Starbucks CEO's vision remains strong despite economy
By Jerry Hirsch
LOS ANGELES TIMES
Sunday, June 8, 2008
LOS ANGELES -- Back in 1987, when coffee entrepreneur Howard Schultz and a group of Seattle investors purchased Starbucks, the chain had just 11 stores. Now, it has more than 16,000 spread across 44 countries.
Schultz, Starbucks' chief executive, is credited with sparking that tremendous growth in the chain, and in the process created the mass market gourmet coffee business in the United States. Now, there's either a Starbucks or a competitor in nearly every shopping mall or strip center.
On Wednesday, the management school handed Schultz its inaugural John Wooden Global Leadership Award, which will be given annually to a business leader who like Wooden, the legendary basketball coach, exhibits exemplary leadership.
Through his strength of personality and vision for the business, Schultz has had "a disproportionate impact on the growth" of Starbucks, said Judy Olian, dean of the University of California Los Angeles' Anderson School of Management.
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The award for Schultz, however, comes at a time when the coffee business isn't percolating as well as it once did. Starbucks logged its first decline in profits and is seeing fewer customers in its stores. The company's stock has plunged 37 percent over the past year to close at $18.33 on Thursday.
After the last eight years as chairman, Schultz, 54, started a second stint as CEO in January, charged with reigniting growth at the business.
Schultz spoke to the Los Angeles Times about the challenges Starbucks faces and the future of the company.
Q: What do you say to these family budget advisers who suggest that the best way to save money to pay for higher gas and food prices may be to cut out that latte, that daily trip to Starbucks?
A: We have to be ultrasensitive to providing value for our customers. And 50 million customers a week are coming through Starbucks stores.
We have to innovate and provide more value to the customer, but the customer comes into Starbucks not only for coffee, but the sense of community, the sense of humanity in our stores. We really have become this third place between home and work. We have managed through different downturns in the economy before, and we will again.
Q: This year, you had your first decline in profits. Why?
A: For 15-plus years we have led a pretty charmed life.
For the first time in our history ... we have less traffic in our stores this year than we did last year. The frequency of visits is being directly linked to the consumer not having as much disposable income as they did in years past. If you talk to the economists -- people much smarter than me -- they are saying that the next six to 12 months could be worse than the last six to 12 months.
Across the board, consumers have less money than they had before, they are quite concerned, consumer confidence is down and as a result of that, we have to be better than we were before to capture that market and to satisfy the customer.
Q: The question everybody asks about Starbucks is why are there so many?
A: The strategy for growth was based on demand.
When we went public in 1992 with under 25 stores, the more stores we opened, the more successful we became. Many of our stores got so busy that we started opening up stores nearby. It wasn't through any research or analysis or any scientific model. We just thought the market would support more stores in an area and as a result of that, we began to open up more stores. But we never imagined that it would become as big as it became.
Q: Tell us ways you are demonstrating to the customer new value, possibly new initiatives, new products.
A: There's more innovation coming at Starbucks over the next six to 12 months than we've had in the last five years.
In July, we will introduce a fantastic new summer product in Los Angeles. ... We found a fantastic new cold beverage platform in Italy and as a result of that, we are bringing it to the market. It is a product that is both indulgent and refreshing. We are quite excited about it. It is steeped in Italian heritage. I can't tell you more than that.
Q: In the coffee business, everyone is gunning for you. How do you defend your turf?
A: The size of the market is much much larger than people have initially realized. Despite how big Starbucks has become, we only have 8 percent of the total U.S. coffee market in terms of cups that are consumed. There is a big market out there and that's why you see other players trying to capture it.
It is harder to maintain leadership in many ways than to become the leader.
One of the things we have tried to do over a long period of time is really build a company that has a conscience, that achieves a balance between profitability and a level of benevolence. People sometimes miss that because the headline is so often the ubiquity of the company, the growth of the company. But we have done things that no other company has done before in the way we have tried to build the business. . . . offering equity in the form of stock options and comprehensive health care for part-time workers.
It's hard when you get big to do these things. And most companies in America that have gotten big have not stayed true or authentic. So there is a level of cynicism that some people may have. But the truth of the matter is that the company is sitting on a very solid foundation.
Q: Might the world run out of quality beans? How do you keep the supply going?
A: For Starbucks there will be no shortage of the highest quality Arabica beans. I suspect that for some others, there could potentially be a problem, not in the near term, but over time.
One area of interest is Vietnam. Vietnam is starting to grow a tremendous amount of coffee. It is mostly Robusta today, which is low quality. But I suspect over time, they will raise the level of quality in that country and we're intrigued with that and have visited Vietnam and are looking at it.
But the short answer is Starbucks has secured long-term supply for the highest quality coffee in the world for many many years to come.
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here to see the story.
http://www.pittsburghlive.com/x/pittsburghtrib/business/s_571484.html
Let's talk about Starbucks Nutrition while we're at it. {this is Starbucks link - click "nutrition" when you get there} ;)
