Decoded: Starbucks Goes Back to Basics

Sometimes you can just feel it coming. Yesterday's WSJ page-one leder on McDonald's foray into decent coffee seemed to ratchet up the scrutiny on the fact that Starbucks is finally hitting the wall.

And so Jack Flack promised Howard Schultz a Rescue Memo. But the Starbucks alpha barista didn't wait, popping an early evening announcement that he was taking out former retailer Jim Donald as CEO, and putting himself back into the cockpit. Based on the company's communications, the move was hardly a hasty act of ego-driven pique from an old lion. After all, Schultz had put Donald on notice with his famous "internal" memo nearly a year ago. And then, with last night's announcement, the company came forward with a clear -- and relatively humble -- articulation that it recognized its problems and was taking tangible actions to get things right.

Parsing the Starbucks news release, Jack Flack senses Schultz genuinely seems to have a handle on what's required, and has real fire in the belly to make sure his long-time success story doesn't get soiled.

And yet, because of the obligatory jargon, parsing is still actually required. And so Jack Flack offers the following translations to Starbuck's five-point "transformation agenda."

Starbucks: "Improving the current state of the U.S. business by refocusing on the customer experience in the stores, new products and store design elements, and new training and tools for the Company's store partners to help them give customers a superior experience;"

JF Translation: "We'll get new, clean sofas, and we'll stop licensing our trademark to every low-budget hotel, airline and government conference center in America. And since we will no longer be opening a new story every 16 minutes, we'll actually be able train staff fast enough to deal with attrition. And yeah, we know this same back-to-basics strategy has already worked very well for McDonald's over the past few years."

Starbucks: "Slowing the Company's pace of U.S. store openings and closing a number of underperforming U.S. store locations, enabling Starbucks to renew its focus on its store-level unit economics;"

JF Translation: "We're going to stop, as the Onion suggested, opening up new Starbucks inside the restrooms of existing Starbucks. Instead, we'll work on trading up the total amount of the average transaction we get out of our most loyal customers."

Starbucks: "Re-igniting the emotional attachment with customers and restoring the connections customers have with Starbucks(R) coffee, brand, people and stores;"

JF Translation: "We're not really selling coffee, particularly now that our competition is no longer just Maxwell House. We're selling the "third place," i.e., somewhere pleasing to sit, where neither your spouse nor your boss can bother you."

Starbucks: "Re-aligning Starbucks organization and streamlining the management to better support customer-focused initiatives and reallocating resources to key value drivers; and..."

JF Translation: "We got bloated at headquarters, and we're going to strip it out. The go-go days are gone, and we've got to fix our cost structure."

Starbucks: "...accelerating expansion and increasing the profitability of Starbucks outside the U.S., including redeploying a portion of the capital originally earmarked for U.S. store growth to the international business."

JF Translation: "We no longer see our U.S. operations as a growth business. Instead, we see it as a lucrative cash generator that can fuel our international expansion. That cash generation depends on protecting the "premium" image of the brand, and we're not going to sacrifice that for volume growth. If we want Xiamen and Karachi to save us, we've got to keep Detroit and Anniston pumping."

The return to Starbucks' core strengths will be essential, and, at least to some extent, effective. But some of these changes are going to ding the earnings model, and Schultz will need to be sharp at the January 30 meeting with investors. Even more critical, the competitive environment is changing quickly, and the traditional Starbucks approach must be updated to stay relevant.

And thus, yes, Jack Flack still plans to deliver that Rescue Memo. Stay tuned.