» Business » Man in the News: Starbucks boss Howard Schultz

Man in the News: Starbucks boss Howard Schultz

By Jonathan Birchall and Jenny Wiggins
January 12, 2008 13:31 IST
Get Rediff News in your Inbox:

Howard Schultz claims that after 26 years with Starbucks, the world's largest coffee retailer, his blood runs brown. He drinks five cups of coffee a day and his favourite drink is the double-shot non-fat latte, three-quarters full.

The love affair with coffee dates back to 1981: he was living in New York and selling plastic Swedish housewares when he noticed that a small retailer in Seattle that sold only whole-bean coffee was buying an unusual amount of plastic coffee filters. He went to investigate, fell for both the coffee and the company, and ignored his mother's advice to stick with the well-paying job he had.

Now, after 13 years as chairman, removed from Starbucks' day-to-day management, Mr Schultz has returned to his former role as chief executive with another impassioned mission: reinvigorating what he calls the "romance and theatre" of coffee-making that he says have been damaged in the retailer's meteoric global expansion.

The company is hardly in dire financial trouble. In 2007, it had revenues of $9.4bn, double-digit earnings growth and opened more than 2,500 new stores.

But its share price slipped almost 50 per cent in 2007, as Wall Street worried that it had run out of room for further expansion in the US. In November it reported the first ever decline in customers visiting its US stores, fuelling fears that the broader economic slowdown could damp demand for cinnamon dolce Frappuccinos.

Mr Schultz argues that something fundamental needs to be fixed at a chain that has grown from about 1,000 stores 10 years ago to more than 10,000 in the US and more than 5,000 in 42 other countries.

The issues bubble about in the postings on Starbucks Gossip, a website devoted to the company, its employees and customers. There the coffee purists who share at least some of Mr Schultz's vision complain about the DTs - the drive-through windows now to be found in stores across the US - and the expensive frozen pastries and other food sold alongside the coffee.

They miss the old Italian-made La Marzocco espresso machines, with their levered coffee fittings, now replaced with the automatic Verismo 801s that dispense hot espresso at the touch of a button.

In February, Mr Schultz gave voice to the dissident voices within the company lamenting the loss of "romance and theatre" in a widely leaked memo to Starbucks' other top managers. The 801s were so high that customers could not see the coffee being made. New FlavorLock sealed bags of coffee, introduced for efficiency's sake, meant the stores no longer had the aroma of coffee that was part of their special appeal.

"I am not sure people today even know we are roasting coffee. You certainly can't get the message from being in our stores," he wrote.

His enthusiasm for the romance of coffee harks back to a revelatory trip to Italy in 1983, when he discovered a drink called the latte, hitherto unknown to Americans, being dispensed with flair and style by baristas who seemed to know everyone's name. He saw the potential for importing coffee bars.

In his 1997 autobiography, Pour Your Heart Into It, Mr Schultz portrayed himself as a boy who became inspired with a burning desire to succeed as he grew up in public housing in the Canarsie area of Brooklyn. He became the quarterback of his school American football team, won a scholarship to Northern Michigan University and set out for the career in sales that eventually led him to Swedish coffee filters. He talks of bashert, the Yiddish word for a person's allotted fate.

Starbucks' three literary-minded founders had given the company its name (after the first mate in Herman Melville's Moby-Dick). Mr Schultz joined as retail director in 1982 but left three years later to found a chain of espresso bars. In 1987 he was back, taking over Starbucks for $3.8m. The company was floated in 1994.

The same passion has generated enormously loyal employees. "He has the ability to share his vision with his people in a very personal manner," says a former executive who worked at Starbucks during the dramatic growth years in the 1990s.

Paul Argenti, a Tuck Business School professor who has studied Starbucks' sometimes troubled encounters with fair-trade activists, says: "There's nothing that happens at the company that is not touched by him in some way."

"I take Starbucks very personally," Mr Schultz told the FT in an interview before the CEO news broke. As a boy he remembers seeing his father, a delivery truck driver, put out of work by a broken ankle - without health insurance or sick pay - which has underpinned the retailer's commitment to ensure that its part-time staff can have access to the company's health insurance. It has also turned him into one of the most outspoken advocates of US healthcare reform.

Of late, he has worried that Starbucks has not been aggressive enough in defending itself from stronger competition in the US as fast-food chains such as McDonald's and Dunkin' Donuts have started promoting speciality coffee more heavily.

Mr Schultz's decision to slow Starbucks' US growth and concentrate on fixing the customer's experience mirrors a similar strategy undertaken by McDonald's since 2003. After deciding it had taken its "eyes off the fries", the restaurant chain relaunched its brand in the US around the "I'm lovin' it" campaign, emphasising the quality of its food.

When he is not drinking coffee, Mr Schultz, 55, likes to read and cycle. He has two children, a son and a daughter, and now that they are both away at college ("a big adjustment") his wife, Sheri - who put her own career as a designer on the back burner when they moved to Seattle - often accompanies him on his travels. And he sees his friends. "I still have most, if not all, my friends from the last 30 years."

Wall Street has given him the benefit of the doubt, with Starbucks' share rising about 10 per cent the day after his return was announced. On Starbucks Gossip, barista "Vicky Verona" welcomed what she hoped would be a return to the old focus on the coffee.

"Yes, I have become a button-pushing espresso monkey. No, I am not happy about it. Yes I am proud of the effort and care I put into every beverage I make. Yes, the La Marzoccos would be slower, but I would be proud of the finished product again."

Get Rediff News in your Inbox:
Jonathan Birchall and Jenny Wiggins

Moneywiz Live!