I just came from the annual Starbucks meeting held at Seattle Center's McCaw Hall. Or rather, I was next door in the exhibition hall, being that the main room gets filled up fast.

Howard Schultz, Starbucks CEO, appeared in triple big-screen and on various monitors around the filled-to-capacity room. Many stood sipping coffee and nibbling miniature Top Pot Donuts as he gave his opening remarks about how the down economy has affected Starbucks' performance over the past year. Although he said he wasn't trying to make excuses, it sounded like an excuse to me. It seems that many people who have bought Starbucks coffee have never really been that price sensitive. Perhaps the slowdown in coffee sales is due to increasing domestic competition and over-saturation of the Starbuck's brand. No wonder why they are focusing on growth in overseas markets. Maybe the bloom is off the rose with consumers -- people are seeking alternatives to corporate sameness.

Howard proceeded to say that the company would, "reaffirm our coffee authority"... in the "specialty coffee" industry they built. He said Starbucks had lost its edge and receded into "mediocrity and bureaucracy"..."we're humbled by the position we're in." He continued to say, in response to the falling stock price, we are "highly motivated to correct the situation."

Schultz added that the increase in commodity prices, especially for dairy, was a drag on their operating margins. Plus the slowdown in the economy has reduced store traffic.

"Blueprint to transform the company"

So what's the big plan? According to Schultz:

1) Improve U.S. business

2) Reignite emotional with customers

3) Identify long-term investment opportunities

"There are no sacred cows"

Schultz said Starbucks will review all areas of the existing business, and they'll put their "feet in the shoes of our customers."

Some of the new initiatives include:

• New machines with a smaller profile that let baristas make eye contact with customers (also with better steamer for creamier foam and individual cup controls)
• New Pike Place Blend and Brewed Coffee initiative (reduced hold times, reduced batch sizes, and no more pre-packs)

MyStarbucksIdea.com 

A new website initiative was also introduced. It's basically a social site where registered visitors can offer their own ideas about Starbucks. It will be interesting to see how much is edited. 48 Starbucks "experts" will be devoted to reading and responding to the site's visitors. Schultz himself will appear regularly (writing his own blog posts, we can only hope). Just tried to sign up myself, but the server froze. Maybe Starbucks should be using some of Amazon's leftover capacity.

Customer Freebies

Schultz went on to announce a loyalty program launching in mid-April. It will include free WiFi, free refills when you buy coffee beans, and Starbucks will be picking up the tab on extras, like syrup, on espresso drinks.

Starbucks Buys Clover

The "big" news is that Starbucks just officially announced the acquisition of, "The Coffee Equipment Company and its proprietary Clover® brewing system." It's a Seattle company started in 2004 that makes $11,000 brewing machines. For insiders and coffee purists, it seems like a really big deal. Now don't get me wrong, I love coffee and I'm really particular, but I'm not sure I get it. So is this just a gimmick? Is it ego? Is your average Starbucks drinker going to notice? Or is it, as stated by Schultz in today's press release issued by Starbucks, “The Clover brings drama and theater to the brewing process and enables our baristas to have emotionally rich conversations with our customers... ."

No Steak Without the Sizzle (or rather, no espresso without the foam?)

Of course, the meeting was not without a bit of sizzle and PR. There was a story about a Starbucks barista donating a kidney to a customer. An incredibly funny Stephen Colbert spoof on the 3-hour closing called by Schultz. The Founder and CEO of Conservation International, Peter Seligmann, appeared to talk about Starbucks' relationship with CI since 1998. He announced a "new chapter in the partnership" to build on their shared geography to "take conservation beyond the farm." Seligmann went on to say that, "scale is important when dealing with a global issue like climate change." Starbucks is issuing a new coffee bag seal to symbolize the partnership with CI.

But What About the Stock Price Howard?

Being that Schultz began his talk by saying that operating margins were hurting the company, I'm not sure what any of this has to do with improving that situation. The upshot is that Starbucks will slow growth in the U.S. market. They've closed stores and will continue to close 100 additional stores this year. The plan is to grow the international business instead.

Granted, customers might get a better deal, especially on the "extras" discount (as long as regular prices stay the same). And, when speaking to this type of crowd, it's a balancing act to please stockholders who are probably also some of Starbucks' best customers.