Schultz, Howard

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Schultz, Howard

(1953-)
Starbucks Corporation

Overview

Expressions like "streetwise" and "blue collar" are frequently used when describing the background of Starbucks Corporation chairman Howard Schultz. Raised in the projects in Brooklyn, New York, Schultz was the first in his family to graduate from college. Afterward, he purchased the Starbucks Coffee Company, which he used as a springboard to nationwide success. Within a few years, Starbucks became the first publicly held specialty coffee company and, according to Advertising Age, "the darling of Wall Street." The money raised in stock offerings enabled Starbucks to continue its expansion, opening hundreds of new stores and multiplying sales at a fantastic rate—revenue reached $2.3 billion in 2000. Schultz relied on his undergraduate business degree, personal experience, and insight to direct the meteoric rise of the coffee business that he detailed in his 1997 book, Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time.

Personal Life

Howard Schultz lives with his wife Sheri and their two children, Jordan and Addison, in a lakefront home in Seattle's upscale Madison Park district. Yet his upbringing took place along the Atlantic, not the Pacific, coast. Schultz is a native New Yorker, born into the blue–collar projects of Brooklyn in 1953. His father was a cab driver and factory worker, and his mother was a receptionist. Schultz began his college career with a football scholarship to Northern Michigan University and was the first in his family to earn a college degree.

In December 1994 Schultz received the Business Enterprise Trust Award for his integrity and philanthropy. Two years later he garnered the International Humanitarian Award for developing an alliance between Starbucks and CARE in support of people in coffee–producing countries. In August 1998 Schultz was honored by the Jerusalem Fund of Aish Ha Torah for his humanitarian achievements worldwide.

Career Details

The inspiration for his phenomenal coffee business was a 1983 visit to Milan, Italy. Schultz perceived a new American way of life in the city's 1,700 coffee bars, and he sought to recreate such forums for people to start their day or visit with friends. Schultz later described the coffee bar as "an extension of people's front porch" in the New York Times.

In 1987, at the age of 34, Howard Schultz organized a group of investors and purchased his former employer, Starbucks Coffee Company. The small Seattle–based coffee roaster took its name from the coffee–loving first mate in Herman Melville's novel Moby Dick. Schultz renamed his company the Starbucks Corporation.

Schultz's coffee bars were an instant success, fueling rapid growth and expansion, not only for Starbucks but also for the coffee industry as a whole. This new coffee culture supported a proliferation of stores and other sales avenues for Starbucks' beans. The company owns all of its stores, despite the constant stream of franchise inquiries, and has been steadily opening shops throughout the country. In 1992 Starbucks became the first specialty coffee company to go public, a testament to its size and prospects.

Starbucks' first major venture outside of the northwestern part of the nation was Chicago, where mail–order sales were strong. The company's specialty sales division developed new business through Nordstrom's department stores and established Starbucks coffee bars within Barnes and Noble bookstores. Starbucks also formed a partnership with PepsiCo Inc. to create and distribute a new ready–to–drink coffee–based beverage, Frappuccino, as well as entered into a licensing agreement with Kraft Foods. The company even developed a relationship with Capitol Records, releasing Blue Note Blend coffee and an accompanying jazz compilation on compact disc.

When Starbucks opened its first stores in New York City, it was a homecoming for Schultz, but he did not act like the conquering hero. The New York Times commented, "The soft–spoken Mr. Schultz has barely a trace of a New York accent and a timid, almost apologetic manner. When he comes to visit the 54th Street store his entrance is ultra low–key."

Part of Schultz's success as an entrepreneur is his willingness to nurture his employees. He credits a generous benefits package, offered even to part–time employees, as the key to growth, as it rewards Starbucks with a dedicated workforce and an extremely high level of customer service. It also contributes to a dramatically lower turnover rate—half the rate of the average fast–food business. This creates a financial payoff for the company, since each new employee costs $3,000 in recruiting, training, and productivity losses—the equivalent of two years of premium payment.

Advertisers marveled at Schultz's tactics, including his investments in such "internal marketing" rather than a large external advertising budget. In March 1994 Advertising Age noted that Schultz "turned a small chain into a national brand while spending a relatively small amount on advertising." The magazine quoted investor Matthew Patsky as saying, "They don't market . . . they've established a major presence all through word–of–mouth."

In 2000 Starbucks earned $151 million on sales of $2.3 billion. Schultz predicted that the number of Starbucks stores would triple in both the United States and overseas by the year 2005 and that sales and earnings would increase by 25 percent a year. However, Stephane Fitch, writing in Forbes in March 2001, questioned whether the company's growth record was sustainable. Some analysts, he noted, argued that Starbucks' profitability reflected growth in the number of stores rather than the popularity of its products. If so, Fitch argued, Starbucks would be waking up to the smell of coffee as soon as the prime locations for new stores were gone.

On June 1, 2000, Howard Schultz, the visionary behind Starbucks Coffee, stepped down as CEO to assume the post of chief global strategist. Having conquered the domestic markets, Schultz was shifting his gaze toward global expansion. "Five years ago our strategic intent was to build the leading brand of specialty coffee in North America," he told Nation's Restaurant News. "Five years later we have fulfilled that promise. And our strategic objectives are now much different, and that is to maintain our leadership position in North America but to build an enduring global brand around the world."

In 2001 Starbucks operated 4,000 establishments worldwide and served 10 million customers weekly. In addition to its coffee houses, Starbucks is available in department stores, grocery chains, airlines, hotels, and bookstores. In the e–commerce arena, the company marketed its name brand coffee through Starbucks.com, as well as through partnerships with the e–tailers Oxygen Media, Talk City, and Kozmo.com.

Chronology: Howard Schultz

1953: Born.

1975: Received a bachelor's degree from Northern Michigan University.

1982: Hired to head Starbucks' operations and marketing.

1987: Purchased original Starbucks franchise; formed Starbucks Corp.

1992: Starbucks became first specialty coffee company to go public.

1994: Joined with PepsiCo Inc. to produce Frappuccino.

1998: Entered licensing agreement with Kraft Foods.

2000: Formed alliance with resource e–tailer Kozmo.com.

2000: Stepped down as CEO.

Social and Economic Impact

With his coffee bars, Howard Schultz stirred up new interest in the coffee culture to the point where it created a vocabulary of its own. Starbucks' employees who make coffee are known as "baristas," and terms like "latte" (half coffee, half hot milk) and "doppio macchiato" (a double shot of espresso topped with milk foam) became part of everyday language by the late twentieth century in the United States.

In 1990 Forbes described Starbucks as "bucking an anti–coffee tide." At that time, coffee consumption in the United States was on the decline, but Schultz soon persuaded the public to become coffee connoisseurs. He presented espresso drinks as an affordable luxury, not a beverage reserved for the elite and cosmopolitan. Schultz has also taught coffee drinkers to savor a stronger, richer beverage, as Starbucks uses arabica coffee beans rather than the more common robusta bean.

Schultz's corporate philosophy places great emphasis on supporting Starbucks' employees and on a commitment to community and environmental projects. The company is the largest corporate sponsor of CARE, an international aid and relief organization. In 1995 Starbucks pledged $500,000 to CARE with the stipulation that the money go to the countries that supply Starbucks with its coffee.

Schultz has also attracted considerable attention with his unconventional employment policies. He wanted to give Starbucks' employees "both a philosophical and a financial stake" in the business, according to U.S. News & World Report. Employees who worked 20 hours a week or more were eligible for medical, dental, and optical coverage as well as for stock options. At a time when other companies were trimming benefits as a cost–cutting measure, Schultz, who grew up in a family without any medical coverage, believed that his approach is critical to building a better workforce. "Service is a lost art in America," he told the New York Times. "I think people want to do a good job, but if they are treated poorly they get beaten down . . . It's not viewed as a professional job in America to work behind a counter. We don't believe that. We want to provide our people with dignity and self–esteem, and we can't do that with lip service." Schultz credits the benefits policy as the key to the company's growth because it gave Starbucks a more dedicated workforce and an extremely high level of customer service. The chain also achieved a dramatically lower turnover rate—half the rate of the average fast food business. This creates a financial payoff for Starbucks, since each new employee costs the company $3,000 in recruiting and training costs and productivity losses—the equivalent of two years of premium payment.

Schultz has remained firmly committed to employee and community enrichment. As part of his ongoing efforts, Starbucks teamed up with baseball star Mark McGwire and Doonesbury creator Garry Trudeau to promote an adult literacy campaign. Starbucks also partnered with another sports star, Earvin "Magic" Johnson, to service inner city neighborhoods.