This is the story of Starbucks Coffee Company. It started in Seattle in 1971 as a local coffee shop.
The current CEO, Howard Schultz started working for what was then the four-location Starbucks in 1982. He is bitten with the “coffee shop culture” bug on a trip to Italy a year later.
Howard convinces the founders of Starbucks to test the coffeehouse concept in downtown Seattle, where the first Starbucks® Caffè Latte is served. This successful experiment is the genesis for a company that Schultz founds in 1985.
Howard Schultz starts Il Giornale coffee shop on his own, gathers investors and eventually buys and merges with Starbucks.
Howard Schultz’s commitment to his “partners” or employees is evident. Health benefits and stock options are not normally offered to part-time employees.
The 90’s was strictly business, and all about growth in the number of stores.
Howard Schultz grew up poor, but he knew how to think big. The late 90’s agenda was about going multinational. Starbucks also went from 116 stores to 2,498 – phenomenal growth!
In 2000, Howard resigned as CEO to become Chief Global Strategist. Starbucks grew well overseas, and totalled 8,569 stores by the end of 2004.
Starbucks continues its commitment to social responsibility with Ethos Water.
The recession that began in 2007 was global. Starbucks felt the impact in a big way on its retail business, And in its stock price.
Just like a lot of American companies, Starbucks had to tighten its belt. Expansionary plans were Postponed, and thousands of unavoidable layoffs were announced.
For a good overview, let’s look at pre-2007 financial highlights, and Post-2007 highlights.
Slowing sales growth meant that ever-present plans for heavy capital investment in Expansion, had to be re-evaluated.
The decline in year-to-year, same store sales could be seen as early As 2005
Results from 2008 and 2009 sent shockwaves through Starbucks.
Surprisingly, Starbucks has never posted an actual loss.
Expansionistic” philosophy was replaced by a series of moves designed to maximize returns in each existing location. These changes were largely customer-centric and designed to re-brand Starbucks back from corporate commercialism to “coffee culture
Financially strong, Starbucks funded expansion by using as much as 80% of yearly Cash from operations. Note that Schultz’s response to the challenging economy was To scale that figure back to about 30% - A big change.
Schultz knew that he had treated his employees well, and leveraged his Personal relationship style and omnipresent influence to oversee changes.
Schultz and trusted top executives also noticed Starbucks becoming too “ commercial.” The strategy was simple: get back to the purest coffee experience Possible.
2009 total stores were actually less than the number at the end of 2008, but Would the pull-back be worth it?
2009 could very well have been a year when Starbucks management Tended only to their own problems, but this is not Starbucks culture. Humanitarian efforts have never left the Starbucks scene or taken a back seat.
2011 revenues were the best in the company’s history. And trimming the underperforming Stores seems to have paid off in sales growth.
Financial results for 2012 were equally impressive.
In fact, all financial indicators for 2012 were strong.
Starbucks today, is on better financial footing that it has ever been. Howard Schultz thanks his “partners” for that, and attributes it to “ Honoring our culture’s values.”
StarbucksCoffee, & CultureIn AnAmerican Global Company
1971Starbucks opens firststore in Seattle’s PikePlace Market.1983Howard travels to Italy, wherehe’s impressed with thepopularityof espresso bars in Milan. Hesees the potential to develop asimilarcoffeehouse culture in Seattle
1984Howard convinces thefounders of Starbucks totest thecoffeehouse concept indowntown Seattle, wherethe firstStarbucks® Caffè Latte isserved. This successfulexperiment is thegenesis for a company thatSchultz founds in 1985.
1987Il Giornale acquires Starbucksassets with the backing oflocalinvestors and changes its nameto Starbucks Corporation. OpensinChicago and Vancouver,Canada.Total stores*: 171985Howard founds Il Giornale,offering brewed coffee andespressobeverages made fromStarbucks® coffee beans.
1988Offers full healthbenefits to eligiblefull- and part-timeemployees.Total stores: 331991Becomes the first privatelyowned U.S. company tooffer a stockoption program thatincludes part-timeemployees.Opens first licensedairport store at Seattle’sSea-Tac International(Note: In 3 years, thenumber of stores morethan TRIPLED – 350%!
1992Completes initial publicoffering (IPO), with commonstock beingtraded on the Nasdaq NationalMarket under the trading symbol“SBUX.”Total stores: 1651993Opens roasting plant in Kent, Wash.Announces first two-for-one stock split.Total stores: 2721994Total stores:4251995Begins serving Frappuccino® blendedbeverages.Introduces Starbucks® super-premium icecream.Announces second two-for-one stock split.Opens roasting facility in York, Pa.Total stores: 67790’s Growth: StoresQuadrupled,TWO Stock Splits!
The Late 90’s Agenda :International ExpansionGrowth, Growth, Growth !!!!
1996Begins selling bottled Frappuccino®coffee drink through NorthAmerican Coffee Partnership (Starbucks andPepsi-Cola NorthAmerica).Opens stores in: Japan (first store outsideof North America) andSingapore.Total stores: 1,0151997Establishes The Starbucks Foundation,benefiting local literacyprograms in communities where Starbuckshas coffeehouses.Opens stores in: the Philippines.Total stores: 1,4121999Partners with Conservation International to promote sustainablecoffee-growing practices.Acquires Hear Music, a San Francisco–based music company.Announces third two-for-one stock split.Opens stores in: China, Kuwait, Lebanon and South Korea.Total stores: 2,498Store Growth in the 90’s: 1162,498
2002Starbucks enters into licensing agreementswith national FairTrade organizations to sell Fair TradeCertified™ coffee in thecountries where Starbucks does business.Establishes Starbucks Coffee TradingCompany (SCTC) inLausanne, Switzerland.Opens stores in: Germany, Greece, Indonesia,Mexico Oman, PuertoRico and Spain.Total stores: 5,8862003Acquires Seattle Coffee Company, whichincludes Seattle’s BestCoffee and Torrefazione Italia coffee brands.Opens new state-of-the-art roastingfacilities in Carson Valley, Nev.,and Amsterdam, Netherlands.Opens stores in: Chile, Cyprus, Peru andTurkey.Total stores: 7,2252004Opens first Starbucks Farmer SupportCenter in San Jose, CostaRica.Releases Ray Charles, Genius LovesCompany CD through acollaboration between Concord Records andStarbucks Hear Music.Introduces Starbucks Coffee MasterProgram.Opens stores in: France.Total stores: 8,569
2005•Orin Smith retires as Starbucks president and chiefexecutiveOfficer•Jim Donald promoted to president and chiefexecutive officer.•.Acquires Ethos Water and sets a goal of donating $10million tosupport clean water projects over the next five years.
2006Launches the industry’s first paperbeverage cup containingpostconsumerrecycled fiber, saving more than 75,000trees each year.Opens stores in: Brazil and Egypt.Total stores: 12,440Social responsibility continues:
Starbuck fortunes slid right along with the rest of the economy:the stock price slid almost in sync with the S & P 500, theDow, and the NASDAQ Composite, bottoming out in March ‘09
What effects were seen at Starbucks?•Starbucks had to close 600 underperforming U.S. stores(2008)•The openings of 400 more stores were postponed•300 Additional stores had to be closed in 2009•977 Locations had to be closed world-wide•18,400 Jobs were eliminated
Tale of the Tape:Starbucks’ Financial HistorySynopsis
What’s the big deal about flat sales? Starbucks internalculture had come to expect phenomenal growth like this tocontinue…indefinitely?
Sales flattened out (2007 – 2009). Neverseen before at Starbucks!
Year-over-year sales growth slid in ’07 and actually wentnegative in ’08 and ’09.
While some companies lost money or went under,Starbucks strength showed through, with operatingincome of “only” $843 million, its worst year since2006.
“Expansionistic” philosophy wasreplaced by a series of movesdesigned to maximize returns ineach existing location. Thesechanges were largely customer-centric and designed to re-brandStarbucks back from corporatecommercialism to “coffee culture”Financial & Philosophical Change: 2008
The ‘Real Story’: Note the high percentages of cashfrom operations plowed back into growth (2006-08).Not so, in 2009-10. Growth at all cost was replacedby more conservative re-investment by Schultz.
Human Resource Changes:2008 Howard Schultzcame back as CEO in 2008 with a transformationalleadership style. The first thing he did to overcomeresistance to any drastic changes that might beneeded, was to appoint a CEO who he knew wouldface the least resistance in the first place: HowardSchultz.Other human resource moves by Schultz :• He surrounded himself with seasoned executives who sharedhis vision.•He “re-trained” 10,000 managers and key employees in thebasics.•He invited those who wanted out, to leave, NO DRAMA!•Opened communication lines with employees top to bottom.
Starbuck New Customer-Centric Initiatives•Cut back on breakfast food, so Starbucks wouldsmell like coffee in the morning. (Extremely important!!)•Reduce the clutter on counters devoted to othermerchandising (teddy bears, etc.)•MyStarbucksIdea.com – website where customerscould voice their feelings, good or bad.•Mastraena – New machine to enhance the espressoexperience
MORE CUSTOMER-CENTRICCHANGES•Clover – New brewing machine toenhance flavor and “theatre” of fresh-brewed.•The Rewards Program – Incentives toreward loyal and repeat customers•Pike Place Roast – Better tastingcoffee designed to broaden themarket.•Re –Affirmation of Eco-Commitment
Post-Transition Starbucks: How Well Did The ChangesWork?2008 Stores : Opens stores in: Argentina, Bulgaria,Czech Republic and Portugal.Total stores: 16,6802009 Stores : 16,635Number of locations definitely pulled back.Looking ahead to financial results….
2009Starbucks helps save lives in Africa through our partnershipwith(RED)™. Millions of daily purchases of (STARBUCKS)REDproductshave generated contributions equal to more than 7 million dailydoses of antiretroviral medicine..Starbucks the most engaged brand in social media accordingtoENGAGEMENT db Report. Launches myStarbucks andStarbucksCard iPhone apps.Opens stores in: Poland and Aruba.Total stores: 16,635Continuing Global Commitment
Starbuck best reportedrevenues ever.Year-to-year sales growthback to healthy levels.
Once again for 2012,solid sales growth year-to-year.Record revenues.Starbucks is back ontrack. 18,066 Stores.
Simply put, the back-to-basics approach re-initiated by Howard Schultz starting in 2008 hashad four full years to show results. Recordrevenues and profits, and a much stronger cashposition, poised for continued conservative growthare in place today. It will be interesting to see whatthe future holds, but for now:Starbucks Is Back!