NEW YORK (AdAge.com) -- What does your Starbucks smell like? Probably not fresh-roasted coffee, one of the many things

that has the chain's boss worried his all-powerful brand is getting cold.

Internal memo
Last week, the blog Starbucks Gossip turned up a memo from Howard Schultz in which the chairman criticized a number of decisions that "have led to the watering down of the Starbucks experience and what some might call the commoditization of our brand." Mr. Schultz, who doled out some blame to himself, pointed in particular to the disappearance of the in-store coffee scent and the cookie-cutter feel of the stores.

It's a major epiphany for a brand that's been one of the marketing world's premiere case studies on how a commodity can be transformed into a premium-priced object of desire, or habit, by creating a comfortable spot in which to buy and consume it -- that third place that's neither home nor work. Starbucks' brisk growth -- stores now number more than 13,000, and the company wants to get to 40,000 -- raises the question of whether it's possible to scale the kind of experience that made Starbucks what it is without losing the flavor.

In-store coffee grinding eliminated
In the memo, Mr. Schultz blamed automatic espresso machines that don't require baristas to pull shots and that prevent customers from seeing drinks being made. He blamed packaging, chosen because of the need to distribute coffee to every North American city, that locked in flavor and eliminated the need to grind the coffee in-store. "We achieved fresh-roasted bagged coffee, but at what cost?" And he blamed uniform store design, financially efficient but suggestive of a "chain of stores vs. the warm feeling of a neighborhood store."

As it's grown, Starbucks has worked to keep consumers interested, though many innovations have taken it far from java. WiFi and CD racks have been added in recent years, and the menu has been expanded to include breakfast sandwiches. Last year, Starbucks got into the entertainment business with the release of the film "Akeelah and the Bee," and it's expected to announce another book or movie project early this year.

Robert Passikoff, founder-president of the consultancy Brand Keys, said Mr. Schultz's concerns are legitimate. "They took their eye off the brand," he said. In Brand Keys' annual study of customer loyalty, Starbucks was knocked out of first place in the coffee-and-doughnuts category by Dunkin' Donuts, the first time in five years Starbucks didn't dominate.

'Lost its differentiation'
"You probably wouldn't leave a Starbucks dissatisfied," he said, "but satisfaction is just the price of entry. It has lost its differentiation, its crispness of experience."

The Feb. 14 memo, which the company confirmed as authentic, "is a reflection of the passion and commitment Starbucks has to maintaining the authenticity of the Starbucks experience while we continue to grow," a spokeswoman said. It didn't suggest a specific course of action; rather, Mr. Schultz, a Brooklyn-born, rags-to-riches story, asked CEO Jim Donald and top managers to "get back to the core."

He described the situation as "self-induced" but nevertheless one that's led to competition from fast-food companies and mom-and-pop operators. These rivals "position themselves in a way that creates awareness, trial and loyalty of people who previously have been Starbucks customers. This must be eradicated."

"We do not embrace the status quo and constantly push for reinvention," the spokeswoman said. "This is a consistent, longstanding business philosophy to ensure we provide our customers the uplifting experience they have come to expect."