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Schultz, Howard

Howard Schultz

Born: 1953
Brooklyn, New York
Chairman of the board, Starbucks Corporation

Howard Schultz took a small coffee shop chain and infused it with an Italian flair for fun and relaxation to create a unique American cultural phenomenon. There may be dozens of imitators, yet none has matched the popularity of Starbucks. The success of Starbucks is due mostly to Schultz, who is praised by analysts and competitors alike. In 1995, Tricia Reebs, an analyst for Dain Bosworth, discussed the Starbucks owner with Jeanne Sather of Business Journal-Portland, "He's a very, very strong idea person. He has a vision of what he wants to create, and he has the follow-through. It's something in his characterpassion, belief, confidence."

Schultz, however, is the best person to discuss his own business philosophy. In an interview with Entrepreneur magazine in May 1998, he modestly explained: "You need the self-esteem to hire people who are smarter than you and give them the autonomy to manage their own areas. Surround yourself with great people and get out of the way."

"There are a lot of similarities between rearing a family, where the parents imprint values on their children, and starting a new business, where the founder sets the ground rules very early. If you do it right and maintain those values, growth will be managed so you don't lose the soul of the company."

An Uneasy Childhood

Howard Schultz was born in Brooklyn, New York, in 1953. With little money, both parents worked long hours to support the family. To escape being "poor" young Howard turned to sports and played football, baseball, and basketball. He did so well in high school that he was awarded an athletic scholarship to Northern Michigan University.

When he left New York to go to college, Shultz's father was a broken man. He had never gotten ahead in any of his low-paying jobs and was rarely shown any respect by his employers. "I watched my dad's self-esteem fracture," Schultz commented to Sather in 1995. Because of his family's financial troubles, Schultz made the most of his college days, both athletically and academically. He received a bachelor's degree in business and marketing in 1975, proud to be the first member of his family to attend college.

On the Right Track

Schultz returned to New York after graduation and worked for the Xerox Corporation before joining a Swedish housewares company called Hammerplast. On a business trip to Seattle, Washington, in 1981 Schultz walked into a Starbucks and fell in love with the flavorful coffee. He met with one of the owners, Gerry Baldwin, to sell Hammerplast coffeemakers and expressed an interest in working there. By the following year, Schultz was hired as marketing director for the Seattle business.

When he started at Starbucks, the company had about a dozen locations and sold coffee beans and related products, not coffee by the cup. Yet after a trip to Milan, Italy, in 1983, Schultz became convinced that espresso or coffee "bars"which served the steaming beverages by the cup and offered customers chairs to sit and chat awhilewere the wave of the future. "I believed the relationship I saw between people and coffee in Italy was transferable to America in a big way," Schultz explained to Jennifer Reese of Forbes magazine in December 1996.

The owners of Starbucks disagreed, however, so Schultz decided to venture out on his own. Rounding up money from investors (including the Starbucks partners who were willing to invest), he opened the first II Giornale coffee bar in 1984. The small, friendly cafe was a hit with Seattle's sophisticated coffee drinkers who, thanks to Schultz, could get Starbucks coffee by the cup and a bag of beans from the real Starbucks down the street.

As Schultz planned additional Il Giornale coffee bars, he heard that one of the Starbucks partners intended to leave the business. Schultz offered to buy out all the partners and did so in 1987. He then merged II Giornale and Starbucks to form the Starbucks Corporation. From the start, Schultz wanted to make Starbucks a nationally recognized brand, to take the premium coffee from the West Coast to the East Coast and everywhere in between. He succeeded, and Starbucks coffee bars blossomed almost overnight, creating devoted customers with every new opening. Expansion was important, but quality and consistency, as well as the company's workers, were the keys to his success.

Lessons Learned

One lesson Schultz learned from his childhood was to never forgot how his father was treated by his employers. Schultz went in the opposite direction, treating all Starbucks employees as important members of a team. "I believe very strongly that the success of our company," Schultz told Business Journal-Portland, "has been achieved because of the relationship with our people." Not only are Starbucks workers (called "partners") given a thorough training program, but both full-and part-timers receive generous health benefits and after five years can buy shares in the company. The shares are called "Bean Stock."

Howard Schultz took the name for this book, Pour Your Heart Into It: How Starbucks Build a Company One Cup at a Time from one of his many business guidelines: "If people relate to the company they work for, if they will form an emotional tie to it and buy into its dreams, they will pour their hearts into making it better."

By the 1990s, Starbucks was an international phenomenon, with locations and sales jumping upwards from year to year. By 1992, there were 165 Starbucks locations and just two years later, by 1994, there were 425. Sales mushroomed from $100 million in 1993 to $465 million in 1995, while new products such as bottled Frappuccino and Starbucks ice cream began appearing on grocery store shelves.

As Starbucks introduced new items for coffee drinkers and non-coffee drinkers (such as tea blends, steamed milk, and hot chocolate), Schultz, too, went in a new direction. He wrote a book with business writer Dori Jones called Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time. Published in 1997 by Hyperion, the book told the story of Starbucks and the various business principles and life philosophies Schultz believes shaped the company's climb from small coffee retailer to corporate giant. All proceeds from the book, which sold well, were given to the Starbucks Foundation, formed by Schultz in 1997, to support literacy.

Taking a Step Back

Schultz began to slow down in the later 1990s and in 2000 turned over his duties as president and chief executive to Orin Smith, while keeping his job as chairman and "chief global strategist." With less responsibility and more time, Schultz was able to dabble in other business ventures like an Italian restaurant chain and health-food grocery stores. He was also able to spend more time with his wife, Sheri, and two children. They live in the Seattle area, and Schultz is very protective of the family's privacy.

Howard Schultz is more than the man behind a coffee-buying revolutionhe also changed the vocabulary of millions of people who had never even heard of a "cappuccino" before Starbucks burst on the scene. Now cappuccino, caffe mocha, caffe latte, and a variety of hip coffee terms are a part of our everyday language. Despite the immense success of Starbucks and the wealth it generated for Schultz and others, he said back in 1995 to Business Journal-Portland, "This has never been about money, never. It's about our passion for coffee."

For More Information

Books

Olsen, Dave, et al. Starbucks Passion for Coffee: A Starbucks Coffee Cookbook. Menlo Park, CA: Sunset Publishing, 1994.

Pendergrast, Mark. Uncommon Grounds: The History of Coffee and How It Transformed Our World. New York: Basic Books, 1999.

Schultz, Howard, with Dori Jones. Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time. New York: Hyperion, 1997.

Periodicals

Barron, Kelly. "The Cappuccino Conundrum." Forbes (February 22,1999): p. 54.

McDowell, Bill. "The Bean Counters (Company Profile)." Restaurants & Institutions (December 15, 1995): p. 40.

. "Starbucks Coffee (Company Profile)." Restaurants & Institutions (August 1, 1994): p. 53.

Prinzing, Debra. 'Schultz: Grande Designs for Filling Tall Order." Puget

Sound Business Journal (December 25, 1992): p. 8.

Reese, Jennifer. "Starbucks: Inside the Coffee Cult." Fortune (December 9, 1996): p. 190.

Sather, Jeanne. "Starbucks's Captain." Business Journal-Portland (March 3, 1995): p. 16.

Smith, Scott S. "Grounds for Success (Interview with Howard Schultz)."Entrepreneur (May 1998): p. 120.

Yang, Dori Jones. "An American (Coffee) in Parisand Rome." U.S. News

& World Report (February 19, 2001) p. 47.

Web Sites

Starbucks Corporation. [On-line] http://www.starbucks.com (accessed on August 16, 2002).

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Schultz, Howard 1953–

Howard Schultz
1953

Chairman and chief global strategist, Starbucks Corporation

Nationality: American.

Born: July 19, 1953, in Brooklyn, New York.

Education: Northern Michigan University, BS, 1975.

Family: Son of Fred Schultz and Elaine (maiden name unknown); married Sheri, an interior designer (maiden name unknown).

Career: Xerox Corporation, 19761979, sales; Hammarplast, 19791982, manager of U.S. operations; Starbucks Corporation, 19821985, director of retail operations and marketing; Il Giornale, 19851987, founder and CEO; Starbucks Corporation, 19872000, chairman and CEO; 2000, chairman and chief global strategist.

Awards: Top 25 Best Managers, BusinessWeek, 2001; Top Six Entrepreneurs of the Year, Restaurant Business, 2001; Botwinick Prize in Business Ethics, Columbia Business School, 2000; Executive of the Year, Restaurants and Institutions, 2000.

Publications: Pour Your Heart into It: How Starbucks Built a Company One Cup at a Time, 1997.

Address: Starbucks Corporation, 2401 Utah Avenue South, Seattle, Washington 98134; http://www.starbucks.com.

When Howard Schultz acquired Starbucks' assets in 1987, the company consisted of six retail and wholesale coffee shops in the Pacific Northwest. When Schultz gave up his position as CEO 13 years later to become chief global strategist, Star bucks cafés could be found all over Europe, the Middle East, and the Far East, as well as in over two thousand locations across North America. Though he often shunned prevailing wisdom, Schultz's original vision of providing specialty coffee and old-world charm to the masses eventually became a multibillion dollar reality.

FINDING HIS NICHE

Schultz grew up in the Carnisie housing projects of Brook lyn, where he was deeply affected by his father's struggle to provide for his family. Looking for a way to stand out and be successful, Schultz turned to sports and gained a football schol arship to Northern Michigan University in 1971. He was an unmotivated student, however, and didn't discover his fore-most talent until he took a sales position with the Xerox Corporation. Schultz flourished in competitive environments and rose quickly when he joined the housewares company Ham marplast in 1979. As a general manager with Hammarplast he traveled to Seattle in 1981 to investigate a small coffee company that was ordering an extraordinary number of speciallyshaped coffee filters. This was his first encounter with Star-bucks.

Schultz was immediately captivated by the passion of Star-bucks' founders, Gordon Bowker and Jerry Baldwin, who talked about coffee as if they were discussing the various qualities of fine wine. Fired with enthusiasm, Schultz soon talked them into hiring him as their director of retail operations and marketing. Despite the misgivings of his family, Schultz gave up a respectable job in Manhattan to immerse himself in the arcane business of gourmet coffee. He even found himself attracted to the countercultural aura of Seattle that had given birth to the American coffeehouse. Most importantly he had found a business he could be passionate about, and he threw himself into it wholeheartedly.

On a buying trip to Italy in 1983 Schultz's growing obsession with coffee took another step with his discovery of Italian coffee bars, where the experience of enjoying espresso drinks was woven into the fabric of daily business and social life. Schultz thought that the coffee-bar experience could be the next evolutionary step for Starbucks in America; when the founders disagreed, he reluctantly left the company and opened his own Italian-style espresso bars in the Seattle area. He called his new enterprise Il Giornale, Italian for "daily." Three years later, in 1987, Il Giornale was successful enough for Schultz to find investors when the opportunity arose to buy Starbucks from Bowker and Baldwin.

Schultz had optimistically promised investors that Star-bucks would expand rapidly, even though Seattle was already filled with coffee stores and the rest of the country had yet to show interest in espresso drinks. During the new corporation's first year, expansion amounted to 15 additional stores; by 1992 there were nearly 150 Starbucks locations, including in such trendsetting cities as Chicago, Los Angeles, and San Diego. A markedly growing mail-order business paved the way for the Starbucks brand in many other areas outside of the Pacific Northwest, such that the only advertising the company needed was word of mouth.

While it might have seemed like Schultz was merely cashing in on a new fad for specialty coffee, he built for long-term success by acting on principles that were uniquely his own. The example of his father's struggles prompted him to offer health coverage to all employees who worked at least 20 hours per week in 1988. While he tried to maintain the atmosphere of the Italian coffee bar as much as possible, he was flexible enough to give in to American customers' requests for in-store seating and for nonfat milk in their lattes and cappuccinos.

DIVERSIFICATION AND EXPANSION

In 1992, after the company had shown profits for two straight years, Schultz completed the initial public offering of Starbucks common stock on the NASDAQ national market. The following year Starbucks began its relationship with Barnes & Noble, which placed the company in the center of the growing trend toward combining coffeehouses with large bookstores. This combination was in line with Schultz's abiding vision of the coffeehouse experience, which was to provide an oasis for busy people in the midst of hectic and fragmented lives. He wanted to build the Starbucks brand into a trademark experience that people could trust.

Building that trust entailed ensuring Starbucks quality in every product that the company offered. The desire for impeccable quality control caused Schultz to reject franchising as a way of raising extra capital in the mid-1990s, when Starbucks expansion was at its peak. It did not hinder him from attaching the Starbucks name to a growing number of products, however. In 1994 Starbucks began to sell music CDs in its outlets in response to customers' requests to purchase the music they heard in the stores. In 1995 Schultz approved the development of Frappuccino, a cold milk and coffee drink that would prove popular in warmer climates. That same year Starbucks entered into partnership with Dreyer's to produce coffee-flavored ice cream.

In 1996 Starbucks expanded into the Far East with its first location in Japan. Against the predictions of market experts, the Japanese were eager to carry Starbucks cups as they walked down the street. Within a few years there would be locations in Singapore, Thailand, New Zealand, Taiwan, Malaysia, China, Korea, Kuwait, and even Lebanon. The increasingly global nature of Starbucks prompted Schultz to relinquish his CEO duties in 2000 in order to focus on larger worldwide issues as chief global strategist. Three years later Starbucks opened its thousandth Asia-Pacific store.

The global success of Starbucks allowed Howard Schultz to once again immerse himself in sports, the passion of his youth, with his purchase of the National Basketball Association's Seattle Supersonics in January 2001.

See also entry on Starbucks Corporation in International Directory of Company Histories.

sources for further information

Koehn, Nancy, Brand New: How Entrepreneurs Earned Consumers' Trust from Wedgewood to Dell, Boston, Mass: Harvard Business School Press, 2001.

Schultz, Howard, Pour Your Heart into It: How Starbucks Built a Company One Cup at a Time, New York, N.Y.: Hyperion, 1997.

Michael T. Van Dyke

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Schultz, Howard

SCHULTZ, HOWARD

SCHULTZ, HOWARD (1953– ), U.S. entrepreneur. Born and reared in Brooklyn, n.y., Schultz won a football scholarship to Northern Michigan University and graduated in 1975 with a major in communications. He had a variety of jobs and in 1981 traveled to Seattle to inspect a coffee bean store called Starbucks that had been buying many of the Hammarplast Swedish drip coffeemakers he was selling. After being hired by Starbucks, he became its director of marketing and operations in 1982. In Italy, Schultz discovered that coffee bars existed on practically every block and served as meeting places. The Starbucks owners resisted Schultz's plans to serve coffee in the stores, so Schultz quit and started his own coffee-bar business. It was an instant success, and a year later Schultz bought Starbucks for $3.8 million. The company began to expand rapidly in the 1990s, and Schultz introduced his customers to espresso drinks, café latte, and the frappuccino. Schultz did not pay his employees much, but he gave them comprehensive health coverage, including benefits for unmarried spouses. These moves increased loyalty. Starbucks went public in 1992 and grew at a rate of 25 to 35 percent a year. By the early 21st century the company had almost 4,000 stores in 25 countries, serving 15 million people a week. In 2000 Schultz bought the Seattle Supersonics professional basketball team, and he also owned the Seattle Storm in the women's professional league. He was also a significant stakeholder in Jamba Juice. Although he was a fervent supporter of Israel, Schultz did not have success with his Starbucks investment in Israel. All six coffeehouses in Tel Aviv closed in 2003.

[Stewart Kampel (2nd ed.)]

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Schultz, Howard

Schultz, Howard

(1953-)
Starbucks Corporation

Overview

Howard Schultz is not a household name to most North Americans, but those living in urban or suburban communities know his company: the specialty-coffee retailer Starbucks. In the span of a decade, Starbucks has grown into the largest coffee roaster and retailer of specialty coffee in North America. As the millennium approaches, Schultz's company is busy establishing its successful, cozy coffee bar formula around the globe; even President Bill Clinton has been photographed with a Starbucks to-go container in his hand. According to the trade journal Chain Store Age Executive, Schultz's "merging of the three C's—coffee, commerce, and community—surely ranks as one of the '90s greatest retail successes."

Personal Life

Schultz was born in 1953 and grew up in the federally subsidized Canarsie housing project in the Brooklyn borough of New York City. His mother worked as a receptionist, and his father held a variety of jobs, none of which offered decent pay or benefits such as medical coverage for himself or his family. When "Howie" was seven, his father lost his job as a driver for a diaper service when he broke his ankle. Sick pay or even legallymandated disability assistance were luxuries to many in low-paying jobs at the time, and in the ensuing months, the family was literally too poor to put food on the table. It was a memory that Schultz would carry with him into adulthood.

During his youth Schultz was ashamed of his family's "working poor" status. He escaped the hot Brooklyn summer one year to attend camp, but would not return when he discovered that it was funded with government money for low-income families. When he began dating, he feared that his girlfriends' fathers would ask where he lived. He turned to sports as an escape: competitive by nature, he marshaled that drive into succeeding on his high school's football, baseball, and basketball teams. He was awarded an athletic scholarship to Northern Michigan University, and earned a degree in business administration in 1975 which made him the first person in his family to graduate from college.

Career Details

When he graduated, Schultz was offered a job with the Xerox Corporation, and was trained as a sales and marketing associate. It was a job at which Schultz naturally excelled, and he spent three years there. Sensing more opportunity in working for a smaller company, he then left the Fortune 500 name to head the U.S. operations of Hammerplast, a Swedish housewares company. After a few years, Schultz noticed that a small Seattle company named "Starbucks" was buying an unusually high number of Hammerplast's manual cone coffee filters and espresso machines. Intrigued, he flew across the country to investigate, where he found four Starbucks outlets, named after the first mate in the Hermann Melville novel Moby Dick, selling roasted coffee beans and specialty coffee products. Starbucks, however, set itself apart from its few competitors and had quickly gained a cult following by using stronger, more flavorful beans. An arabica bean, Schultz learned that day, yielded the strongest coffee he had ever tasted; by the end of his first cup, he too was a devotee.

Schultz set up a meeting with the pair who had founded Starbucks in 1971, Gerald Baldwin and Gordon Bowker, and begged them to hire him as director of marketing. He believed so strongly in their product that he saw great potential for expansion. His enthusiasm made them wary. "After Baldwin called to tell Schultz they were not offering him the marketing director's job, fearing he'd be disruptive, Schultz pleaded with them to reconsider," wrote Lee Moriwaki of the Seattle Times. Twenty-four hours later, they called and offered him the post.

Thus in 1982 Schultz became director of Starbucks retail operations, which meant a move from New York City to Seattle with his wife Sheri Kersch, an interior designer. Under Schultz, Starbucks expanded its retail presence and catalog sales, but he had an even greater vision. On a trip to Italy around 1984, Schultz was moved by the profusion of corner coffee bars in Milan; they seemed to serve as a focal point for the neighborhood much as convenience stores do in America, but were also places where people lingered a bit as well as bought their lottery tickets. Baldwin and Bowker had different plans for expansion, so Schultz left to launch his own chain of coffee providers, which he named Il Giornale, Italian for "the daily."

The first Il Giornale store opened in Seattle in April of 1986, and is still home to a Starbucks. It was a hit, and within a year he had opened more, but knew he needed much more funding in order to expand and purchase his own roasting facility. In a stroke of good timing, the partners at Starbucks, Baldwin and Bowker, wished to sell their assets. Schultz decided to try to raise the investment money to make the purchase. He pitched his idea to a total of 242 potential investors; 24 were impressed enough with his vision to give him money, but it was a dicey venture for a while. Sheri Kersch Schultz was pregnant at the time, and continued to work to support them. "It was humbling and scary," Schultz told the Puget Sound Business Journal's Sather about this make-or-break time in his life.

Furthermore, Schultz learned that one of his investors was trying to engineer a coup of sorts to secretly purchase Starbucks, and then make Schultz simply a manager instead of a major shareholder. He met with the turncoat, and "the investor laid out his plan and gave Schultz a take-it-or-leave it ultimatum," wrote Moriwaki in the Seattle Times-a proposition to which Schultz replied: "It's my idea.... You're not taking it away." He then retreated to the lobby where, overwhelmed, he wept. In the end, it was the verve and dedication that Schultz had displayed to his other investors that saved him: a group of them rallied to raise the money. In 1987, Schultz became president and chief executive officer of Starbucks.

The company soon began opening more stores, expanding to other cities in the Pacific Northwest, but it was not just the arabica beans and specialty drinks that made Starbucks a success, it was the enthusiasm and professionalism of its employees. From the start, the hiring and personnel practices that Schultz implemented were almost radical: he trained them intensively, and paid them a far higher wage than the average hourly food-service worker. It was a reasoning described by Chain Store Age Executive as "treat your employees well and that is how they will treat your customers." A competitor in the coffee industry, Larry Mindel, told Nation's Restaurant News that "the real secret of Howard's success is that he put together an infrastructure of professional people who make every one of those stores operate like a Swiss watch."

Chronology: Howard Schultz

1953: Born.

1975: Earned a BA from Northern Michigan University.

1982: Joined Starbucks as director of marketing.

1986: Opened first Il Giornale store.

1987: Returned to Starbucks as president and CEO.

1988: Opened 12 stores in Chicago.

1992: Took Starbucks to Wall Street in initial public offering (IPO) of stock.

1993: Starbucks opened 100 additional stores.

1997: Starbucks packaged coffees made available in selected grocery stores.

Starbucks had become a major presence in Seattle, Chicago, Washington, D.C., all of California, and most American cities by the early 1990s. It even expanded into New York City in 1993, a notoriously difficult market to conquer. The following year Schultz stepped down as president of the company, but remained its chief executive officer and board chair. He did this in part to devote more time to other projects that the company became involved in, such as Cucina Cucina, a chain of Italian restaurants, and the Fresh Fields gourmet health-food supermarkets. By 1997, Starbucks had over 1,300 outlets in North America, stores in Japan, Hawaii, and Singapore, and served 5 million customers in an average week. Annual sales were expected to reach $1 billion before the end of 1998.

Social and Economic Impact

Starbucks employees, about two-thirds of whom are part-time, receive full medical, dental, and even optical insurance for working at least 20 hours a week. This generous employee benefit program, in an era when most companies prefer to hire only part-time workers so that they can skirt regulations requiring them to offer such benefits to full-timers, is a direct result of Schultz's own hardscrabble childhood. "I watched my dad's self-esteem fracture and I watched his self-respect fracture," Schultz told Puget Sound Business Journal writer Jeanne Sather. "It had a lot to do with how he was treated in the workplace as a blue-collar worker."

Schultz also implemented "Bean Stock," Starbucks' stock option plan. Once a year, the company awards between ten and fourteen percent of an employee's base salary in stock. The stock, however, is not fully transferable to employees until they have been with the company for five years, which gives many a great incentive to stay on board. When the company's stock was first traded on Wall Street in 1992, it sold for $2.25 a share. Six years later, it was trading at over $47 a share. Some longtime Starbucks employees now own property in some of Seattle's most exclusive areas. "I believe very strongly that the success of our company has been achieved because of the relationship with our people," Schultz told Sather in the Puget Sound Business Journal. "Bean Stock has meant everything to the growth and success of the company."

The company's record profits are not just reinvested in employees. Since 1991 Starbucks has also contributed to CARE, the Georgia-based international relief and development organization, and has since become its largest corporate donor. Starbucks stores sell products specifically for CARE, and the proceeds given to CARE are designated to be used in developing countries from which the company purchases its coffee beans, such as Guatemala, Kenya, and Ethiopia. Schultz's 1997 book Pour Your Heart into It: How Starbucks Built a Company One Cup at a Time, written with Dori Jones Yang, is a corporate history twined with Schultz's personal and corporate philosophy. Proceeds from the book were donated to literacy programs via the Starbucks Foundation, which was established to fund worthwhile causes. "Success is empty if you arrive at the finish line alone," he wrote in Pour Your Heart Out. "The more winners you can bring with you—whether they're employees, customers, shareholders, or readers—the more gratifying the victory."

Still, the success of his company set in record time has earned Schultz some barbs. On the Tonight Show in 1997, Jay Leno joked that cameras on the Mars "Pathfinder" had indeed sent back proof of life on the planet: it had found a Starbucks and a Gap store. Some urban residents have picketed the openings of Starbucks outlets in their neighborhoods, viewing the mermaid logo and its two-dollar-plus coffee drinks as the arrival of the "bourgeois" lifestyle in what was once a formerly mixed-income community. Schultz takes it personally when people poke fun at Starbucks and its ubiquitous presence. "It's difficult when you try and do good work, try and build the kind of company that I think we're all proud of, and people for whatever reason don't like you," he told Washington Post reporter Margaret Webb Pressler. "It's emotional." He reportedly hires protection for his two school-aged children.

Schultz plans to take Starbucks to an international level of recognition, becoming a presence in Asia and even Europe by the year 2000. He dedicated his book to the memory of his father, to whom he had once spoken harshly and accused of a lack of ambition. They were words Schultz would regret the rest of his life; his father died of lung cancer before his son became a millionaire. Schultz once told a San Diego audience that his greatest success was that "I got to build the kind of company that my father never got to work for," according to the San Diego Business Journal.

Sources of Information

Contact at: Starbucks Corporation
2203 Airport Way S., PO Box 34067
Seattle, WA 98124-1067
Business Phone: 1-800-STARBUC
URL: http://www.starbucks.com

Bibliography

Harman, Liz. "Starbucks' Schultz Reveals How Firm Keeps Perking." San Diego Business Journal, 29 September 1997.

"Howard Schultz." Chain Store Age Executive with Shopping Center Age, September 1997.

Liddle, Alan. "Howard Schultz: Chairman, Chief Executive, Starbucks Corporation, Seattle." Nation's Restaurant News, January 1995.

Moriwaki, Lee. "Company Was a Hot Idea Worth Crying About." Seattle Times, 28 August 1997.

Newsmakers. 1989 Cumulation. Detroit: Gale, 1990.

Nufer, Doug. "Pour Your Heart into It: How Starbucks Built a Company One Cup at a Time." Nation, 13 October 1997.

Pressler, Margaret Webb. "The Brain Behind the Beans: Starbucks' Schultz Has Drawn Praise, Derision in Building His Coffeehouse Empire." Washington Post, 5 October 1997.

Prinzing, Debra. " Starbucks: 400,000 Coffee Customers a Week and Counting. Puget Sound Business Journal, 24 June 1991.

Sather, Jeanne. "The Schultz house blend: Vision, drive, modesty." Puget Sound Business Journal, 23 December 1994.

"Starbucks' Captain." Business Journal-Portland, 3 March 1995.

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Schultz, Howard

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.

Sources of Information

Contact at: Starbucks Corporation
2401 Utah Ave. South
Seattle, WA 98134
Business Phone: (206)447–1575
URL: http://www.starbucks.com

Bibliography

Forbes, 19 March 2001.

"Howard Schultz." Nation's Restaurant News, 31 January 2000.

"Howard Schultz" Newsmakers 1995, Issue 4. Farmington Hills, Mich.: The Gale Group, 1995.

"Mr. Howard Schultz." Nikkei Global Management Forum, 2000.

"Starbucks Corporation." Hoover's Online, Inc., November 2001. Available at http://www.hoovers.com.

"Starbucks in New Net Gambit." CNET News.com, 23 July 1999. Available at http://www.cnetnews.com.

"Starbucks, Star Bright." Far Eastern Economic Review, 18 May 2000.

"News Releases." Seattle, WA: Starbucks Corporation. Available at http://www.starbucks.com.

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