From the Archives – Miracles of Marketing

UPDATED: June 1, 2009
PUBLISHED: June 1, 2009

Howard Schultz serves as CEO of
Starbucks, which boasted revenue of nearly $10.4 billion.
Below is an article by Ingrid
Abramovitch for the April issue of SUCCESS.

As the sun rises over Puget
Sound, executives from Boeing and
Microsoft head for their nearest
coffee shop. They fall into line, mull
over the Dow Jones average and
advance swiftly to the front. Over
the hiss of espresso machines, a
server with a java-charged smile
takes their orders. “One double-tall
skinny latte with 2 percent
foam. Next. One decaf mocha
java in a grande cup. Next…”
Without even thinking, the
suits each hand over about $2,
and wander off into Seattle’s
world of big business. By the
time they’ve settled into their
desks, Howard Schultz has sold more
than $140,000 worth of Starbucks coffee.

Yet, only six years after buying Starbucks from its founders,
Schultz has transformed the gourmet-coffee company into
one of the fastest-growing businesses in North America.
Starbucks’ sales exceeded $93 million last year and, some
analysts project, may surpass $1 billion by the end of
the decade.

Schultz envisions a nation of Starbucks zealots, their coffee
palates as discerning as those of wine connoisseurs. He sees a
Starbucks in every North American neighborhood, anchoring
each community like an Irish pub, and a pound of Starbucks’
house blend in every kitchen. In short, Howard Schultz
wants the coffee craze he created in Seattle to extend across
the nation.

Dreaming of a “Latteland”
The Starbucks Coffee Co. dates back to
1971, when three entrepreneurs
in their 20s started selling whole-bean
coffee in Seattle’s Pike Place
Market. They named the store
Starbucks, after the first mate
Moby Dick. By 1982, the trio
had built a solid retail business in
Seattle: five stores, a small roasting
facility and a wholesale business that
coffee to local restaurants.

Meanwhile, Schultz left the housing
projects of Brooklyn, N.Y., for Northern
Michigan University. In 1975, with
a degree in business, he set out on a
marketing career, working for Xerox and
later as vice president of U.S. operations
for Hammarplast in New York, where
he met
Starbucks’ owners Jerry Baldwin,
Zev Siegal and Gordon Bowker.

In 1982, Baldwin and Bowker asked
Schultz to manage retail sales and
marketing for the company. (Siegal had
already left Starbucks.) Schultz was 29, just
married and anxious to leave New York City. He and his wife
packed their belongings and drove 3,000 miles west to Seattle.

About a year later, Schultz visited Italy on a buying trip. As he
wandered through the piazzas of Milan, he was overcome with
a vision. “I saw the relationship Italian culture has with coffee
and the romance of the beverage,” he says. “The Italian starts
his day at the coffee bar and sees his friends there later on. It
struck me that this was also possible in America. It had never
been done—and we could do it because the quality of Starbucks
coffee is unsurpassed.”

Schultz became obsessed. He was determined to build a
national chain of Starbucks cafes based on the Italian coffee bar,
but his bosses were reluctant. Frustrated, Schultz left Starbucks
and wrote a business plan for a new company. He returned to
Italy to visit hundreds of coffee bars and document his findings
on videotape.

In April 1986, Schultz opened his first coffee bar in the
Columbia Seafirst Center, the tallest building west of Chicago.
He called it Il Giornale, after the Italian newspaper, and served
Starbucks coffee. It was an immediate success. Schultz soon
opened another in Seattle and a third in Vancouver.

The following year, he made an offer to buy out his old bosses
at Starbucks for about $4 million. By then, Bowker wanted
out. Baldwin decided to sell, but stayed on as president of the
Starbucks subsidiary, San Francisco-based Peet’s Coffee & Tea Inc.
In August 1987, Schultz dropped the name Il Giornale and merged
his stores with Starbucks.

Adhering to a Vision
The response on Wall Street has been even more enthusiastic.
Starbucks went public last July with a stock price of $17 and, at last
report, the stock has climbed to more than $40 a share.

“I think Starbucks could easily top a billion dollars in sales by
the end of the decade,” says Christopher E. Vroom, a retail analyst
with securities firm Alex Brown & Sons. Vroom says Starbucks
has created a powerful brand franchise in every market it has
penetrated. He sees in the company’s formula a potent brew of
superior customer service, product perfectionism and marketing.
“Starbucks is single-handedly changing the way consumers think
about coffee,” Vroom says.

Schultz’s motto has always been “underpromise and overdeliver.”
From the start, Schultz built his business around cautious
growth. After buying Starbucks, he began “by taking many steps
backward,” he says. His first move, after a careful audit of his
newly acquired company, was to write a
new business plan. He laid out a vision—
one he has faithfully adhered to ever since.

Starbucks would become the leading
North American retailer of specialty coffee.
It would be the Kleenex or IBM of gourmet
coffee. Starbucks would grow carefully,
entering one city at a time and dominating the market before
moving on to the next.

Apart from his family and Starbucks, Schultz has two great
passions: baseball and movies. The two merged in Field of Dreams,
and Schultz often quotes from that movie, in which a man, Kevin
Costner, builds a baseball field after a voice tells him, “If you build
it, they will come.”

That was Schultz’s philosophy all along: If you build a solid
infrastructure, hire an all-star management team and serve the
fi nest product, the customers will come.

Schultz was determined to manage his company’s growth. Once
Seattle was converted, Starbucks spread cautiously through the
West to cities like Vancouver, British Columbia; Portland, Ore.;
Los Angeles; and Denver. Schultz ventured to Chicago and, after
one false start, succeeded grandly even in the face of a fierce local
competitor, Gloria Jean’s Gourmet Coffees. Everywhere Starbucks
sprouted, the company had phenomenal sales.

In a moment of reflection, Schultz admits Starbucks’ growth has
been personally taxing. To spend more time with his children, ages
3 and 7, he takes them on weekend visits to Starbucks stores.

“It’s hard for me to celebrate success,” he says. “I’m always
feeling: I want more, the next market, the next site. We must maintain
a voracious appetite to succeed. The adulation is very fleeting.
We must stay focused and refined.”

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