December 14, 2005
Howard Schultz

Howard Schultz, the chairman of Starbucks Coffee Company, who has turned his passion for coffee into a multi-billion dollar global business with over 10 thousand locations worldwide.

Ipek Cem: Our guest tonight is Howard Schultz, the chairman of Starbucks Coffee Company. He has turned his passion for coffee into a multi billion dollar global business with stores in over 10,000 locations worldwide including Turkey.

 

Howard Schultz: Yes.

 

Ipek Cem: Thank you for being with us Schultz.

 

Howard Schultz: That's my pleasure, thank you.

 

Ipek Cem: I think our viewers would be very interested to know about your early days, how Starbucks entered into your life and perhaps more appropriately how you entered into the life of Starbucks in the early 80's. Could you elaborate a little bit about that?

 

Howard Schultz: Sure. Well the story is that I actually joined Starbucks as an employee. In the fall of 1982. And when I joined the company we had three stores, getting ready to open up our 4th. What attracted me to the company at that point was the entrepreneurial opportunity and I was really drawn to the quality of the coffee and the fact that Starbucks at the time was educating the entire community, the city of Seattle on what good coffee really is.

I honestly never dreamed at the time that I would one day own the company and or be in a position where we would have as you said 10,000 stores around the world has just been an incredible journey for all of us.

 

Ipek Cem: Actually now you are present in Turkey as well and I know in the course of approximately three years you have over 20 stores in I believe two cities Istanbul and Ankara and you have plans for expansion there as well. What are your plans for Turkey and the region in general?

 

Howard Schultz: I must say, I had never been to Turkey before and I visited your country a year ago, and actually I brought my daughter with me and we had an extraordinary visit. The warmth and hospitality of the people .. I love the food, and I was taken with what I believe to be a much larger opportunity for Starbucks than I think we originally thought.

So, at this point given the reception that we have, there will be many more stores throughout the country in multiple cities over the next few years and I can't say how many we would have because I think I might put to low of a number on it but we are very excited very enthused and feel very fortunate that in such a short period of time. The stores that we have opened have done extremely well we give a lot of credit to our local team there.

 

Ipek Cem: Did they make you taste Turkish coffee?

 

Howard Schultz: Yes well I have had Turkish coffee before and I think the funny story about this is when we were getting ready to open up in Turkey many of our own people as well as friends of the company said, we had to make sure we had traditional authentic Turkish coffee and Turkish coffee preparations in the store. So we did that.

But the truth is that not many Turkish people are ordering Turkish coffee. They want traditional Starbucks coffee or frappuchino. And it's so funny that we have tried to be as respectful as possible but most Turkish people are not drinking it.

 

Ipek Cem: It's true but I think it is a good addition to the menu even though I heard the same thing in Turkey and I was surprised because the Turks are such coffee drinkers of their own coffee as well.

 

Howard Schultz: Well, I think that having the traditional Turkish coffee in our stores is really emblematic of what we have tried to do around the world and that is to be extremely respectful of the history of the culture and tradition of different country's understanding and sensitivity around coffee and the coffee experience, and whenever possible demonstrate our respect by bringing to them the way they have learned to drink coffee. And this is a perfect example.

 

Ipek Cem: You are operating in so many different markets in terms of cultural differences like think of France or China or Jordan or many other countries around the world. How do you deal with these cultural differences. Do you do a lot of marketing research before? Do you team up with a lot of local people. What is your strategy?

 

Howard Schultz: I've never been a big believer in market research personally. So we haven't done a lot of that over the years. The benefit that we have had in countries like Turkey and around the world is that we have fantastic local partners. Who I guess I would say, I would loosely describe as we co-author the strategy with them and leave the execution to them. And, Turkey is operated by the Alshia Group, which is our partner throughout the Middle East. We have a great team led by a fantastic woman Icek whom I think you know. And they have allowed us I think to bring the Starbucks experience into Turkey and slightly refine it for the local market.

The interesting thing about what we've been able to do in almost every single country that we've entered. The local customer wants and demands the authentic Starbucks experience. And does not want it watered down for their local markets. So the stores you see in Turkey are very similar to the ones we have here right here in Seattle.

 

Ipek Cem: That's true actually and they are all over the town in Seattle. Every other corner. You can't ask “Where's Starbucks? ” because there's another one. That's right. I've wanted to ask you, your company has been a high growth company for so many years now and your going into different markets, differentiating your product mixture, even going into music, and we'll get to that shortly. How is it, does it, how does a company that is so successful so consistently how does it outdo itself. Is it kind of more difficult when you are so successful so consistently because expectations?

 

Howard Schultz: Well I appreciate the compliment of being so successful I'm not sure that's true but I think that the cultures and values of the company are steeped in an ongoing commitment to try and create long term value for our shareholders while integrating a social conscience in everything we do. The culture is also built I think on a commitment to under promise and over deliver. And we are not a group or company that celebrates a great deal. We want to celebrate the customer and the customer experience. But for many many years we opened many stores around the world and have been able I think especially in terms of the stock market to demonstrate to our shareholders, a company that really does meet it commitments. And as a result of that we have been rewarded in the marketplace. But I would also say that we have taken a very long view of the opportunity despite the fact that we've grown this significantly and these are still the very early stages for growth and development of the company and we want to emerge as one of the most recognized and respected brands in the world and we have a long way to go to ultimately accomplish that.

 

Ipek Cem: I recently read somewhere that you are envisioning a store number of 30 thousand over the next several years. What is the time horizon that you have on that and what would be the mix of domestic US stores and international stores in your vision?

 

Howard Schultz: Well, we're sitting now with 10 thousand or so stores in North America and outside of North America. We've said publicly we will one day will have close to 30 thousand stores or so. I think ultimately it's probably 50-50 between international and North America. But I also believe given the success we have had in the emerging markets that appear to be right for Starbucks. 30 thousand stores may turn out to be too low. I also believe, that we have a very powerful opportunity to create other products like bottled frappichino, whole bean coffee, our ice cream, music and things that also part of the growth and development of the company outside of our stores and that will occur around the world. We just recently introduced ready to drink coffee like bottled frappichino here in the US, in Japan and Taiwan. And are looking for other markets for that.

 

Ipek Cem: I know that you are very keen on China as a market and you are traveling there a lot. What are some of the other hot spots and what in, what in particular about in China. People, when you think of China you think of tea and tea drinking culture. That kind of works with you as well.

 

Howard Schultz: I just returned from a two week trip to Asia and a week in China and I must say I was stunned and overwhelmed with the growth and development and the significance of the cultural change in China, in terms of the people and what's happening there. We have appropriately 170 stores in mainland China and 70 in Hong Kong and a 150 or so in Taiwan and believe that ultimately China will be the second largest market in the world for Starbucks after the US. But if I look at the Middle East and your own country I don't think we ever imagined that Starbucks could so quickly demonstrate such relevancy in the market in so many of the countries in Middle East. As a result of that we are looking at how big those markets could be and have significantly underestimated the number of stores. And when I say relevancy I think what's, what we have learned is what we do everyday, not only the coffee but the place. Starbucks being an extension of peoples home and work. The sense of community, human connection. That appears to be as relevant in Turkey, China, Japan and Spain as it is here in Seattle. And Starbucks I think is creating something for people all over the world that has not existed before. And the other thing that I would say is that I don't view who we are or what we do as American anymore, and the reason I say that is that what we have created has universal appeal. And when I go to Turkey or I was in Jordan this summer and aside from the language differences and perhaps what the people are wearing, it's a mirror image what's gong on in those stores and the same in the US. And what I see is that whether we're Turkish, or Jordanian, or Chinese or American we all want the same thing. As customers we want to be appreciated, and respected. As employees, we want to work for a company that we believe is going to give us hope and opportunities for the future. And I think Starbucks has created a physical place in which people really have a sense of that. And coffee is such a social/romantic beverage that it brings people together. And so in view of that, I think the opportunities we have as a company is much greater than we had originally thought.

 

Ipek Cem: And a lot of product development seems to be going on in the US. But you also go to local markets and I'm sure you learn about different tastes and different ways of mixing things. Are there any products that were developed in the local market then adopted globally or to some other markets?

 

Howard Schultz: The best example of that is that in Taiwan three years ago. Our Taiwanese partners introduced green tea frappichino. And green tea is a flavor profile that's very compatible with the Asian taste and they had great success and we introduced green tea frappichino to America this summer and was some of the largest successes that we've had. We have not brought anything yet from the Middle East or Turkey but we'd be open to that.

 

Ipek Cem: You started as a specialty coffee store and now you are in so many different products and going into other concepts as well. Now is it kind of a contradiction in terms that you have become, in a way, such a way a big company that some other small shops may be accusing you of maybe being too big and, I'm sure you don't like the comparison, but compare you to some big American companies who are the expansionist lets say?

 

Howard Schultz: I don't know if this is true in Turkey but unfortunately in America at times human nature around the American culture is to cheer and root for the underdog. But as soon as the underdog succeeds, there is a tendency to try and kind of knock them down a little bit. And there have been times perhaps the media or some other constituency had used Starbucks that way. The truth though that is we have created an industry that previous to Starbucks did not exist and in the wake of our success. We have created many competitors many other businesses that support the coffee industry and if you look around America and that matter around the world many coffee companies coexist with Starbucks. The size and the scale of our company has also allowed us to do many many wonderful good things around the world to benefit those people who are less fortunate. And we take great pride in the corporate and social responsibility that the company has demonstrated around the world. and we're just beginning to recognize both out responsibility and the long-term commitment we are going to demonstrate around the world for many years to come. So I think our size is an advantage.

 

Ipek Cem: And when you talk about corporate social responsibility, one of the things that often comes to mind is some people grow the coffee somewhere in the world usually in the equador belt you are buying only Arabica than others enjoy the coffee at some point. And I know you have a growing relationship and more of social responsibility issue also with coffee farmers around the world. Can you explain how that has evolved over the years and some of the recent developments?

 

Howard Schultz: I alluded earlier in my comments earlier to Starbucks trying to build a different kind of company around the balance of profitably and benevolence. A social conscience. And that isn't a program it has to be a way of life.  And that way of life has been imprinted in our company for 20 plus years and it is so indicative how we have bought and sourced coffee. So in most of the countries in the developing world where we buy coffee we're dealing with significant issues around impoverished people and where people do not have access to very basic things. Starbucks has built schools, has immunized children, and most recently has created what we call ”cafe practices”. And Cafe Practices I will loosely describe as the following: We have created a program to ensure that fact that Starbucks will pay a premium over the quoted market for the coffee as long as we can be assured that the premium price that we're paying is getting into the hands of the people who are doing the work and we now have created significant long term partnerships where we can point to coffee farmers who are benefiting, and their, the pickers and the people working on the farms are benefiting from this relationship. And I can unequivocally say that not only are we buying the highest grade in Arabica coffees but we are paying a premium for these coffees whenever possible to establish long-term relationships with growers who will share the premium profits with the people who do the work.

 

Ipek Cem: So, in essence you're saying things like fair pay, environmental sensitivity and issues sanitation and things like that are important in your choice of the growers.

 

Howard Schultz: Correct. And to reinforce that, a year ago we opened an agronomy office in Costa Rica for the sole purpose of Starbucks having a very strong presence in that part of the world to help, advise, teach and source ways in which we can build long term sustainability around coffee and when I look at the things that we have done in that part of the world, I'm so proud of the relationships that we've built in that kind of things we're doing and when I went most recently to Costa Rica, I was reduced to tears by the comments of the farmers shared with me about how Starbucks has changed the life, changed their life and the life of their families.

 

Ipek Cem: How much of the world coffee are you buying?

 

Howard Schultz: Not as much as you might think. We only have 7% market share of total consumption in coffee of North America and less than one percent around the world. So despite the fact that we are the largest buyer of high grade Arabica coffees now it's still a very small percentage of worldwide growth and as you know the coffee grown around the world is still robust and it's not a market that we play in at all.

 

Ipek Cem: Your stores every week I heard the number 35 million people passing through your doors. Is this true?

 

Howard Schultz: I'm very gratified that customers vote everyday and they vote strongly in favor of Starbucks. It is true that we are between 30 and 40 million customers a week and have emerged as a most frequented retailer in the world in terms of how often people come back. And I think that speaks of the trust that our customers have in the equity of the brand, the quality of the coffee, the relationship with our people and again the place. They feel very comfortable.

 

Ipek Cem: Is that kind of changing the way you view your business model in terms more of a retail outlet giving you more opportunities to do different things or?

 

Howard Schultz: Well I think we have always tried to be very creative and entrepreneurial about the things that we would do. But I think when you have a customer count like that, that is so frequent and loyal, you look for other ways to leverage it. And whether its the Starbucks card or the initiation of music or the things we're doing with Black Apron Coffees. We are in the business of being a merchant, which means that we constantly have to bring innovation to our stores and our customers. That's our responsibility.

 

Ipek Cem: I wanted to ask you a little bit about the Starbucks card because I'm not sure if it is available globally . What advantage does it give or how does it work?

 

Howard Schultz: A few years ago we were so concerned about the long lines in our stores. So initially we were looking at a way to have cashless payment to accelerate the speed of service. But the card became a huge driver of gift giving, and customers wanting to have the card in their wallet because of the status of Starbucks. And again it is one of those things that anyone of us thought it would have the degree of traction and velocity its had and it has transformed our business almost 15 percent of all transactions in our US stores are on the card and we are working diligently to extend the card around the world.

 

Ipek Cem: When I was also reading about some 24 hour stores, was this only in the US and in certain places or?

 

Howard Schultz: I don't believe we have a 24-hour store internationally. I could be wrong I don't do that. We have a few 24-hour stores we are experimenting with. We have drive thru's in America and looking at ways to capture more of the market through the drive thru window and perhaps extending hours. But we don't want to do that without having the evidence to support it and but you might see it in other places in the world.

 

Ipek Cem: Are you still available in some flights in the US about that partnership?

 

Howard Schultz: We're still on United Airlines, all their flights and potentially other airlines. We love to be on Ameritus. But we haven't secured this.

 

Ipek Cem: How about international airlines any?

 

Howard Schultz: None yet.

 

Ipek Cem: One of the segments that really interested me in reading about our company is the music angle that seems to be. That's good. The entertainment aspect and actually kind of goes with the original strategy of the third place and your explaining it a lot in your interviews. And you made an acquisition of a music company and a lot of big name stars have started to release albums through you. Can you talk a little bit about this dimension?

 

Howard Schultz: I think this is a great example where the entrepreneurial spirit of the company is alive and well. Despite the fact that we have grown to be a large company. We've always played music in our stores and has always acted as an opportunity to create a mood in our stores. And customers started asking, “What song are you playing and can I buy that?” . And we said “No.” And that was kind of the catalyst for beginning to look at music. We started out with our own compilations and after the success of that. We had the courage to say, “Let's produce our own record.” and the first record was with Ray Charles before he unfortunately passed away.

The result was that Starbucks won multiple Grammy's and Album Of The Year and we sold 4 million copies of that record. We've just replicated that success with Herbie Hancock in which we currently reproduced his record and now we have that in our stores around the world. I don't know if it's in Turkey or not. I'll give you a copy. It's a fantastic record and so we believe that on a global level in all our stores eventually we're going to have music and other forms of entertainment and I think what is says more about the company is that our customers have given us the permission.

Because of the trust they have perhaps in the editorial voice or the quality of our company, the sensitivity that we have about things. To extend the Starbucks experience beyond coffee. The challenge, and I think the art, is not to take that too far to in any way we do not want to dilute the trust the customers have by doing something that they would view as something not appropriate for Starbucks. But we are very excited and very bullish about music and other forms of entertainment.

 

Ipek Cem: Another thing I was reading which caught my attention was for maybe younger customers. You are going to have some facilities in some of your stores or have already?

 

Howard Schultz: Okay. We have opened one store in Los Angeles and two opening this fall in Miami Florida and San Antonio Texas. Where the customer can come into the store and not unlike what they do with their I-Pod, you can, or I-Tunes you can download music digitally and physically print and take home a physical CD from the Starbucks store. And so we are looking more and more at creating those kinds of opportunities for our customers.

 

Ipek Cem: And is it true also that you are allied or have invested in a radio channel or you are affiliated with one?

 

Howard Schultz: Well one of the new aspects of technology has been satellite radio. And satellite radio in America has just taken off where it's commercial free, and there is a company called XM radio and Starbucks has its own channel on XM radio in which we program and you can hear all the music we play in our stores on a separate channel. And so we have a partnership with XM and that satellite radio is in cars, and in places that Starbucks music can't live naturally. And so its another way to extend the brand.

 

Ipek Cem: You talk a lot about the human connection in your interviews and your books. In fact, you kind of talk about customers and then shareholders and then employees as a continuum. How in a way we tend to think of big business, we meaning around the world, as kind of harsh and cold and make corporate decisions sometimes they may not be too humane and on the other hand we see a lot in your work that your talking about the warmth and the retention and the bean stock issue when you gave away to the company people way back when in the early days. Can you be a kind businessman and also be a successful businessman?

 

Howard Schultz: Well this is a subject that I have spoken about for the better part of 20 years and I give speeches and conversations like this around the world to sensitize people that Starbucks is a living breathing example of the act that being a company that has a sense of humanity and a sense of benevolence and a social conscience is just good business. And what I mean by that specifically is that I feel strongly that if you look at the 14 year history of Starbucks as a public company our stock price has gone from a market cap of 200 million dollars from June of 1992 to over 20 billion dollars today. Over 4000 percent and one of the driving forces of that value creation has been in the relationship we have had with our customers , the community, and most importantly our people.

And the long term value creation is directly linked to giving back and so when people ask the direct question, “Can you be a benevolent company and make a profit?” I feel so strongly that we wouldn't be as successful as we are today if we did not demonstrate this level of sensitivity to what other people call the soft side of business. I don't think its the soft side, its the right side. And in view of that, I thank that every consumer brand, mostly consumer brands that have a relationship with the customer are going to succeed at a higher level if the customer has a level of trust, in not only what the product stand for, but what the ethics and values of the company stand for.

 

Ipek Cem: So we touched upon it previously but what are some of your favorite charities, what are some of the top charities you are associated with?

 

Howard Schultz: Well, first of all, you have to integrate corporate social responsibility to have a seat at the table. So its integrated tactically and strategically into the business. And not only at the management table but in the boardroom. Where people understand that this is what the company stands for. But our belief is that we should be very active in the local communities where we have stores.

We have always felt strongly that we want to be active in charities that involve children that either have been left behind or disenfranchised. We have opened stores in under served communities across America to provide employment opportunities and other opportunities for people who have been left behind.

Most recently , this is an example, we are very active in the relief in Tsunami we've been very active in Katrina relief, and we've tried to do things locally around the world that demonstrates to our customers that this is not a press release but this is a way of life. And we also want our own people to volunteer in the communities. The most significant aspect of that is what we've done around children's literacy efforts. To make sure that every child understands how to read and write and has a level of self-esteem that gives him opportunities later in life.

 

Ipek Cem: When there's a choice to do corporate social responsibility in, internationally do you leave, is that decision taken in conjunction with here or do they make the suggestion or do you make the suggestion in terms of topics?

 

Howard Schultz: More often than not, decisions are locally based where Isik imhertem and Mohammed  Alshaya are doing things locally that they believe are compatible with the Starbucks way of doing business and they have already done that.

 

Ipek Cem: How often are you traveling? How many days can you sleep at home?

 

Howard Schultz: When I look back at the year, it appears that its one week a month. And more often than not, its maybe more a half of that on an annualized basis is international. But clearly our responsibility is to be in the marketplace with our people not sitting in our office in Seattle. And so I want to be as available and accessible to our people and our customers around the world as possible. But you can't travel everyday. But I'd say about a week a month.

 

Ipek Cem: What's the next challenge for you as SCHULTZ, Schultz?

 

Howard Schultz: Well, the challenge I think is to stay highly focused on our core business and the need that our people have. And not to allow the success of our company and the blessings that have, that has provided us to anyway to give us a sense of entitlement. I've seen all too often companies and management teams that have achieved success. Become this arrogant group of people and they either loose their way or they lose what they were  once about. And I think it is not necessarily a challenge as it is a watch out to make sure we stay as humble and as sensitive and as hungry as we were when we were starting the company. And I think that's my responsibility to share that with our 100 thousand people who work for the company and my responsibility is to do everything I can to support them.

 

Ipek Cem: I would like to thank you very much for your time.

 

Howard Schultz: My pleasure! Thank you.

 

This transcript was typed from a transcription unit recording and not copied from an original script. Because of the possibility of mis-hearing and the difficulty, in some cases, of identifying individual speakers, NTV networks and Ipek Cem cannot vouch for its accuracy.