less traveled. Working with an exceptional group of people and summoning all the courage we could muster, we created a new kind of place ? one that served the kind of coffee that most people had never tasted, an environment that didn't look like any other store, and hiring people who were fanatically passionate about coffee and celebrated their interaction with customers. To do this, we focused every ounce of our beings on creativity and innovation.
Over the years, together we have built one of the most recognized and respected brands in the world. When we went public in June 1992, we had 119 stores. We now have more than 15,000 stores and a significant and growing presence in 43 countries, serving 50 million customers a week. These customers have placed their trust in us, and for them and for each other we need to ensure that our future is as exciting as our past.

If we take an honest look at Starbucks today, then we know that we are emerging from a period in which we invested in infrastructure ahead of the growth curve. Although necessary, it led to bureaucracy. We will now shift our emphasis back onto customer-facing initiatives, better aligning our back-end costs with our business model. We are fortunate, though, that the challenge we face is one of our own making. Because of this, we know what needs to be done to ensure our long-term future success around the world.

Transforming the Starbucks Experience

The Board decided that I should lead this transformation. Given this, effective immediately, in addition to my existing role as chairman, I have returned as chief executive officer for the long-term. Jim Donald is leaving the Company. I want to pay tribute to Jim's leadership. He was a passionate and tireless advocate for Starbucks, and his contribution to our company cannot be overstated.

Looking ahead, the reality we face is both challenging and exciting. It's challenging because there are no overnight fixes. Rather, our success will come in the rigorous execution of several new strategic initiatives ? that capitalize on our heritage to drive our successful future. And our reality is exciting because there is so much opportunity ahead for Starbucks.

Our new transformation agenda includes:
- Improving the current state of the U.S. business: by giving our store partners better training and tools, launching new products ? some of which will have an impact as significant as Frappuccino® products and the Starbucks Card ? and introducing new concepts in store design, among other enhancements to the Starbucks Experience. At the same time, we will slow the pace of our U.S. store openings and close a number of underperforming locations, so we can renew our attention on store-level unit economics and be laser-focused on flawless execution.

- Re-igniting our emotional attachment with our customers by restoring the connection our customers have with you, our coffee, our brand, and our stores. Unlike many other places that sell coffee, Starbucks built the equity of our brand through the Starbucks Experience. It comes to life every day in the relationship our people have with our customers. By focusing again on the Starbucks Experience, we will create a renewed level of meaningful differentiation and separation in the market between us and others who are attempting to sell coffee.

- Building for the long term, which has two distinct pieces: re-aligning Starbucks organization and streamlining the management of the organization to better support customer-focused initiatives by ensuring our support and planning functions -- from back-end IT systems to store operations -- are most effectively dedicated to the customer experience. This will help us to make smarter decisions about new products and initiatives and bring them to market more quickly than ever in our past.

- Expanding our presence around the world, by building a profitable business outside the U.S., and capitalizing on the enormous, untapped potential for our brand. We will redeploy a portion of the capital originally earmarked for U.S. store growth to the international business. Though we have 5,000 international stores today, we are just at the beginning.

Taken together, these initiatives will help drive our enduring success. And they will come with changes in our organization?some big and some small. I will be decisive in making them. Right now, I can tell you they will include a realignment of our leadership structure, as well as a series of actions to reduce costs and reallocate resources to customer-focused initiatives.

But even as we execute this transformation, there are certain integral aspects of our company that will not change at all. These include our commitment to treating each other with respect and dignity, providing health care and Bean Stock for all of our eligible full- and part-time partners, and our commitment to our community efforts, our ethical sourcing practices and encouraging our coffee suppliers to participate in our CAFE practices program in our origin countries.

Stay Tuned
I know that you may have a number of questions. Attached is a brief Question and Answer document that answers some of them. And you have my commitment that there will be more information to come over the next few weeks and I will keep you informed. Specifically, I will be meeting with the leadership of the Company in the near future to discuss our transformation agenda, and in the coming weeks we will communicate these details with you, including your role in it.

In the meantime, I want to thank you for your dedication to Starbucks and for your commitment to earning the trust of our customers every day. Our success is up to us. We know what we need to do to win, and we will do it.


Voicemail To: All Partners
From: Howard Schultz

Hello partners, this is Howard Schultz. Today, Starbucks is announcing a series of strategic initiatives to increase shareholder value and capitalize on our significant U.S. and international opportunities.

Going forward, we will be refocusing our entire organization on the Starbucks Experience, by going back to our heritage and what made us so successful in the first place; putting the customer back at the center of everything we do.

The execute this transformation, the Starbucks Board of Directors has asked me to return as your chief executive officer, in addition to serving as chairman, effective today. This is not an interim role for me. I'm in it for the long-term and I promise to be decisive and do all I can to lead Starbucks to new heights.

Jim Donald will be leaving the Company and let me just pay special tribute to Jim who has been a passionate and tireless advocate of the company. I'm grateful and I thank him for his significant contributions and I wish him nothing but the best in the future. He's been a business partner and a dear friend and I'm sorry to see him leave and I think it's clear to say that his contribution to our Company cannot be overstated.

The success of Starbucks rests on the emotional connection we have with each other and with our customers. It also rests on how we implement our strategy and innovate to stay ahead in a competitive marketplace and tough economic environment.

I think recently we have become victims of our own tremendous success. We are emerging from a period in which we have invested heavily in infrastructure ahead of the growth of the company and, although necessary, it has lead to bureaucracy that has both slowed us down and cost us money. We now shift our emphasis back to consumer facing initiatives, betting aligning our back end costs with our business model.

In refocusing our Company, we are going to play to our strengths ? to what has made Starbucks and the Starbucks experience so unique; ethically sourcing and roasting the highest quality coffee in the world, the relentless focus on our customers, the trust we have built with our people, and the smart, entrepreneurial risk-taking, innovation and creativity that are the hallmarks of our company.

To this end, in the coming months you will be seeing internal changes and exciting new developments at Starbucks.

We'll share the specifics as soon as we can. But in general, I can tell you that our transformational agenda will have three objectives:

- To improve the current state of the U.S. business

- To re-ignite the Starbucks experience through driving improvement and change in all areas that "touch the customer"; and

- To build for the long term; this has two distinct pieces;

- Realign our organization and streamline the management of the organization to support customer focused intitiaves and

- Accelerate our International success story and growth even further

In closing, let me say that we are truly in this together. Every partner plays a critical role. I am asking that each of us focus on carrying out our responsibilities in the best way possible, and help to create welcoming and distinctive places that are truly a "third place" for customers and the communities that we serve.

Let me just say to everyone who is listening, I am sincerely excited and energized by the challenges and the opportunities we have. I am here for the long term. I'm here to help every one of you succeed and to restore the company to the greatness it has been.

But our success is up to you, not only me, but all of you and all of us. We know what we need to do to win and we will do so.

Thanks for all you do and all you have done and for contributing so much to Starbucks and to all those people who work so hard and tirelessly behind the scenes who contribute to so much.

Thank you very much. All the best.


For more information:
Questions & Answers
Investor Relations