12:01am

Mon March 28, 2011
Author Interviews

Starbucks CEO: Can You 'Get Big And Stay Small'?

In the world of business, where most CEOs come and go, a few go and then come back. Howard Schultz, the president and CEO of Starbucks, is one of them. When the giant coffee shop chain was faltering in 2008, Schultz returned to the helm to help save the company. Three years later, after an extensive transformation of the company, he has written a new book that details the journey to recovery, called Onward: How Starbucks Fought For Its Life Without Losing Its Soul.

"We needed to go back to the core principles of our company," Schultz tells NPR's Linda Wertheimer. Starbucks' mission was to "source and roast the highest quality coffee in the world and deliver it perfectly to our customers."

When Schultz returned as CEO in 2008, he took drastic measures to renew the company's commitment to its mission. In February of that year, he temporarily closed about 7,000 stores for several hours to retrain Starbucks employees.

"The unprecedented decision to literally close stores — which cost us millions of dollars — was done to ensure the fact that I demonstrated how serious and committed I was to making sure we go back to the core," he says.

The company needed to change the way it functioned, right down to the way they steamed their milk.

"You don't want to re-steam milk when you're making a perfect shot of espresso," Schultz says. "We were doing things like that, that produced a higher yield, a higher profitability, but I just felt it wasn't consistent with the commitment we've always had about making the perfect shot of espresso."

This small change might have gone unnoticed by many customers, but to Schultz, it reaffirmed Starbucks' commitment to excellence. And he didn't stop there. Since 2008, the company has re-evaluated many of its products — even "reconfiguring" its breakfast sandwiches.

"The breakfast sandwiches were selling extremely well, but at the time, there was an aroma in the stores that I felt was diluting the integrity of the coffee romance, and the aroma of coffee," Schultz says.

The culprit? Sandwiches cooking in the oven were causing the stores to smell like burnt cheese. So Schultz took the sandwiches off the menu, and introduced a new and improved product less than a year later.

"They've been more successful now than ever before," he says.

One of Starbucks' greatest challenges may be confronting its own success — and its ambitious expansion overseas.

"The question you have to ask yourself is: Can something get big and stay small?" says Schultz. Despite its ubiquity, Schultz says the coffee giant has sought to "create intimacy" among its employees and among its customers.

Unlike McDonald's, or other franchise systems, Starbucks owns and operates its own stores — and Schultz does not consider the company a fast-food business.

"[We] have created a relationship with our customers based on a very unique emotional relationship that goes beyond just being in the transaction business like a fast food company," he explains.

Although the company does use similar operational tools and resources, Schultz explains that Starbucks locations are distinguished by their connection to neighborhoods and communities.

"Not unlike the English pub in the U.K.," he says, Starbucks serves as a "third space between home and work, an extension between people's lives, at a time when people have no place to go."

Starbucks also stands by its commitment to provide health care to all of its employees, including those who are part-time.

"Last year, we spent over $250 million on insuring our people, because of health care costs. We've been doing that for almost 20 years and have faced double-digit increases almost every year," Schultz says.

The company is deeply committed to insuring workers, Schultz says, even in the face of increasing health care costs and despite complications introduced by the new health care bill. Starbucks is back on its feet, but Schultz insists that there is still room for improvement, and he intends to be the one to carry it out.

"Over the last three years, we've completely transformed the company, and the health of Starbucks is quite good. But I don't think this is a time to celebrate or run some victory lap," he says. "We've got a lot of work to do." Copyright 2011 National Public Radio. To see more, visit http://www.npr.org/.

Transcript

LINDA WERTHEIMER, host:

In the world of business, CEOs come and go, but some CEOs go and come back. Think of Steve Jobs, who came back to rescue Apple. And when the giant coffee shop chain Starbucks was faltering in 2008, its former CEO came back.

Mr. HOWARD SCHULTZ (CEO Starbucks): We needed to go back to the core principles of our company, which was really based on a passionate commitment to source and roast the highest quality coffee in the world and deliver it perfectly to our customers. And I didn't think we were doing that as well at the time as we did in the past.

WERTHEIMER: Howard Schultz is still CEO of the company. He has a new book out called "Onward: How Starbucks Fought For its Life Without Losing its Soul." He joined us to talk about how fixing the company meant changes right down to how baristas steam the milk.

Mr. SCHULTZ: You don't want to re-steam milk when you're making a perfect shot of espresso. You want to make a perfect shot of espresso, steam the milk, and if you have anything left over, just pour it out and make another great cappuccino or cafe latte. That's an example. And I think we were doing things like that, which produced a higher yield or higher profitability, but I just felt it wasn't consistent with the commitment we've always had about making the perfect shot of espresso. It's thing like that.

WERTHEIMER: I know that some of the things that you tried, you've pulled back on.

Mr. SCHULTZ: Yes.

WERTHEIMER: Like, for example, breakfast sandwiches. I liked your breakfast sandwiches. I have to say, I thought they were awfully good and...

Mr. SCHULTZ: Well, the breakfast sandwiches were selling extremely well, but at the time, there was an aroma in the stores that I felt was kind of diluting the integrity of the coffee romance and the aroma of coffee. So we took the breakfast sandwiches out...

WERTHEIMER: You're talking what? You're talking bacon, cheese or something?

Mr. SCHULTZ: Yeah. Bacon, cheese sandwiches, things of that nature. We took them out and reconfigured how we're going to do that, and then brought them back less than a year later. And they've been more successful now than ever before.

WERTHEIMER: When you look at Starbucks, though, aren't you really basically looking at a huge chain, like McDonald's? You want every Starbucks to be like every other Starbucks, and it seems to me it would be impossible to do that without losing a little bit of that coffee experience.

Mr. SCHULTZ: Well, I think you bring up a good point. And that - and the question I think you have to ask yourself is: Can something get big and stay small? And I would submit that over the years, we've demonstrated, really, an unusual ability to create intimacy with both our people and, most importantly, our customers. And unlike McDonald's, Starbucks is not in the fast-food business, and we're not a franchise system. We own and operate our stores.

And I also go back to the fact that not unlike the English pub in the U.K., Starbucks really has created something quite important in America and all around the world, and that is this third place between home and work, an extension of people's lives, at a time when people have no place to go.

WERTHEIMER: Starbucks made a huge point of offering health care to all of its employees, even the part-time employees, and obviously, the costs have gone up and up and up. As you move ahead, what's your feeling about health care? Do you think the new health care bill's going to help you or hurt you? Are you going to be able to keep doing this?

Mr. SCHULTZ: Last year, we spent over $250 million on insuring our people, because of health care costs. We've been doing that for almost 20 years and have faced double-digit increases almost every year. There was tremendous pressure on us to eliminate that benefit during the recession, and it's something we would not do, despite the economic environment.

Going forward, we are deeply committed to maintaining that benefit, and we'll continue to do so. As we approached 2014 and the health care bill becomes law, I would hope that there would be some refinements in which the mandates that are in place would be looked at in a way that would not penalize those companies that are doing the right thing.

WERTHEIMER: What's the change you want?

Mr. SCHULTZ: Well, I think specifically, as the bill is currently written, as I understand it, there are mandates that will increase the cost of covering our existing employees.

WERTHEIMER: Such as?

Mr. SCHULTZ: A good example of that is a certain person at Starbucks may decide if he or she is 22 or 25 years old, that their parents' health care is better or they're more inclined to accept that. In the new bill, we would be mandated whether they wanted to or not, to cover that employee. That doesn't seem to be the right thing at all.

WERTHEIMER: So if Starbucks comes to a point where you feel it's really rock and roll again...

Mr. SCHULTZ: Well, it is rock and roll again.

WERTHEIMER: Okay.

(Soundbite of laughter)

WERTHEIMER: So are you thinking maybe you'll, you know, go on a nice, long trip or climb a mountain or something, retire again?

Mr. SCHULTZ: Well, I think over the last three years, we've completely transformed the company, and the health of Starbucks, I think, is quite good. But I don't think this is a time to celebrate or run some victory lap. We've got a lot of work to do, and I'm deeply committed to our company and our shareholders and have no intent, in the short term, of leaving.

WERTHEIMER: In the short term.

Mr. SCHULTZ: In the short term.

WERTHEIMER: Mr. Schultz, thank you very much.

Mr. SCHULTZ: Thank you so much for having me.

WERTHEIMER: Howard Schultz, he is the CEO of Starbucks. And his new book is called "Onward: How Starbucks Fought For its Life Without Losing its Soul." Transcript provided by NPR, Copyright National Public Radio.