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Howard Schultz's Second Act Is Burnishing His First

Posted by: David Kiley on January 11, 2008

A couple of years ago I sat down with Starbuck’s chairman Howard Schultz. It was very interesting. To me, Schultz was clearly talking about a second act for himself. He felt, in my opinion, that there is more to life than selling people over-priced coffee.

At that time, he was, and still is, very passionate about trying to help create a national healthcare policy by rallying a common position among CEOs. I know he planned a CEO Summit to try and achieve a consensus position they could try to sell to Washington. But it didn’t come off.

The only time I ever really butted heads with the guy was when I edited a story about how the strategy of deploying music bars in coffee shops wasn’t really working out, or paying off in a tangible way. He took great issue with our reporting and analysis, though it was accurate. It was if Schultz was saying to us that the music bar strategy isn’t unsuccessful “until I say so.”

It’s hard not to have respect for the guy. It was his vision that built Starbucks into a powerhouse brand. His return to CEO is a good thing.

Schultz's return to Starbuck's as CEO is a good idea. Not only does he know what it takes to refocus the organization on what it does best, but he knows that he won't have a second act if there is a cloud hanging over his first act.

I had a meeting in a Starbuck's this week. I said to my meeting partner, "Can you imagine if I had said...let's meet at the McDonald's coffee bar...or let's meet at the Dunkin' Donuts."

For a lot of people, like me, it just doesn't work.

McDonald's is going to roll out over 1,000 coffee bars. This, like Dunkin Donuts espresso business, will hurt Starbuck's in the pass-through business: suburban drive-throughs, train stations, airports, and highway stops. What McDonald's and Dunkin Donuts have seen is not just that there is more profit in latte than Maxwell House and Brown Gold, but that Starbuck's has literally changed the coffee palate.

Everyone I know who regularly drinks Arabica coffee on a regular basis says the same thing: that it is almost impossible to go back to the grocery store brands. Espresso coffee literally changes your taste for coffee for good.

Have you ever drank imported beer such as Labatt's or Heineken, and the beer runs out except for Bud or Miller. You switch to one of the cheap U.S. brands and it is a shock to the tongue. People who drink espresso get that same sensation with regular diner coffee even if they haven't had an espresso in more than 24 hours. By the way...I ran that theory by Schultz and he smilingly acknowledged that it was true and a critical piece of Starbuck's success.

McDonald's is going to the coffee bars because they see losing more breakfast business long term because working people and students aren't likely to make two stops in the morning. The issue will be whether McDonalds can actually make espresso-based coffee good enough to get those people. I have tasted it. So has my blog partner Burt Helm. McD's hasn't cracked the code...or bean...yet. Neither has Dunkin Donuts, in my opinion. But DD's is at least passable.

Schultz needs to focus on making Starbucks an even more hospitable "third place" after home and work. He could start by making Wi-Fi free, like Panera Bread does. That's a no-brainer. The other place I would look is making the food offerings a little more interesting than what is found today at Starbuck's.

Baristas could use some deeper training too. I have found the people behind the counters in the dozen or so Panera Breads I have been into a bit more friendly and nicer to deal with than the Starbucks stores I hit, though most of those these days are in airports and highways.

Of course, I don't get as much coffee out as I used to. I realized how much money we were blowing, and we bought a very expensive espresso/latte maker for our kitchen. It has already paid for itself in how much we have saved by making coffee in our kitchen most mornings. And I already pay for the WiFi in my house. Paying for it again at Starbuck's grinds my beans.

Reader Comments

Firozali A Mulla MBA PhD

January 15, 2008 9:47 AM

Chairman Howard Schultz, I am all for your coffee but I find the coffee is very heavily or call this stiffed priced. I agree all good products have a good margin. However, here we are talking of huge turnover with small margin. Now in those contacts I am your fan. The price I pay for the coffee does not left me. It makes me groggy foe some time. My wallet feels a little light. Any cure of the after effect of the caffeine? I thank you
I thank you
Firozali A Mulla MBA PhD
P.O.Box 6044
East Africa


January 26, 2008 2:39 PM

Wow. Great comments. Finally, somebody writing about core initiatives that SBUX needs to take ie the no brainer free wireless. T-Mobile connection, on top of the $30-$40/mo fee, doesn't work at least half the time. Baristas could use an infusion of renewed connection to the customer. And finally, David, I agree whole heartedly w/ your premonition re. Arabica coffee - there is no going back. In all the commentary and mish mash re. consumer reports reviews etc, there really is no comparison - SBUX coffee is, if not better(which it is) than McD's/Dunkin' Donnuts, its definitely unique and in a 'taste category of it's own'. They should start from there.
Here's where they should go w/ their "drip strategy". No more price increases on regular coffee (non latte'/espresso drink) in order to subsidize rising dairy prices. We, the Starbucks "drip" drinkers have absorbed not one, but two price increases, totally about 10-15%, or more, since April of '06. Now it's $0.09 short of $2 for a 16 oz cup of drip coffee. STOP those price increases AND offer free re-fills like Tully's does.
That and free wi-fi and some tightening of the overall "experience" as it relates to customer intereaction would be a good start. THIS IS NOT ROCKET SCIENCE...let's go Howard. Nuts and Bolts. He should be working half his day in stores, w/ his laptop at a table, and just absorb the environment and make changes accordingly. It's a coffee shop people, not a rocket mission.

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News, opinions, inflammatory meanderings and occasional ravings about the world of advertising, marketing and media. By marketing editor Burt Helm, Innovation Editor Helen Walters, and senior correspondent Michael Arndt.

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