Howard Schultz Just Doesn't Get Starbucks

Starbucks is in the midst of a multiyear turnaround that's not going too well. The reason is that Chairman and CEO Howard Schultz doesn't appear to grasp the cold hard reality of the situation the company faces. And until he does, the empire he built will continue to unravel.

Earlier this week, Schultz posted a poorly veiled advertisement on The Huffington Post website entitled, "Staying Real in an Instant." Here's an excerpt:

"We think introducing a paradigm-changing and better-tasting instant coffee is a way to bring quality and value to the mass market, and to turn on a whole new set of coffee drinkers to the Starbucks brand. Expectations from brands like Starbucks are high, and interaction with our brand is very personal. Yet in spite of those high expectations (or perhaps because of them), we are confident we can disrupt and reinvent the instant coffee category -- introducing quality coupled with value. I believe that Starbucks VIA Ready-Brew is just that - and the proof is in the cup."

Schultz (or whoever actually wrote it) is of course referring to his latest Hail Mary pass at saving the company: instant coffee. Look, I don't even want to get into whether this is a good move or not. It might as well be the egg sandwiches thing, or his famous internal memo about Starbucks stores losing their mojo or whatever it was, all over again.

There's a bigger problem here. Schultz doesn't get it, but NY Times columnist Joe Nocera does. In Curing What Ails Starbucks, he makes several key points in the form of a letter to Schultz:

"You can't fix a car going 60 miles an hour. If you are going to fix what ails Starbucks you have to forget about growth. And you have to stop thinking of your company as a sexy growth company. Those days are over."

"--lots of fast-growing companies hit the wall eventually. In recent years, for instance, McDonald's and Coca-Cola have both been where you are now. In time, both turned things around."

"The old days, when you were the only game in town, are gone, and the new competition is here to stay. You did a wonderful thing, teaching Americans the difference between good coffee and bad. But now that they know the difference, everyone is making better coffee. You don't "own" that experience anymore."

Surprisingly, Nocera wrote his column over a year ago and Schultz still appears to be in denial. In a December Katie Couric interview, Schultz tried to blame Starbucks' woes on the economy:

COURIC: Did you grow too big, too fast, do you think?

SCHULTZ: Well, I think in hindsight, if we knew what was going to happen with the economy, one can conclude yes.

COURIC: Did you have a business plan for a severe recession? And if not, why?

SCHULTZ: I don't think we had a business plan for the severity of what has taken place. History demonstrated to us that a downturn in the economy would not affect us, and in fact, we would be recession proof.

For me, it boils down to this. Starbucks can't be all things and it certainly can't be what it once was. McDonald's and Dunkin' Donuts are eroding its market share and profits while Peet's and other boutique cafés have staked out the high ground. Incremental solutions like instant coffee and deleting a thousand stores aren't going to cut it. The company needs new direction and leadership that actually grasps the reality of the situation it faces. And that doesn't appear to include Howard Schultz.