If there’s one mistake Howard Schultz is determined not to repeat, at least not any time soon, it’s this: retirement.
Starbucks’s seemingly tireless chief executive stepped away in 2000 (he took the chairman position), only to watch his company’s financial results begin to evaporate, as rapid expansion, a misguided foray into food – not to mention the economic downturn – took their toll.
Eight years later, Mr. Schultz roared back to lead the day-to-day operations of the company he built, shutting hundreds of U.S. stores, ditching the stinky cheese breakfast sandwiches and bringing back the scent of java to the cafés, helped by an internal “aroma task force.”
Starbucks is enjoying record operating results again, despite a $2.8-billion (U.S.) penalty imposed on it this week after it lost a grocery distribution battle with Kraft.
Now 60, at a time when other CEOs might think about handing over the reins, Mr. Schultz says he’s more in need of a caffeine fix than ever. There are no talks of succession and neither of his two children are involved in the business.
“I didn’t get that right the first time around and that was my own fault,” Mr. Schultz says, sipping – what else? – a (black) Starbucks anniversary blend that includes his favourite Sumatra dark brew. “I have no immediate plans to leave any time soon. And I don’t have any political ambitions, if that’s your next question.”
While other business leaders shy away from speaking on the issues of the day, he’s outspoken on matters from gun violence (he recently asked customers not to bring guns into Starbucks cafés) to last month’s U.S. government shutdown (he led a petition against it).
Mr. Schultz is firmly planted at the top, steering the ship in rough waters. Rivals ranging from the Oakville, Ont.-based Tim Hortons Inc. to U.S. fast-food titan McDonald’s Corp. – and its spreading McCafé – are struggling to make sales gains with cautious consumers, who still seem willing to dole out $4.15 for a "venti" latte.
“I think it’s harder today than at any other time in my 35-year career to maintain this kind of success at this level,” he says.
In a fast-moving digital age, any perceived misstep is quickly tweeted, posted and shared around the world, meaning retailers have to be nimble.
As we speak, at a Starbucks near Toronto’s posh Yorkville neighbourhood, Mr. Schultz is surrounded like a rock star by a clutch of his “partners,” the corporate nomenclature for employees, all clamouring to shake his hand.
He’s in town to rally the troops and congratulate them for a record year in Canada, with more than $1-billion in sales and more than 1,300 cafés.
This is an important market for Starbucks – it was in Vancouver, just across the border from the chain’s Seattle headquarters, in 1987, that the company made its first attempt at international expansion.
“If Vancouver did not succeed as Starbucks from ‘87 on, our entire international business, which is now thousands of stores and a significant amount of growth and profit, may not have existed,” he says.
Early lessons learned in Canada informed Starbucks’s global expansion strategy – from navigating cross-border duties and cost disparity to cultural sensitivities.
Like putting lids on customers’ coffee cups.
Mr. Schultz says Canadians, more than Americans, tend to take the lid off to add cream or milk and sugar, he says. Perhaps it’s the Tim Hortons habit of drinking milder coffee, prompting Canadians to dilute Starbucks’ bolder taste.
The company has recently come under attack for charging considerably higher prices in its cafés in China than elsewhere, but Mr. Schultz makes no apologies. Costs are just higher in China, he says.
In Canada, prices differ by regions although they’re comparable between big cities such as Toronto and New York, he says. A “grande” brewed coffee, at $2.35, such as the one Mr. Schultz is sipping, is five cents more than in New York. A latte costs the same in both cities for every size except a “tall,” which at $3.60, is 20 cents more in Toronto.
It’s clear that coffee, and café culture, is a passion for Mr. Schultz.
The son of working class parents in Brooklyn, N.Y., he grew up in public housing, managing to escape in 1970 with a football scholarship to Northern Michigan University.
After graduation, he found work in sales and marketing at Xerox Corp., then as an appliance salesman for a company that sold European coffee makers. He noticed that he was selling more of them to a fledgling Seattle company called Starbucks than to the major department-store chain Macy’s. He took a job at Starbucks as head of operations and marketing, but it was on a business trip to Italy that he decided to bring the romance of Italian espresso bars to the United States.
With the help of Christine Day, the outgoing chief executive of Lululemon, who was a financial adviser on private placement offerings, he launched his own coffee company, Il Giornale, opening two espresso bars in Seattle and one in Vancouver.
In 1987, he acquired Starbucks and kept the name, with 11 stores in all.
Ms. Day joined the company officially, putting her future in the hands of a man who “believed people would spend $2.50 for a cup of coffee when you could get drip coffee at 7-Eleven for 50 cents,” she said earlier this year.
By 2000, with Starbucks in solid shape, Mr. Schultz stepped down as CEO to focus on global strategy and expansion as chairman. But by 2007, the chain began to falter, obsessed with growth and distracted from the core coffee business. The financial crisis hit, the digital revolution arrived and an onslaught of new coffee competitors squeezed Starbucks.
“When it comes to Starbucks, I take every threat very personally,” Mr. Schultz writes in his 2011 book, Onward: How Starbucks Fought for its Life Without Losing its Soul. “Starbucks is in my blood. It is such a part of me that letting it unravel simply was not an option … As chairman, I held myself responsible for the problems we ourselves had created … I knew that, without daily control of the business, I was essentially powerless to stop Starbucks from sinking.”
During a vacation to Hawaii in 2007, as he was contemplating retaking the reins at Starbucks, he spoke with his pal Michael Dell, founder of the eponymous computer company, who had just returned to the top job at his company.
At the time, Mr. Dell shared with him his own “transformation agenda.” It became a call to action for Mr. Schultz, helping him realize the scale of change and precision decision-making needed at Starbucks.
He returned in January, 2008, and on Feb. 26, closed 7,100 U.S. cafés for three hours in the afternoon to retrain baristas in the art of making the perfect espresso.
Taking control is an operating principle for Mr. Schultz, whether it’s the quality of the coffee Starbucks serves, or the way its distinctive beans are distributed.
Now that the company is back on firmer ground, Mr. Schultz has been adding more complexity to the operation, acquiring upscale companies such as La Boulange bakery and Teavana – an attempt to do for tea what Starbucks did for coffee.
“We’ve been selling food for 30 years,” he told a conference call last month. “It just hasn’t been as good as our coffee. Now our food is as good as our coffee and we have a story to tell.”
It’s a story that’s helped fuel Starbucks’s sales growth at stores open a year or more: They rose 8 per cent in its key U.S. market in 2013, compared with 1.3 per cent gains at Tim Hortons’s U.S. restaurants so far this year and 0.9 per cent in its Canadian stores.
For Mr. Schultz, it means Starbucks is “a 24-hour job,” he says.
“The only time that I’m not thinking about Starbucks is when I’m sleeping.” Even then, he probably is, he adds. “I’ve never said that before, but it’s true … I think when you love something like this there’s a deep responsibility that goes with it.”
Family is important to him, but he doesn’t talk much about it. Daughter Addison is a graduate student studying social work in New York, son Jordan writes about sports for the Huffington Post.
“My wife and I very early on made the decision that we thought was best for them that neither one of them should be in this business. That would put more pressure on them and would be unfair,” he says.
To unwind, he plays chess with friends and enjoys “quiet dinners. I’ve had the same tight group of friends that I’ve had for 20 to 30 years, from college and my young career, early on.”
He has a passion for wine, though he doesn’t provide details of his extensive collection. He reads biographies, the last one being about General Marshall and his leadership strategies: “I’m a voracious reader.”
And he believes business should have a social conscience. He says last month’s U.S. government shutdown was “shameful.” He personally went to the White House to deliver a petition with nearly two million signatures in protest.
“I felt a need to provide a vehicle and a platform for the millions of Americans whose lives were being shattered by the shutdown but did not have a voice to express their concern and their outrage,” he says.
“I do believe that most businesses in the future should not be a bystander when they witness or see something that is inconsistent with what we believe should be the values of elected officials.”
Today, he’s got too much on his plate to leave the business – and he’s not satisfied.
“The question of not being satisfied has been something that’s kind of systemic throughout my career,” he says. “There really is no finish line, metaphorically. And if there was a finish line, then there wouldn’t be much to do.”
Married to Sheri; they have a son, Jordan, and daughter, Addison.
Hobbies: reading, chess, wine collection.
Bachelor’s degree from Northern Michigan University.
2008: Starbucks chief executive officer and president and chairman
2000: Stepped down as CEO and became chairman
1987: Purchased Starbucks with the help of local investors
1986: Launched Il Giornale coffeehouses
Other: Before joining Starbucks, he was vice-president and general manager of Hammarplast U.S.A., a Swedish housewares company. He spent three years in sales and marketing with Xerox Corp.
He is co-founder of Maveron LLC, a venture capital group.
In his own words
“We are witnessing a seismic change to consumer behaviour. And as a result of that, every company must understand that embracing the status quo as an operating principle is going to be basically a collision course with time.”
“We must have the courage and conviction to make big bets even if they’re unorthodox. And we must maintain the entrepreneurial DNA of the company despite the fact that we have 19,000 stores in 62 countries serving 70 million customers a week and employing 250,000 people.”
“We have to provide both indulgent food products to our customers as well as healthy alternatives. And you’re going to see a significant elevation of that in Canada in the near future.”
“Tim Hortons is a Canadian icon that we’ve always respected, especially the heritage they have deep with the Canadian family and the hockey association. So we understand that and we respect it but we co-exist with them. And we’ve had three back-to-back record years.”
“I think because I grew up in such a poor background that I’ve been imprinted early on with what it means to grow up on the other side of the tracks. So when I hear stories of 800,000 [U.S.] government workers not being able to make their mortgage payments or buy groceries because they’re not getting paid … because of the government shutdown, these are things that strike an emotional chord in me perhaps more than others.”
“The gun issue was a little bit different than the issue of the government shutdown. The tragedy in Connecticut, beyond touching all of us as human beings, also touched the Starbucks family because one of our baristas was a part-time school teacher and was murdered in the school that day.”
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|THI-N Tim Hortons||55.52||
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