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Originally published Thursday, March 20, 2008 at 12:00 AM

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Starbucks contrite, certain of comeback

If Howard Schultz worries about how employees and investors feel, he should take heart from the love they showed at Starbucks' annual meeting...

Seattle Times business reporter

Starbucks by the numbers

Almost 16,000

Number of stores

44

Countries

172,000

Employees

50 million/week

Customers

$9.4 billion

Net revenue in 2007

If Howard Schultz worries about how employees and investors feel, he should take heart from the love they showed at Starbucks' annual meeting Wednesday.

McCaw Hall erupted with applause when the Starbucks chairman and CEO took the stage at 10 a.m. to start the 2 ½-hour extravaganza.

"Wow. I really didn't know what to expect," Schultz said.

Unlike previous meetings, Schultz didn't brag about the company's stock price, which has suffered in the last year. He outlined Starbucks' problems, including a slowdown in consumer spending and the company's slide into "mediocrity and bureaucracy."

"We have kind of lost our edge," he admitted to 6,000 employees and shareholders, some of them watching from an overflow room. "I promise you, this will not stand."

But much of the meeting was a love fest, including a standing ovation for singer k.d. lang, who performed two songs, and softball questions tossed at senior managers during the question-and-answer session.

In response to one question, he said Starbucks has no intention of buying Seattle-based Tully's Coffee.

Schultz reassured investors, reminding them repeatedly of the company's "relentless focus."

"We're going to fight to the death and not allow any company to take" its leadership position in the coffee industry away, he said.

He then laid out moves meant to turn around Starbucks, from acquiring the Ballard-based company that makes Clover single-cup brewers to a loyalty program for Starbucks Card customers, who, beginning in April, will receive free extras like vanilla syrup and soy milk.

He gushed over a new, shorter automated espresso machine that will allow baristas to see their customers; and a new coffee blend called Pike Place Roast, named after the store at Pike Place Market to which he still has a key.

"I go there before every annual meeting. I went there this morning," Schultz said.

Not everything was rosy, though, which impressed Richard and Tammy Harrigill, of Renton, who have owned Starbucks stock for about 10 years.

"He was telling it like it is. He didn't try to vanilla over anything," Richard Harrigill said.

"We needed someone to be honest about the company," he said.

Nancy Eidsmoe of Port Hadlock, Jefferson County, a shareholder for 13 years, said, "They are going back to basics and improving what they can."

That's been Schultz's line since he reclaimed the CEO job in January. The economy is gloomy and dairy prices are high, he said, but Starbucks will improve what it can.

He would like to improve the look of stores, for example. Starbucks used to be known for its ability to choose locations and design appealing stores.

"We've seen others emulate the things we've done, and customers don't know who was the leader and who wasn't," Schultz said.

The company also considered offering $1 brewed coffee, but a recent test of it in the Seattle area proved unsuccessful.

"We quickly moved on," Michelle Gass, senior vice president of global strategy, said in response to a question at the end of the meeting.

By then, the stage where she, Schultz and other executives sat was covered with reminders of the long meeting: cafe tables and chairs, coffee machines and the black grand piano beside which a barefoot lang sang two songs.

The hall was half empty, but the final applause remained strong.

Melissa Allison: 206-464-3312 or mallison@seattletimes.com. Seattle Times business editor Becky Bisbee contributed to this article.

Copyright © 2008 The Seattle Times Company

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