I met Howard Schultz this time in London. It was mid-October 2004 and he had just spoken at the Royal Albert Hall before a crowd of 2,000 of the UK’s most distinguished thinkers, artists, and scientists: the great and the good. The occasion was a Day of Inspiration to mark the 250th anniversary of the RSA (the Royal Society for the Encouragement of Arts, Manufactures and Commerce).
The RSA had been founded in 1754 in a coffee house in London, and Starbucks had helped it celebrate the anniversary by hosting a series of debates, the Coffeehouse Challenge, in its coffee shops across the country. In these debates, local groups developed ambitious schemes to tackle such issues as relieving student debt, introducing national environmental awards and creating a carbon-neutral west of England. Howard Schultz presented six winners with prizes at this grandest of British public venues.
Afterward, we talked and arranged to talk some more by telephone from Seattle. It seemed to me an extraordinary path for Starbucks and Schultz to have taken. Yet, as with much of the Starbucks journey, it appears to have happened with a spirit of naïve optimism rather than commercial calculation. The company follows its best instincts, trusting that everything will turn out well.
I had wanted an opportunity to update myself on Starbucks’ progress since this book was first published six months earlier. It had been a significant year. The international business had become profitable for the first time, exactly as Starbucks had predicted to market analysts. The stock had risen to record levels. By the end of 2004, there would be 8,500 stores, and China had emerged as an exciting opportunity whose potential was growing before Starbucks’ eyes. “China has really embraced the Starbucks brand and experience,” Howard Schultz declared with some pride and awe.
The Starbucks story has settled down to a steady but dynamic curve of progress. After a period of hectic international development from the mid-1990s, during which the company established operations in 33 countries, 2004 was more a year of international consolidation than of new discovery. Starbucks had made the bold move of opening in Paris (and five stores in France by the end of the year), and continued to open an average of three shops a day worldwide, but kept to markets it already knew well. There were few adventurous strategic developments on the geographical front, though later years held out the promise of romance with the investigation of such markets as Italy, Brazil, India, and Russia.
The spirit of adventure was kept alive but channeled into other areas of development. The drive to help coffee-growing communities became stronger. After the collapse of commodity coffee prices in 2001, Starbucks had reasserted its efforts to pay farmers fair prices. It had increased its commitment to buy Fair Trade coffee, but had decided to pay premium prices for the arabica coffee that it chooses for quality reasons. In 2004, Starbucks was paying twice the open-market rate for its coffee, much of it through direct long-term contracts with farmers.
Of course, this is not all altruism, because Starbucks is keen to secure sources for its essential supplies. Yet the farming communities in the developing world undoubtedly gain better deals from Starbucks than they do from bigger multinational competitors like Nestlé, Kraft and Sara Lee. “It is a welcome relief to see Starbucks taking a lead among the major coffee companies in addressing the crisis in the coffee market.” This official statement by leading charity Oxfam sets the background for a major initiative that Starbucks announced in the fall of 2004.
Under a memorandum of understanding, Starbucks UK and Oxfam GB have joined forces to find ways of tackling the coffee crisis in Ethiopia. As a result Starbucks will contribute $180,000 to projects in the East Hararge region, where Oxfam has been working since the major famine of 1984. The money will go towards improving irrigation, providing seeds and tools, and running women’s literacy programs. Starbucks experts will also provide advice on improving coffee yields and quality, and on strengthening the growers’ marketing cooperative. The agreement enables Oxfam to maintain a constructive and critical relationship with Starbucks. As Phil Bloomer, head of Oxfam’s Make Trade Fair campaign, said, the relationship will depend on dialogue: “We hope they’ll challenge us, and we know we’ll continue to challenge them.”
Howard Schultz talks about Starbucks as an anomaly, a big company that has a conscience. He is keen to explain the difference it makes: “We’re building a different kind of company, one that balances shareholder value with ethical trading.” The significance of the Oxfam relationship for him is that it represents another example of “you can tell us by the company we keep.” While there are still detractors, you find few of them among people and organizations that deal with Starbucks and know it well.
A challenge of a completely different kind is Starbucks’ continuing venture into the music business. Earlier in 2004, the Hear Music Café opened in Santa Monica, California. This is a mixture of Starbucks as a coffee retailer and a new channel for selling non-mainstream music. Customers can sit with a coffee at individual stations and listen to an eclectic mix of music. They can then create their own personal collection of music that has nothing to do with the latest offerings from the pop charts. People simply listen, discover new favorites, burn their own CD and buy it to take away with them. Hear Music coffee houses have opened in Seattle and Texas, and you can hear the excitement in Howard Schultz’s voice when he talks about them.
There is pride, too, in another aspect of the music initiative: when Starbucks produced, released and distributed a CD of Ray Charles’s final recordings of duets with leading singers. A week after its release on September 1, 2004, Genius loves company had sold 44,000 copies through 4,000 US Starbucks stores and risen to number 2 in the Billboard charts. It stayed in the top 10 for several weeks – the first time a record had done so without the benefit of radio play.
This was evidence, Howard Schultz believes, of Starbucks’ unusual relationship with its customers and the trust it has earned. “People trust Starbucks’ editorial voice around a genre of music. It’s all to do with rediscovering great music, and it appeals to people who are music lovers but no longer comfortable in music stores dominated by the charts. It seems there are millions of people like that. A music industry businessman told me last week, Starbucks is a ray of hope for the ethical and profitable distribution of music for artists and labels.”
So the story continues. New targets have been set to open 30,000 stores worldwide, half of them in the US. The core product is in better shape than ever, and Starbucks is uncovering new sources of quality coffee beans. It is working with farmers to improve yields and the environment. For Howard Schultz, there remains an artistry in this. But at the same time the commitment to innovation gathers pace, particularly through music.
This puts joy and soul into Starbucks, but there remains a heart, too. Howard Schultz ends our conversation with a surprising fact about healthcare for Starbucks’ US partners. As the rising cost of healthcare becomes a political issue, Starbucks is entering the public arena in a way it has never done before, while avoiding allegiance to any party. It now spends more on healthcare for its partners than it spends on its basic raw material, coffee. “And,” Schultz stresses, “we will never turn back on this benefit.”
People still matter most to this brand, and it remains true to its principles. Other brands should take note.