Onward: How Starbucks Fought for Its Life Without Losing Its Soul
Page 27
The largest potential for growth, however, was in Starbucks Coffee International, the unit that includes all Starbucks business outside the United States. It was by far the company's most exciting and largest prospect. Since opening the company's third store in Vancouver, British Columbia, our Canadian business had been a consistently strong performer, albeit too often unsung as it sat in the shadow of the United States. Outside North America, we had 5,000 stores in 48 countries, and from day one of opening our first overseas store in Tokyo in 1996, the third-place experience, that sense of community Starbucks stores offer, was embraced. The Starbucks brand was recognized worldwide.
Our international business—actually, I dislike the term “international,” and “global” for that matter, because it implies that we are not a united organization—had been profitable, but not to the extent it could have been. The business model had grown complicated, becoming the equivalent of overseeing dozens of different businesses not only in different geographic regions, but also with unique financial structures and partnerships and operating under local laws and regulations. The successes we did have were in large part due to the high quality of our local business partners; in most countries, we partner with a company that operates our stores, and many are private, family-owned entities that share our values. For years we had vetted these partners very carefully under the thoughtful guidance of Jinlong Wang, who originally helped open Starbucks abroad and whom I credit with establishing Starbucks’ premium position in the Asian market, and Herman Uscategui, whose congeniality came through in each of the seven languages he spoke.
Yet despite its successes, Starbucks Coffee International had much room for improvement. Unfortunately, getting our arms around each market was not something I could focus on until the floundering US business was stable. But once it was, the size of the prize waiting outside North America, especially in China, was huge.
International.
Innovation beyond our retail footprint.
Unleashing languishing business units.
All of these areas would garner more of my attention in 2009. For now, we had to fix the foundation. Again, stay the course.
During the question-and-answer session, the analysts doggedly tried to get a handle on what to expect. When one analyst pointedly asked me to elaborate on Starbucks’ new growth model, I tempered my response. “This is not a time, I think, for us to make lofty statements about growth and number of stores. This is a time to have a much different lens on the business. And it's about, as we've said all morning, maximizing productivity and profitability at the store level. But,” I could not resist adding, “I do believe that Starbucks will return to being a growth company.” This was something I had believed throughout the transformation.
Ultimately, my worst fears were not realized that day. Overall, the conference went very well because the team had stepped up, exceeding even their own expectations and presenting a tremendous amount of information with authenticity and, again, conviction. Whatever the market's reaction, we came off the court that December day feeling as if we had won.
And comments from attendees were generally positive. For the most part, investors and analysts felt we had addressed the business's most relevant issues. Analyst notes following the event were cautious, but applauded our cost-saving initiatives and seemed to appreciate the balance Starbucks had to strike between maintaining our premium position and offering value. And despite pockets of criticism that the company was not taking competition seriously enough or advertising enough or slowing new-store growth enough, Starbucks’ share price ticked up to a daily high of $9.41 and closed at $8.61, slightly higher than it began the week.
Still, the stock was a dismal 61 percent lower than it had been a year before, when it was at $22.34.
It was time for me to close the conference, and I stepped back on stage.
We are not satisfied with where shareholder value has gone. A great deal, as you heard here today, is due to the significant downturn in the economy, but we're also responsible for some of the decisions that we made in the past. But I believe very strongly that when we meet again, two years from today, we'll be talking about how the stock had improved compared to where it is today. Those people who took advantage of the opportunity will have significant returns.
There was a fine line between confidence and overpromising, and I did not think I had crossed it that day. I was just stating what I wholeheartedly believed to be true.
Part 5:
Courage
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Where it all began, in 1971.
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The first Starbucks store in Seattle's Pike Place Market.
Rwanda
Starbucks has been buying coffee from the African nation of Rwanda since 2004. During my third trip there in June 2008 to visit with farmers and tour their co-op, I again marveled at the country's beauty and the fortitude of the Rwandan people, whose fight to heal themselves after the country's tragic 1994 genocide is one of the most inspiring acts of rebirth in human history.
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Growing high-quality coffee is a craft, requiring a unique skill set often passed down from generation to generation.
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The proof is in the cup
On February 26, 2008, in an unprecedented move, Starbucks closed all of its 7,100 US company-owned stores for three hours to retrain baristas on espresso preparation so they could create the perfect beverage every time.
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Starbucks has always been about so much more than coffee. But without great coffee we have no reason to exist.
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Returning to our heritage
Starbucks is at its best when we are creating enduring relationships and personal connections. This is the essence of who we are.
Ethically sourced coffee
Starbucks sources coffee beans from tens of thousands of farmers in almost thirty countries. Most of these are families who work on small farms of only a few acres. The company's effect on the global coffee industry can be measured not just in the nearly 400 million pounds of coffee beans we buy each year, but also by our high ethical-sourcing standards that strive to respect the environment and improve the quality of life for farmers and their communities.
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Treating farmers with respect and dignity is at the heart of what we do.
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The Starbucks Experience
For the nearly 60 million weekly visitors to Starbucks stores in fifty-four countries, we continue to recreate the coffeehouse experience with architectural features, environmentally friendly elements, and regional flavors that reflect local communities as well as balance sustainability with the comfort and essence of the “third place.”
University Village, Seattle, our first redesigned store
Edinburgh, Scotland
15th Avenue Coffee & Tea, Seattle, our first new concept store
Roy Street Coffee & Tea, Seattle, experimenting with live music, film, and local food
First and Pike, Seattle, our first new concept store receiving LEED Gold certification
Customers awaiting the opening of Starbucks in Fuzhou, China
Sanfang Qixiang, Fuzhou, China
Chenghuang Miao, Shanghai, China
Binjiang, Shanghai, China
Grand opening of Starbucks in Budapest
Plácido Arango, Howard, and Orin Smith at Paris, France's first store opening
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Each Starbucks store has its own fingerprint.
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First Starbucks in Paris.
Taking it personally
At Starbucks’ 2008 global leadership conference, a four-day event held at the height of the US economic crisis, nearly ten thousand Starbucks partners convened in New Orleans, a city still reeling from the effects of Hurricane Katrina, to contribute thousands of hours of community service as well as to hear, directly from Starbucks’ leaders, about changes the company needed to make and the responsi
bility each partner had to help secure our successful future.
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If done right—and it had to be done right—the leadership conference in New Orleans would raise our company's level of personal accountability, passion, and performance.
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Top: Howard in New Orleans with guest Bono, lead singer of U2 and activist, announcing the partnership between (RED) and Starbucks.
Reimagining our future
In the early stages of Starbucks’ transformation, people from throughout the organization came together in large and small working groups to reconnect with our values and identify business priorities. From these sessions two key documents emerged: Starbucks’ new mission statement, which articulated our guiding principals, and the Transformation Agenda, which identified our goals.
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What does it mean to reinvent an icon?
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Starbucks partners sign an enlarged copy of Starbucks’ new mission statement, which begins, “To inspire and nurture the human spirit.”
Innovation
Upon returning as Starbucks’ ceo, I wanted to reawaken our entrepreneurial spirit and remind our partners of the excitement that comes from assaulting the status quo and trusting yourself and your coworkers, and above all from creating truly great products. The results—unexpected beverages, new store designs, engaging digital experiences—are reigniting the emotional connection we share with our customers.
Introducing limited-release Starbucks Reserve coffees
Olive Way, a redesigned store in Seattle that also serves wine and beer
Starbucks Digital Network
Pike Place Roast
My Starbucks Rewards Card
In 2010, Starbucks announced the rebranding and expansion of Seattle's Best Coffee
Don Valencia and VIA Ready Brew
Howard in Tokyo with executives from ANA airlines, announcing that VIA will be served on ANA flights
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When I first tried Don's coffee—an instant version of Starbucks—I was stunned. I did not believe it was instant.
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Howard's dear friends, the late Hal Gaba, co-owner of Concord Music Group (left), and television producer Norman Lear (right) celebrating the album Starbucks coproduced with Concord, Ray Charles's Genius Loves Company, after it led the 2005 Grammy Awards with eight awards, including Album of the Year
VIA
Howard and Kris Engskov, Starbucks regional vp and former director of public policy, in Washington, DC, discussing health-care reform with members of Congress
Vivanno Nourishing Blends
Clover
Starbucks Senior Leadership Team, Fall 2010.
Left to right (standing): Jeff Hansberry, president, Global Consumer Products and Foodservice; Vivek Varma, executive vice president, Public Affairs; Mary Egan, senior vice president, Global Corporate Strategy; Troy Alstead, chief financial officer and chief administrative officer; Michelle Gass, president, Seattle's Best Coffee; Stephen Gillett, executive vice president, chief information officer, and general manager, Digital Ventures; Dervala Hanley, vice president, Corporate Initiatives and Planning; Paula Boggs, executive vice president, general counsel, and secretary; Cliff Burrows, president, Starbucks Coffee U.S.; Annie Young-Scrivner, chief marketing officer.
Left to right (seated): John Culver, president, Starbucks Coffee International; Peter Gibbons, executive vice president, Global Supply Chain Operations; Kalen Holmes, executive vice president, Partner Resources; Arthur Rubinfeld, president, Global Development; Howard Schultz, chairman, president, and chief executive officer.
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Onward…
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Starbucks Board of Directors, photographed for FORTUNE magazine in 2010.
Left to right: Olden Lee, retired executive, PepsiCo, Inc.; Kevin Johnson, chief executive officer, Juniper Networks, Inc.; Javier Teruel, retired vice chairman, Colgate-Palmolive Company; Mellody Hobson, president, Ariel Investments, LLC; Bill Bradley (standing), managing director, Allen & Company LLC; Myron Ullman, chairman and chief executive, J.C. Penney Company, Inc.; Barbara Bass (above), chief executive officer, Gerson Bakar Foundation; Sheryl Sandberg, chief operating officer, Facebook, Inc.; Howard Schultz (standing), chairman, president, and chief executive officer, Starbucks; Craig Weatherup, retired chief executive officer, Pepsi-Cola Company; James Shennan, Jr., general partner emeritus, Trinity Ventures.
Chapter 27
Innovate
For more than a decade, a glass bottle containing a thin brown liquid had sat on my desk. What appeared at first glance to be a stout version of an old-fashioned soda bottle was actually a carbonated coffee drink that, back in the late 1990s, Starbucks had co-invented, marketed, and then watched fail miserably.
Mazagran.
The name was printed across the bottle in white capital letters, but the product's symbolism was also imprinted on my psyche: Celebrate, learn from, and do not hide from mistakes.
Mazagran, a cold, effervescent beverage infused with Starbucks coffee, had been my first attempt—in collaboration with board member Craig Weatherup when he was at PepsiCo—to extend Starbucks’ coffee outside the walls of our stores in an unfamiliar form. This was before the company sold whole and ground coffee in grocery aisles and prior to iced coffee's popularity. I was proud of our courage to create a new beverage category, and its failure to win over consumers, while intensely disappointing, did not sour my taste for creating.
But over the years, Starbucks deviated from its once unquenchable desire to truly innovate. Not since Frappuccino had we really shocked the marketplace and created a significant product platform with a multimillion-dollar revenue stream. The company's will to risk had dimmed. Was it laziness? Fear of failure? Perhaps, but failure often leads to great things. Mazagran may not have succeeded, but its development helped lead us to Frappuccino, a product line that by 2009 would be a $2 billion business.
I have always taken pride in the fact that Starbucks chases the unexpected, and part of my role as chief executive officer is to instill in the organization the same excitement about and courage for developing new products that has gripped me since Starbucks’ earliest days. It is a responsibility that I try to live up to by pushing people further than they think they can go, yet not further than I believe they are capable of going.
As I tried to reorient our people to think boldly, I was also reorienting myself, learning how to innovate the right way for the multibillion-dollar global organization that Starbucks had become since I was last in charge. Going into 2009, I was insistent that Starbucks go after big, bold, original ideas, but I also appreciated that those ideas, such as Sorbetto, could not be fueled by instinct alone. They had to be relevant to our business, scalable, thoroughly tested, integrated across business channels, and embraced by our partners in Seattle and in our stores.
In short, a new idea's execution had to be as good as the idea itself.
Taking a more cautious, calculated approach to innovation goes against my just-do-it entrepreneurial nature, which plays off my gut and pushes for speed. But I was recognizing that the company and I needed to shift the way we brought products to market, bringing to the process the same degree of mastery that we had historically applied to roasting coffee. And because I no longer wanted the company's growth to rely only on building more stores, Starbucks’ future depended on its ability to innovate on several fronts, in multiple channels of global distribution.
One seemingly natural extension of the brand that I had long entertained introducing was having Starbucks become a larger player in the health and wellness market, beyond just offering healthier food and beverages in our stores. To explore this option, I asked Richard Tait—who, as the cofounder of the award-winning Cranium game and toy company, has a knack for reinventing the status quo—to apply his innovative muscle to articulating how Starbucks might succeed in the health and wellness market. Richard made a compelling case that included some
exciting but risky new ideas, and Starbucks’ leadership team and I would have to decide if the company had the resources to take them on at this time in our evolution.