Thomas White Global Investing
Global Players

Global Players

March 2012

Howard Schultz, Chairman and CEO, Starbucks Corp.


img-howard-schultz

Image Credit: US Embassy New Delhi on Flickr under a Creative Commons License

“My greatest success has been that I got to build the kind of company my father never got to work for.”

— Howard Schultz, quoted in Inc. magazine


It is often said that some childhood memories leave an indelible stamp, remaining with a person for a lifetime. For Starbucks founder Howard Schultz, those early experiences helped shape his future ambition. The man who is often credited with bringing Italy’s “coffeehouse culture” to the U.S., spent the tender years of his life growing up in the Bay View housing project in Brooklyn, New York. The son of a receptionist mother and a father who held odd jobs, the household struggled to have even one square meal a day after Schultz’s father met with a minor accident and subsequently lost his job. For Schultz, only 7 years old then, it was a painful realization that low-paying jobs did not offer luxuries such as sick pay or disability allowances. But the small boy had big dreams and the will to achieve them: the end result was the rise of Starbucks Corporation, an international coffee chain that today boasts of about $12 billion in revenues, and 17, 000 stores worldwide.

Armed with the life-changing experience, Schultz was determined to carve out a better life for himself. According to entrepreneur.com, Schultz excelled in high school sports, which also earned him a scholarship to study business at the Northern Michigan University. A job with Xerox Corp. followed, after which he was entrusted with a senior management position with the U.S. subsidiary of Swedish housewares firm Perstorp AB. In fact, it was this stint that introduced him to Starbucks, a firm that he would make his own a few years down the lane.

Though Schultz joined Starbucks as the head of marketing and retail in 1982, his real moment of discovery came when he was vacationing in Italy a year later. The exposure to Milan’s numerous espresso bars and coffee shops sowed in his mind the idea to replicate the experiment back home. While Schultz started his own espresso bar in 1986 after leaving Starbucks, it just so happened that the original owners of Starbucks wanted to sell out the very next year. Raising some money from the public, Schultz bought the original Starbucks chain for $3.8 million. The rest, as they say, is history.

Sounds like a typical rags-to-riches tale? Yes, but there is more to Schultz’s story. Starbucks also set new standards in rewarding employees, a concept resurrected from those early childhood memories. Besides sending out the strong message that working behind a counter was no menial job, Schultz also rewarded his employees with complete health-care coverage and stock options. Of course, Schultz’s vision saw his company expand exponentially over the years starting in the mid-1990s. Starting with basic coffee, the Starbucks offerings grew to include the now iconic Starbuck staples of espresso, café latte, café mocha, iced coffee, and cappuccino.

Still, having achieved so much, Schultz does not seem to hold the view that a company’s success is only about the vision of its founder. In fact, in the wake of the passing of Steve Jobs, Schultz was quoted in a Digits blog saying that a company will succeed so long as it remains true to its vision and values. Actually, the careers of these two American icons have many parallels. Jobs, for instance, was fired from Apple in 1985, but returned to the firm in 1997 to turn it around dramatically. Likewise, during the early years of the last decade, Schultz retreated to a background role at Starbucks, only to be back in the saddle in 2008 to take full charge.

Never one to rest on his laurels, Schultz has always followed a strategy of self-criticism to make his company the very best. After returning as chief executive in 2008, Schultz shocked the corporate world by admitting in his book Onward: How Starbucks Fought for Its Life without Losing Its Soul that growth at Starbucks had become a “carcinogen.” He later told McKinsey & Company in a March 2011 interview that one of his first decisions after returning to Starbucks was to stop reporting comparable store sales, a measure which Schultz thought was not an accurate reflector of how well the company was performing.

A stickler for details, nothing seems to escape Schultz’s eyes on his round of surprise visits to Starbucks stores. If a Starbucks store falls short on its merchandizing, display, or product, his voice is heard. Such is his emphasis on quality that in March 2008 Schultz decided to shut down all Starbucks stores in America to retrain baristas on how to brew the perfect coffee.

Aside from that perfectly brewed cappuccino, Schultz always wanted to “build a company with a soul,” which would set a new standard for corporate America. In line with this vision, Starbucks has championed a number of corporate social responsibility initiatives over the years. The efforts included sponsorship of education, health, and humanitarian aid programs in the Third World countries where Starbucks procures its coffee supplies. Toward the end of 2011, Schultz launched what is known as the “Create Jobs for America” scheme, where he urged Starbucks patrons to contribute money to a micro-finance fund to aid small businesses, according to an article in Businessinsider.com.

After successfully turning coffee drinking into a national pastime in the 1990s, Schultz, now 57, has set his eyes on improving the international business of Starbucks. Starbucks has tasted success in China, where the company has been operating successfully for the last 12 years. As Schultz revealed in the McKinsey interview, the company has 800 stores located in greater China and 400 in the mainland. Schultz acknowledges that the company’s spectacular success in China did not happen overnight. In fact, Schultz pointed out that local sensitivities had to be carefully taken into account in deciding the menu for the Chinese stores.

India also figures prominently in Schultz’s game plan, going by the joint venture deal recently inked between Starbucks and Tata Global Beverages to establish coffee outlets in the country. Here again, as Schultz told the Indian edition of Forbes, Starbucks would uphold its high-end heritage and not compromise on its pricing policy, even though the Indian market is considered price-sensitive. Still, Schultz exuded confidence saying if they could tackle the Chinese challenge successfully, India should not be far behind.

Shaped by life’s experiences, Schultz sure knows how hard it is to earn a dollar. He also knows how to turn those dollars into winning ideas. In fact, the same out-of-the-box thinking that drove Schultz to upend the U.S. coffee market also inspired him to introduce the distribution of the Via brand of instant coffee and Frappucino drinks through the grocery store channel in 2010. And for the man who transformed the American $1 per cup coffee mindset into a European café experience, that’s good reason to drink up.

 

 

 

 

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