3 times Howard Schultz saved Starbucks

Howard Schultz made it easy for Americans to get coffee. Then he came back and made it better.Schultz, the pub...

Posted: Jun 6, 2018 4:28 AM
Updated: Jun 6, 2018 4:28 AM

Howard Schultz made it easy for Americans to get coffee. Then he came back and made it better.

Schultz, the public face of Starbucks for nearly four decades, announced Monday that he plans to leave the company later this month.

He turned a local coffee chain into one of the most recognizable brands in the world. Schultz created a new store concept - a "third place" between the office and home where Americans could work and socialize.

In the process, Schultz built a company that reflected his progressive values and confronted many of the most controversial social issues in the country.

Related: Schultz: 'Big difference' between my qualifications and Trump's

'Wrong part of the business'

It's hard to remember a time when Starbucks wasn't on every big-city corner and in every suburban shopping center in America.

But it was tough to find a good cup of coffee when Howard Schultz first walked into a Starbucks at Seattle's Pike Place Market in 1981.

Starbucks didn't serve brewed coffee at the time - it just sold the beans - but Schultz, who was traveling on a client visit from his native New York, was hooked by the store's atmosphere.

"I literally had the kind of epiphany that just spoke to me," Schultz said on an NPR podcast last year. "This is such an extraordinary thing about what they were doing and the coffee, the romance, the passion that people had."

Related: Starbucks' Howard Schultz: Childhood in the projects inspired his ambition

Schultz persuaded Starbucks' three founders to hire him and moved a year later to Seattle to begin as director of retail operations and marketing.

In 1983, Schultz went to Milan for a trade show and visited espresso bars around the city. "I started realizing that this is a third place between home and work. But the beverage was the draw," he said.

Schultz returned to Seattle, convinced that Starbucks should expand to start brewing coffee and focus on becoming a community gathering spot. "Starbucks was in the coffee business but, perhaps, the wrong part of the business," he said.

Schultz left the company shortly after and started his own venture, Il Giornale, offering the Italian in-store brewed coffee and espresso concept in 1985. Two years later, with the help of local investors, including Bill Gates' father, Schultz bought Starbucks' six stores.

Related: Inside the first ever Starbucks store

Starbucks' investors gave Schultz the green light to expand, even at a loss, first into West Coast areas and then to Chicago.

"Investors I think understood early on that we were going to lose money in order to build a much bigger company," he said. "We believed early on that what we had seen in Italy was replicable in America."

In 1992, 11 years after Schultz stepped into Starbucks, he took the company public. It had 165 stores at the time.

In the following years, a cup of Starbucks became a status symbol. "He created an accessible luxury for people," said Paul Argenti, a professor of management and corporate communications at Dartmouth's Tuck School of Business.

By the time Schultz stepped down as CEO in 2000, Starbucks had 3,500 stores in more than a dozen countries.

Non-ground coffee

But the company hit a rough patch in the mid-2000s without Schultz at the helm.

In 2007, the company's stock cratered 42%. After growing rapidly - the company had 12,400 stores by the end of 2006 - Starbucks' traffic had slowed down.

McDonald's and Dunkin' Donuts had taken away customers while Starbucks lost some of its coffee-shop appeal among loyalists. It misjudged the response to selling more food and DVDs, and no longer grinding all of its own coffee.

In a leaked letter that year to then-CEO Jim Donald, Schultz said the decisions had resulted in a "watering down of the Starbucks experience" and a "commoditization of our brand."

For example, by using flavor-locked bags for coffee, Starbucks had sacrificed "aroma - perhaps the most powerful nonverbal signal we had in our stores ... and the loss of our people scooping up fresh coffee from the bins and grinding it fresh in front of the customer," Schultz said.

Customers turned away: "Some people even call our stores sterile, cookie cutter, no longer reflecting the passion our partners feel about our coffee."

In early 2008, Schultz replaced Donald for his second stint as CEO to turn around his embattled company.

He closed underperforming stores and installed his former leadership team. Starbucks shut down stores for an afternoon to retrain employees, hoping to bring back a friendlier vibe and better espressos. And it discontinued breakfast sandwiches so the stores would smell more like coffee.

The strategy worked: Starbucks' stock recovered, gaining 143% in 2009.

Schultz stayed on to guide the company through technological changes, loyalty programs and the rise of mobile payments. He stayed on until 2017, passing the reins to his handpicked successor, Kevin Johnson.

America's culture war

Schultz is one of the most outspoken corporate leaders in the country, and Starbucks' policies and workers' benefits embody his social outlook.

In his exit letter to employees, Schultz said he sought to balance "profitability and social conscience."

Since 1988, Starbucks has offered health care to all full-time and part-time employees. The company offers a stock plan, free college tuition and paid parental and sick leave for its workers. It pays above minimum wage and achieved race and gender pay equity earlier this year. Schultz has also made commitments to hire veterans and refugees.

Related: Starbucks achieves pay equity in the United States

Starbucks has taken stances on sensitive issues, including immigration, same-sex marriage, guns, and racism.

"Starbucks is a big public corporation, and yet Schultz behaves more like a private company boss in terms of his activism on political issues," said Jerry Davis, a professor of business administration at the University of Michigan's Ross School of Business.

The food industry is "not necessarily where you expect to see the most overt political stances."

Schultz is leaving Starbucks at a fraught moment for the company.

Starbucks became the center of national attention in April, when two black men were arrested while they were waiting inside a Philadelphia store. Video of the arrests sparked protests and calls for boycotts.

Schultz said he was "ashamed" and "embarrassed" by the arrests. He said bias was common and "many people in America are not prepared to talk about race."

In a media blitz, Schultz publicly apologized for the arrests and worked to ensure Starbucks would preserve its progressive reputation.

Schultz and CEO Johnson, drawing on Starbucks' long tradition of tackling divisive issues, took what many considered another bold step for Corporate America: They ordered 8,000 US Starbucks stores to close for an afternoon to teach employees about racial bias.

The company completed the training last week with help from experts and researchers, including Sherrilyn Ifill, president and director-counsel of the NAACP Legal Defense and Education Fund, and Heather McGhee, president of the public policy organization Demos.

"Racial bias does exist. Unconscious bias exists," Schultz told CNN's Poppy Harlow. "We need to have the conversation. We need to start."

Minnesota Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 41571

Reported Deaths: 1537
CountyConfirmedDeaths
Hennepin13328790
Ramsey5169232
Dakota265596
Stearns249619
Anoka2393111
Nobles16846
Olmsted125920
Washington125541
Mower9822
Rice8798
Scott8584
Clay61238
Kandiyohi5901
Blue Earth5632
Wright5285
Carver4691
Todd4022
Sherburne3625
Lyon3332
Freeborn3120
Watonwan2670
Steele2451
Benton2363
St. Louis22316
Nicollet20312
Martin1755
Cottonwood1420
Winona14115
Goodhue1408
Le Sueur1251
Crow Wing11312
Pine1120
Otter Tail1111
Chisago1071
McLeod1000
Dodge960
Carlton900
Polk883
Unassigned8838
Isanti810
Chippewa801
Waseca770
Murray730
Itasca7112
Douglas700
Pipestone694
Morrison641
Becker620
Meeker621
Faribault610
Sibley582
Jackson570
Pennington530
Beltrami470
Brown442
Mille Lacs392
Wabasha380
Renville372
Fillmore350
Rock340
Swift331
Houston320
Yellow Medicine310
Grant250
Roseau250
Redwood230
Wilkin223
Koochiching211
Norman210
Cass192
Big Stone170
Kanabec171
Lincoln170
Wadena170
Aitkin150
Marshall130
Pope130
Clearwater120
Stevens110
Hubbard100
Mahnomen101
Lake60
Traverse60
Lac qui Parle50
Red Lake40
Kittson20
Cook10
Lake of the Woods00

Iowa Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 34564

Reported Deaths: 747
CountyConfirmedDeaths
Polk7332184
Woodbury332944
Black Hawk249259
Buena Vista173711
Johnson14268
Dallas138531
Linn138183
Marshall109219
Scott103110
Dubuque94023
Story8575
Pottawattamie82112
Wapello71431
Muscatine68745
Crawford6803
Sioux5010
Tama48329
Wright3971
Louisa36513
Webster3655
Plymouth3465
Jasper34417
Warren3191
Dickinson2993
Cerro Gordo2841
Washington2519
Hamilton2011
Boone1681
Clay1491
Clarke1433
Allamakee1384
Clinton1321
Shelby1200
Mahaska11917
Carroll1131
Poweshiek1128
Bremer1107
Pocahontas1071
Franklin1040
Des Moines1002
Cedar951
Emmet950
Henry933
Hardin900
Cherokee831
Floyd812
Taylor810
Marion800
Monona780
Benton751
Guthrie754
Jones710
Butler682
Osceola680
Sac680
Buchanan631
Calhoun632
Iowa631
Jefferson620
Hancock601
Harrison600
Humboldt601
Fayette570
Jackson570
Lyon570
Delaware561
Madison552
Lee542
Monroe527
Palo Alto510
Clayton503
Grundy470
Mills470
Winneshiek460
Mitchell440
Davis421
Kossuth410
Union380
Howard370
Lucas354
Unassigned350
Winnebago340
Greene300
Chickasaw290
Cass280
Ida230
Keokuk231
Worth220
Appanoose213
Page210
Van Buren210
Audubon181
Adair170
Ringgold161
Decatur130
Montgomery122
Wayne110
Fremont100
Adams80
Rochester
Clear
74° wxIcon
Hi: 80° Lo: 58°
Feels Like: 74°
Mason City
Clear
77° wxIcon
Hi: 82° Lo: 59°
Feels Like: 79°
Albert Lea
Clear
73° wxIcon
Hi: 80° Lo: 59°
Feels Like: 73°
Austin
Clear
73° wxIcon
Hi: 81° Lo: 59°
Feels Like: 73°
Charles City
Clear
77° wxIcon
Hi: 82° Lo: 60°
Feels Like: 79°
Chance for more storms Monday
KIMT Radar
KIMT Eye in the sky

Latest Video

Image

Sean's Sunday Weather

Image

Dave Main 10p Wx

Image

Virtual campaigning during pandemic

Image

Former NIACC coach Travis Hergert back in big league camp with the Phillies

Image

New ICE guidelines causing concern for international students

Image

Dave Main 6p Weather 7/11

Image

Connecting with a loved one with dementia during the pandemic

Image

Bruins set to host all-star game

Image

COVID-19 Cases Expected to Spike in North Iowa

Image

Training hard for a season that might not happen

Community Events