No company is immune from the impact of the recession, not even the one-time darling of Wall Street, Starbucks. After 37 years of growth, Starbucks is struggling to put the mo back in its joe. The number one threat facing America, Starbucks. They want you to buy a sandwich and a book and a DVD.
In a memo to his top executives, Howard Schultz admitted changes have led to a dilution of the experience and a loss of the romance and theater of Starbucks, opening the door to competitors. This must be eradicated. Yesterday, it was concluded that I would be coming back as chief executive officer.
I can see the light. I know what we have to do. We have to show up. We have to do the work. And what doing the work means is that we have to find answers to tough problems.
I apologize if anyone in this room feels that we have fractured the culture and values of the company by what has happened over the last few weeks. It's a decision that we had to make. Together we have to turn this page.
We have to go forward. We want to go back to what we really stand for, and we want to provide our customers and our people a sense of pride and confidence in the authenticity of the Starbucks experience. We have a lot of work to do, but our research tells us we're making real progress on every measure of customer satisfaction. There'll be more stores in the next year that'll be very, very different, but much more exciting and obviously much more relevant than the stores we built 10 years ago.
Starbucks best days I truly believe are in front of us. We have some of the finest people in the world serving our coffee in our stores. We are ethically sourcing the highest quality coffee in the world.
I know that to be true. We have built one of the most recognized and respected brands in the world. And I believe sincerely in the future of our company because I believe in all of you. President, Chairman and Chief Executive of Starbucks, Howard Schultz. Thank you.
Welcome to London. Some of our former business secretaries may not know who you are, I can assure you we do. It's a privilege to have you with us today. Let's just put a little bit of context on where we are. Starbucks is 40 years old this year.
You have almost 17,000 stores and 200,000 employees. Over 60 million people in more than 50 countries pass through the doors of Starbucks every week. You have annual revenues well in excess of $10 billion.
You recently announced record fiscal second quarter results, stating that your sales, traffic and customer trends all point to the expanding power of the Starbucks business. Starbucks has an extraordinary history, and we're going to explore some of that history today. But I want to start by looking at where you started, and I'd like you to tell us a little bit about what it was like growing up in the...
projects in Brooklyn in the 50s and 60s. Okay, thank you. Good morning and thank you all for coming.
I really appreciate it very much. My story, I think, has been well told in that I grew up in what is entitled in America, the projects, which is federally subsidized housing. Really, literally on the other side of the tracks. My dad never made more than $20,000 a year. He was a blue-collar worker.
I think I saw as a young child the fracturing of the American dream in that unfortunately my parents were not educated and they didn't have the resources to take advantage of what America really had to offer and I think that really did shape how I would see the world. If I took you to where I grew up the odds on me getting from there to here is not something you would have bet on. And I think I was very fortunate to put myself in a position to succeed, but also I've had a lot of luck, a lot of good fortune.
But I do say in the book, and when I speak to young people, I think something that happens along the way is that people are somehow encouraged that perhaps they're dreaming too big or their dreams can't come true. And what I try and... I encourage young people to avoid is don't allow anybody, friends, family, even your parents, to tell you you're aiming too high.
Because if you look at my story, it's not a Hollywood movie. It's real. It's authentic. And it happened to me. I'm not smarter than anyone else, and it can happen to you.
Business is a team sport. It's not about one person. And I think I learned that on the sports field.
And specifically what I mean is success is best when it's shared. You have to be willing, I think, to share the spotlight with others. And if you look at the entire history of our company, what we've tried to do, essentially, is build a company that would balance profitability with a social conscience, and that started with our people.
And what we've tried to do, I think, more than anything else, is recognize that you can't exceed the expectations of your customers as an enterprise unless you exceed the expectations of your people first. Now you use a word in the book that you say is not a word widely used in business. You use the word love. Yes. Tell us about your love for Starbucks.
Well, you know, I've been giving pretty formal speeches in the last couple of weeks, mostly in the U.S. And I start off, my first sentence is, I want to talk about love. Now, I've talked to business schools, I've talked to... business people, I've talked to CEOs and they, you know, when I say the word love, I think they must think, you know, what is going on here? And what I want to try and say is that I want to explain to the audiences that I've spoken to that I love Starbucks Coffee Company almost as much as I love my family.
There isn't anything I would not do to defend the company, to preserve it, and to try and enhance it. And I think that's what I'm trying to do. I want people around me who have that same level of commitment. Now, I also link it to something else, which is the word humanity.
Because I think that somehow along the way, maybe because of the pressure of Wall Street or other shareholders, that we've come to believe that the sole responsibility of business is to make a profit. Now, I certainly believe that there is a deep fiduciary responsibility for every business to make a profit. But I think it's a pretty shallow goal if that is your singular focus and that is all that you stand for.
And I also believe that you can't attract and retain great people if that's all you're in business to do. So the love and humanity is also about creating a value system in which the company stands for something in addition to making money. Doing great things for the people that it employs and the communities it serves. And I've gotten into trouble a little bit about that, especially when I start speaking about the growing responsibility of business because of the pressure on local, state, and federal governments in terms of their ability to sustain the level of giving that they've given in the past either to citizens or social service organizations.
And I think as a result of that, And this is not a US phenomenon. Businesses are going to have to do more and they're going to be called on to do more. I also believe that those businesses that do the right thing in the right way will make more profit as a result of doing the right thing. Now you had an interview with the Times and the Times described you as the man who sells 11 million cups of coffee a day.
It describes you as an emotional insomniac full of nervous energy. Is that an accurate description? I don't think so. You know, I don't sleep a lot, and somehow people have run with that in a way that is, you know, this great myth of...
But no, I think I have a level of curiosity about our company and the world. that is greater than the sandbox that I'm in. And so, you know, I opened the book as an example with an experience that I had that probably...
a thousand people would have walked by. But something, there was a twinkle of what I saw in the windows of that store that I had to investigate. And this was Aldo Lorenzi's cutlery store in Milan. I opened the book with that because being an entrepreneur, I think you've got to be open to the world.
And you have to understand that there's so many things out there and you never know that they're going to happen. could be something, a little something, that could provide you with a whole new way of thinking, a whole new roadmap. And when I met Aldo Lorenzi and sat down with him, here was a guy who's close to 80, and he has one store, but that store is a shrine to what it means to being a merchant. And I wanted to sit down with him, despite the language barriers, and just be at the foot of the master. for however long he would allow me just to talk to him.
And it's that kind of thing I think that I don't want to avoid being curious and I want to avoid thinking that Starbucks Coffee Company and all of our people have all the answers. Because the consumer has so many choices and the consumer is walking by all of these stores. And they're seeing all these things.
And my interest is how could we advance the company? How can we get better? And what else should we do in the future that leverages the infrastructure and the capabilities that we have beyond what we're doing today? Is it true that on a typical day you will work out at 4.30 in the morning? Yes.
Not today though. Wow, that's a lesson for all of us. I don't think my gym opens until six actually.
I have one at home. Is it true that you drink five cups of coffee a day? Yes, that's true. And presumably you'd like to drink five cups of coffee a day.
all your customers to drink five cups of coffee. I would like that a lot. I would like to ask you about your decision in 2000 to step down as chief executive. Looking back, do you regret that? that, what was the decision making process behind it at the time?
Well, the truth was that Starbucks, since we went public in June of 1992 for 15 consecutive years, was basically on this magical carpet ride in that everything we touched almost new products new cities new stores everything just seemed to turn to gold and And what I write in a book was that we were never that good And in fact the growth and success of the company in many ways covered up mistakes Now I left in the year 2000 and as CEO when things were extraordinarily good and up until around 2005-2006 things continued that way. But I began to sense that we were measuring and rewarding the wrong things. And in fact growth, our relationship with our stock price and Wall Street had somehow become integrated into the core purpose of the company.
And I wrote a memo. To the then CEO, very good guy, and the leadership team at the time, and I should say I wrote hundreds of memos over the last 20 years. And it was not meant to be an indictment or a criticism, but actually to display my passion and love of the company and my concern about what was going on.
A few days after that email was sent, there was a knock on my door, and my world basically was completely turned upside down because the memo was leaked. And after it was leaked... It created a firestorm of negative publicity, competition, employees, everybody just was involved in this swirl where the headline was Schultz indicts the management of the company and has lost confidence in the leadership of Starbucks. And that really wasn't the case. However, in the weeks and months that followed, the cataclysmic financial crisis was approaching.
And the things that I had written about began to surface. And to make a long story short, the board and I determined that I would come back as CEO in January of 2008. So tell us about the transformation agenda and how that perhaps was the sort of antivirus to start the change. Well, as I write in the book, one of the first people I told that I was coming back, because I couldn't tell many people.
I was on a bike ride with a friend of mine, Michael Dell, and he had come back a year before. So he had been through all of this, and he said to me, I want to show you something. And he gave me a document, which was entitled Transformational Agenda.
And his document had multiple pages on it, but it gave me the idea that we should produce one page. and that one page should be the transformational agenda of the company over the next 12 to 18 months. And whether you are a 20-hour part-time barista or a president of a division, You could look at this document and understand with great granularity exactly what it is we're going to try and do, how we're going to do it, and your role and responsibility in it.
And that transformational agenda basically became the blueprint for transforming the company. But we had to reduce... the focus and the attention to the lowest common denominator. And we also, I think, we are in a non-tech business.
Starbucks has no technology. Anyone can open up a coffee store, and everyone has. And so we've got to create an understanding that our business is based on creating an enduring emotional connection with one another and our customers.
And as a result of that, we had to recreate the experience in our stores. Now, we also made some very tough decisions and made some specific, highly unorthodox decisions. And one of the biggest unorthodox decisions we made at the height of our process was to create a store. problems is we decided to close every store in America to retrain over a hundred thousand people at a cost of seven million dollars now I can't tell you what people were saying in anticipation of this decision they wanted to hang me from the roof you know and then once the media got a hold of this it was the beginning of the end and the headlines were you know the bloom is off the road Starbucks is over they're retraining their but again, we were no longer deeply committed to the core principles of how we started. And as I said earlier, we were measuring and rewarding the wrong things, and one of them was transaction speed.
And we're not in the transaction speed business. We're in the business, literally, of enhancing people's day by producing the world's best coffee. And we had to retrain our people. But the act of closing our stores and admitting to ourselves, forget the rest of the world. the world that we had work to do and we feel so strongly about this that we're going to go back to the beginning and back to the core i mean this would be like uh you know i i don't know what the analog would be but you know a company that produces a car saying you know we got to go back to the assembly line and and understand how to how to construct an automobile i mean this this was it was it was unseen at the time.
But again, this was the beginning of transforming the company because we were going to have direct, honest conversations with ourselves. And this was a galvanizing moment for those 100,000 people in the U.S. Let me read out the mission, and I guess some cynical people in the audience might think this could actually be a religion.
So the Starbucks mission is to inspire and nurture the human spirit, one person, one cup and one neighborhood at a time. Tell us why that mission is as invigorating to you now as when you opened your first store. It was said not by me, but it's a great line.
that's been evangelized inside Starbucks. We've never been in the coffee business serving people. We've always been in the people business serving coffee.
And I mentioned earlier that, unlike most consumer brands, the brand was really built by the experience. If we were in Kuwait five or six weeks ago, and we walked into a store in Kuwait, and different language, people were dressed differently, different politics. So we walked in and it was a mirror image, mirror image of what was going on at the same time of day at my local store in Seattle, or many of the stores here in London. What's going on?
What's going on is that we created a place for people to come to that has created value in the marketplace. Now, I'm not saying that we have some cure for some disease, but I am saying that as a result of the things that we've done, we've enhanced the lives of many people who perhaps would not have anywhere to go if Starbucks did not exist. We've also created the kind of company... that our customers and our people know that when we succeed, we are going to be actively engaged and involved in giving back to the communities we serve.
Now, those communities are not only the physical neighborhoods where we have stores. Those are the 30 producing countries in which we buy coffee. Those are social services all over the world that we feel significantly that we want to be engaged in.
And I think we want to create the kind of company People can look at and say, They're not better than anyone else, but I think they got it right. And I think the mission statement is not about anything other than giving our people an understanding of why we do the things we do and also trying to put it in a way where whether you are a 20-hour-a-week barista or, again, running a large division at Starbucks, you can see yourself in the mission and understand how you can participate. Now, I'll give you a little bit of a history. I'll give you an example. The month of April, which was the 40th anniversary of Starbucks, we basically were engaged in 2,000 community service projects in over 200,000 hours.
Now, no one had to do that. People had to volunteer. We were in Shanghai a week and a half ago, and this kind of activity is not generally associated with businesses yet in China. And yet, we had had hundreds of Starbucks partners and customers who volunteered to be with us to clean up a neighborhood that basically had been left behind. And the spirit that existed in that three, four hour period is something that you can't buy.
And it's real and it's tangible. And it's not, there were no cameras there. It's not about marketing. It's about trying to build a business that has a conscience. Howard, you're a boy.
boy from Brooklyn you've achieved more than anyone might have thought ever possible what is your ultimate motivation what keeps you going even now I'm still that kid from Brooklyn you know I I still have aspirations and dreams about the company and about what I want to achieve and as I said this is no time for celebration the economic environment is still very fragile here and in the U.S. and we still have a lot of work to do and I still believe that our responsibility to communities we serve and our people is greater in the future than it is today. That's what keeps me going. Howard, you end your book by saying Starbucks'best days are ahead one cup, one customer one partner, one experience at a time it seems you have got back to what matters most and we wish you continued personal and commercial success and happiness will you please join me in saying a huge thank you thank you very much thank you thank you nice job