Lean Techniques In our stores, Lean techniques have put us on a path to achieving operational excellence, finding new ways to deliver world-class customer service and perfect beverages while keeping costs in line and our partners engaged. As we continue to formally implement and share better routines with our baristas, they continue to problem solve and swap their own ideas. Today, our stores report that lines move faster, operations run smoother, and partners have more time to connect with customers. And, in 2009, our partners named Lean their most valued program of the year.
EXPANDING OUR GLOBAL PRESENCE—WHILE MAKING EACH STORE THE HEART OF LOCAL NEIGHBORHOODS
Starbucks continues to accelerate our retail presence around the world while striving to connect with and support the neighborhoods and cultures that each store serves.
Starbucks Coffee International Starbucks’ businesses outside the United States remain our biggest source for future growth—another $1 billion business in and of itself as we open more stores and refine a more disciplined, profitable business model. Eventually, half of all our stores will be located outside North America. Perhaps the most significant move I've made in securing the success of our international model happened in December 2009, when I asked eight-year Starbucks veteran John Culver to oversee our global expansion as president of Starbucks Coffee International. John is familiar with our international markets, having lived and worked in Hong Kong for years, and he has the rare ability to connect with people across cultures. During John's first year on the job, our international business revenue and operating margins were up well ahead of our targets, a testament to his leadership skills and the deep focus he has brought to the business.
Expansion in China In September 2010, when Starbucks opened two new stores in Changsha, a city of six million—relatively small compared to other cities in China—customers were lined up out the door and down the block. In the rain.
Without doubt, Greater China is destined to become Starbucks’ second home market as we open thousands more stores across the country. Already, the majority of our stores throughout China are delivering double-digit profit margins, a far cry from their performance just two years ago.
As part of our long-term strategy to be locally relevant on many fronts, Starbucks will soon open its first research and development center in China, and—in partnership with the Chinese government and working closely with local universities—we have already begun to grow coffee in the country's beautiful Yunnan province. And as for the Black Sesame Green Tea Frappuccino I tasted at our Shanghai innovation store, it is now being sold in Starbucks throughout China. It's a hit.
New Store Designs and Concepts Our new designs continue to find their way to stores around the world. By working with regional materials and collaborating with local craftsmen, we are creating thoughtful spaces that allow customers in every culture to feel at home in their neighborhood Starbucks stores and to experience a sense of discovery when they visit our locations around the world.
Mercantile Stores Our two stores in Seattle continue to experiment with new products like beer and wine as well as new coffee preparation techniques, such as individually brewed coffee by the pour-over method, which has become one way of serving single-cup decaf coffee in Starbucks stores, helping to eliminate the waste from unsold decaf. As a result of the lessons learned with these stores, we opened a very special store on East Olive Way in Seattle that incorporates some of the mercantile stores’ best design elements and product offerings—including wine and beer after 4 p.m.—with our sustainable construction practices. As must-see destination spots for Starbucks’ partners and customers who visit Seattle from around the world, these three unique shops showcase our willingness to take forward-thinking risks in the same way that the Pike Place store symbolizes our respect for our roots.
BEING A LEADER IN ETHICAL COFFEE SOURCING AND SUSTAINABILITY
Starbucks expanded our partnerships with Fairtrade and Conservation International and is reducing our stores’ environmental impact. We also do a much more effective job of sharing with others our extensive efforts on this front.
Sourcing In 2009, 81 percent of our coffee purchased was C.A.F.E. Practices–verified, up from 77 percent in 2008. And with the purchase of almost 40 million pounds of Fairtrade coffee that same year, Starbucks became the largest buyer of Fairtrade coffee in the world in 2009. In Rwanda, the Starbucks farmer support center is now complete and actively assisting coffee farmers throughout East Africa. Five months after my visit to Rwanda, Starbucks partners raised $55,700 to send cows to coffee-growing communities. In the summer of 2010, 30 heifers arrived in Kigali and were placed with families, including Mukamwiza Immaculate's, who were trained in how to best care for their new animals. Since August, three calves have been born into the group.
Serving Our Communities Starbucks partners and customers contributed almost 186,000 hours of service in neighborhoods around the world in 2009; our goal is to one day contribute one million hours each year. In New Orleans, a city that is always on our minds, we honored our pledge to give $5 million over five years, and we continue to stay engaged with the city's revitalization effort. In 2010, we awarded $100,000 to three nonprofits based on customers’ suggestions about where Starbucks should donate funds.
Environmental Impact Efforts continue to make our company-owned stores more environmentally friendly. As space, municipal regulations, and local recycling services allow, our stores can recycle paper, cardboard, cups, compost, glass, and/or plastics, as well as offer customers free coffee grounds for gardening. Since 2009, Starbucks has convened two “cup summits” with local governments, cup manufacturers, and recyclers, as well as competing retailers, to help us identify what's required to make our cups recyclable. Because of these collaborative efforts, on November 30, 2010, Starbucks and its suppliers announced that we had found a way to recycle used paper cups. This brings us one step closer to our goal to have 100 percent of Starbucks’ cups be reusable or recyclable by 2015.
We also continue to work toward a goal of having all new Starbucks company-owned stores LEED certified in 2011, and to date more than 200 of our stores have either achieved or are currently registered for LEED green building certification. We are currently retrofitting all of our stores with high-efficiency lighting and are on track to reduce water consumption by 25 percent in 2015. And as of 2010, Starbucks has purchased renewable energy certificates equivalent to 50 percent of the electricity consumed in our stores. These and other sustainability efforts will also positively affect thousands of Starbucks’ joint-venture and licensed stores around the world as they follow suit.
DELIVERING A SUSTAINABLE ECONOMIC MODEL
As we set out to do, Starbucks has drastically improved how we operate our business by reducing costs, building a world-class supply chain, and creating a culture that drives quality and speed and manages expenses on an ongoing basis.
Cost Reductions The $400 million we told Wall Street in December 2008 that Starbucks would cut from its cost structure for fiscal 2009 ultimately grew to $580 million, much to the surprise of the financial community. The cost cuts are permanent, and in 2010 we have preserved them and continue to achieve additional savings, as evidenced by ongoing improvements in our operating margin. The work to keep costs in check will never end, and the challenge ahead is to sustain what we have achieved and strive for more while continuing to wisely invest in our people, in growth, and in innovation.
Supply Chain Back in 2008, only three out of every 10 orders were delivered perfectly to our stores. Today, nine out of 10 orders to 16,500 stores are delivered on time, with every item included and no errors. SCO's safety performance has improved by 90 percent, we are recruiting talent from top-ranked supply chain schools, and in the last two years SCO realized cumulative savings of $400 million.
Store Technology In fall 2009, US store managers received laptops loaded with software that automates and eases once cumbersome processes like scheduling, hiring, and performance reviews. Our mo
re intuitive point-of-sale system hit company-owned stores in the United States and Canada in 2010, and pilots are planned for our international stores. Once the rollout is complete, we will be able to cut an estimated 700,000 annual hours off our customers’ wait-in-line time in the United States alone. To ensure that we stay relevant to consumers’ lifestyles, our new systems will be optimized for mobile technologies, allowing our customers to eventually order, pay, and connect with us using smartphones and other mobile devices.
Building Our Senior Leadership Team Of the dozen individuals currently on Starbucks’ leadership team, the majority have joined the company or the team since I returned as ceo. Since the fall of 2009, in addition to appointing Annie Young-Scrivner, John Culver, and Jeff Hansberry, I also found the right person to head partner resources in Kalen Holmes, who joined Starbucks that November, bringing almost 20 years of human resources experience, most recently at Microsoft. In June 2010, we added two more members to the senior leadership team: Mary Egan from Boston Consulting Group now serves as senior vice president for global strategy, and SYPartners’ Dervala Hanley came on board as vice president of corporate initiatives and planning.
Our team meets weekly as well as monthly, and as a group we are open to building consensus, we welcome creative tension, and we always try to learn from our past.
Today's Starbucks leadership team is by far the most talented and collaborative group I have had the honor of working with in my history at the company.
Biennial Analyst Conference On December 1, 2010, two years after we last presented to Wall Street in our most desperate hours, Starbucks senior leaders and I took the stage in New York City to tell a very different story, one no longer based on predictions of our transformation, but on irrefutable proof of record financial results. Starbucks performance was “. . . nothing short of remarkable,” wrote Marc Greenberg from Deutsche Bank, “and quite honestly the most significant business turnaround we have witnessed.” The day after the conference, compared to December 2008, Starbucks’ stock closed at $32.76, up almost 400 percent.
The leadership team gathered around the huge roasting machine—each of us wearing a yellow safety vest, goggles, and green hard hat—and waited. Behind us stood about 50 partners who were among the 163 working at Starbucks’ coffee roasting plant in Kent, Washington, located about 30 minutes from our offices. I'd requested that we hold part of our monthly senior leadership team meeting at the plant on this special day.
It was the first time in 40 years that Starbucks was roasting beans not just from Ecuador, but from the Galapagos Islands, that cluster of volcanic islands in the Pacific Ocean that is home to an amazing variety of species. The beans being roasted today came from the island of San Cristobal. They were rare—organic, shade grown, even bird friendly—and the coffee—we named it simply “Galapagos”—would be sold in less than 700 Starbucks stores in the fall of 2010. Galapagos was the first product in Starbucks Reserve, our new line of premium whole-bean coffees that we roast only in small batches and make available for a limited time.
Standing not far from pallets that transport some 65 million pounds of green coffee beans into the facility each year, I was reminded of Starbucks’ earlier days, when my office was located in the former roasting plant. Back then, at the end of every day and before I headed home for the evening, I would walk the plant's floor. The partners always expected me, knowing I would make the rounds, usually stopping at the roasters’ cooling tray to rake my hands through the beans and feel the coffee between my fingers before saying goodnight and thank you to everyone. At that time, the company was small enough that I knew each partner's name. Small enough that I knew their families. Two people from those days still work for Starbucks, Michael McNulty and Dave Seymour.
Visiting our Kent roasting plant is often bittersweet. No longer do I have time to walk the floor daily or even to come by as much as I would like. But I never forget the partners in our roasting facilities around the world who are responsible for bringing our coffee to life; they are the critical link in every bean's journey from farmer to cup. Without their expertise, passion, and daily dedication to excellence, Starbucks simply could not succeed.
“Reserve could not happen, it would not happen, if roasters were not putting the final touches on the coffee here at Kent,” announced Tom Barr, vice president of global coffee, whose team sourced the beans for Reserve. Tom has been with Starbucks for 10 years.
So even though we had come to Kent to celebrate a new coffee, this day was really about celebrating people—including the roasters, mechanics, operators, technicians, managers, and devanners (the first partners to handle and then prep the beans when they arrive from afar). An impressive amount of people at Kent have been with Starbucks well over a decade, having stayed with the company during our roughest times and as we transformed.
“We are using 11 different roast curves to meet the unique roast and flavor profiles of some of the coffees that we roast here,” Ruben Maglaya told us. Ruben has worked for Starbucks for 18 years. I reached through a group of people to shake his hand.
Finally, it was time. Everyone watched and listened as the rush of coffee beans spilled from the silo into the large, flat, round, rotating roaster. As the beans slowly churned, the rich aroma of coffee filled the air.
Moments like this are among my favorite. When the past and the present overlap. When I am at the heart of Starbucks’ operations. And when I cannot contain my smile because I am quite literally witnessing the magic that happens behind the scenes.
Times such as this, surrounded by people who think of each other as family, solidify my belief that Starbucks’ best days are ahead of us.
Acknowledgments
Writing a book, like building a company, is a collaboration, and I am grateful to many people for helping me tell Starbucks’ story.
Most important, to my wife, Sheri, and my two children; nothing in my life would be possible without your love.
The research, writing, and editing processes were made almost seamless by the extraordinary talent and grace of Joanne Gordon, who was able to find my voice on the page. She routinely and unselfishly accommodated my own busy schedule. I am so proud of the book and could never have done this without her.
Joanne and I would both like to thank everyone at Rodale, especially Maria Rodale, for their passion and commitment to this project from day one. Colin Dickerman and Karen Rinaldi were true editorial partners, and we were blessed to benefit from their intelligence, respect, humor, and ability to balance the needs of readers with the intentions of authors. Also, a special thanks to Steve Madden for his support.
At William Morris Endeavor Entertainment, Jennifer Rudolph Walsh was, as always, a tireless advocate who routinely steered us in the right direction.
More than 150 partners from throughout Starbucks candidly shared their memories and expertise, helping us to even more authentically re-create the company's shared history. A special thank-you to Starbucks’ senior leadership team and board of directors for their time as well as their trust in my decision that publicly telling a difficult part of Starbucks’ history would make us a stronger organization.
In my office, Nancy Kent, Tim Donlan, and Carol Sharp provide knowledgeable support every day, responding to each request with a calm smile and always delivering. Thanks to Chris Gorley for her discretion and precision in noting every word; Gail Resnik for her diligent legal review; and Gina Woods, whose leadership, expertise, creativity, and candor make her the ideal partner to manage Onward's unusually complicated production and marketing processes. Thanks also to Vivek Varma, Corey DuBrowa, and Dervala Hanley for their honest editorial insights; and to Heidi Peiper, Trina Smith, Christina McPherson, and Deb Trevino for their research and attention to details throughout the process. The book's elegant design is due to the talents of Christopher Riggs, Kelly Clark, Nichole Guy, and Lisa Maulhardt at SYPartners. We are also grateful to the many people who read early drafts and final versions of the manuscript and
provided feedback, including Jeffrey Hoffeld, Betty Sue Flowers, Richard Tait, Suzanne Sullivan, Bill Bradley, Mike Ullman, Mellody Hobson, Billy Etkin, and Len and Nancy Kersch.
Thanks also to Beth Lamb, Aly Mostel, and Yelena Nesbit at Rodale, as well as the team at Edelman and Mark Fortier.
For their friendship and support over many years, I want to acknowledge, in addition to those mentioned in the book, Plácido Arango, Ana Maria van Pallandt, Warren Bennis, Walter Robb, Amy Kavanaugh, Bill Campbell, Tony La Russa, Tim Ingrassia, Daniel Auerbach, Kenny G., Sharon Waxman, John Yamin, Steve Kersch, Colin Cameron, my cousin Alan Cohen, my sister Ronnie Schultz, and my brother, Michael Schultz. And to my mother, who has always been and continues to be a tremendous influence in my life.
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