O J Way Oren Rosenthal Austin,TX

A Report Card: Does Starbucks’ CEO Howard Schultz Make The Grade?

Posted in News and Events by OJWay on August 23rd, 2008 permalink

Conde Nast Portfolio ran a fantastic profile by David Margolick on Schultz in the July issue. In fact, his celebrity has generated a lot of press. Some other articles I’ve seen recently include an explanation of Starbucks’ store closing strategy in Slate, and a preview of their new Clover coffee maker in Wired.

The original Starbucks story is a brilliant tale of outrageous success. CEO Howard Schultz started with coffee - an addictive product. Then he created a market for espresso-based drinks at premium pricing. The company systematically expanded into high-income locales in the US and beyond. Starbucks created an aspirational brand that was strong enough to cross over into the music business. It all fit into the lifestyle they were selling: Upscale, urban, hip, and epicurean.

Overview

When recession hit, expansion slowed, and same-store sales dropped. Even worse, the stock was down 40% and the brand was in trouble. David Margolick quotes an anonymous blog contributor:

” . . . the place has become the McDonald’s of the industry, with worse coffee than McDonald’s itself.”

Schultz’s problem is that he needs to make the Starbucks experience so good that people are happy to pay $4 instead of $1.50 for a cup of traditional coffee. In a recession.

(more…)