Starbucks CEO's Vision Remains Strong despite Economy

By Hirsch, Jerry | Tribune-Review/Pittsburgh Tribune-Review, June 8, 2008 | Go to article overview
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Starbucks CEO's Vision Remains Strong despite Economy


Hirsch, Jerry, Tribune-Review/Pittsburgh Tribune-Review


LOS ANGELES -- Back in 1987, when coffee entrepreneur Howard Schultz and a group of Seattle investors purchased Starbucks, the chain had just 11 stores. Now, it has more than 16,000 spread across 44 countries.

Schultz, Starbucks' chief executive, is credited with sparking that tremendous growth in the chain, and in the process created the mass market gourmet coffee business in the United States. Now, there's either a Starbucks or a competitor in nearly every shopping mall or strip center.

On Wednesday, the management school handed Schultz its inaugural John Wooden Global Leadership Award, which will be given annually to a business leader who like Wooden, the legendary basketball coach, exhibits exemplary leadership.

Through his strength of personality and vision for the business, Schultz has had "a disproportionate impact on the growth" of Starbucks, said Judy Olian, dean of the University of California Los Angeles' Anderson School of Management.

The award for Schultz, however, comes at a time when the coffee business isn't percolating as well as it once did. Starbucks logged its first decline in profits and is seeing fewer customers in its stores. The company's stock has plunged 37 percent over the past year to close at $18.33 on Thursday.

After the last eight years as chairman, Schultz, 54, started a second stint as CEO in January, charged with reigniting growth at the business.

Schultz spoke to the Los Angeles Times about the challenges Starbucks faces and the future of the company.

Q: What do you say to these family budget advisers who suggest that the best way to save money to pay for higher gas and food prices may be to cut out that latte, that daily trip to Starbucks?

A: We have to be ultrasensitive to providing value for our customers. And 50 million customers a week are coming through Starbucks stores.

We have to innovate and provide more value to the customer, but the customer comes into Starbucks not only for coffee, but the sense of community, the sense of humanity in our stores. We really have become this third place between home and work. We have managed through different downturns in the economy before, and we will again.

Q: This year, you had your first decline in profits. Why?

A: For 15-plus years we have led a pretty charmed life.

For the first time in our history ... we have less traffic in our stores this year than we did last year. The frequency of visits is being directly linked to the consumer not having as much disposable income as they did in years past. If you talk to the economists -- people much smarter than me -- they are saying that the next six to 12 months could be worse than the last six to 12 months.

Across the board, consumers have less money than they had before, they are quite concerned, consumer confidence is down and as a result of that, we have to be better than we were before to capture that market and to satisfy the customer.

Q: The question everybody asks about Starbucks is why are there so many?

A: The strategy for growth was based on demand.

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