Starbucks Becomes a Public Company

8/15/2019 Starbucks Becomes a Public Company

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Starbucks Becomes a Public Company

Starbucks' initial public offering (IPO) of common stock in June 1992 turned into one of the mostsuccessful IPOs of the ear (see !"hibit # for the performance of the compan's stock price since theIPO)$ %ith the capital afforded it b being a public compan& Starbucks accelerated the e"pansion of itsstore netork (see !"hibit 1)$ Starbucks' success helped specialt coffee products begin to catch on

across the nited States$ ompetitors& some imitating the Starbucks model& began to spring up in manlocations$ *he Specialt offee +ssociation of +merica predicted that the number of coffee caf,s in thenited States ould rise from -.. in 1992 to 1.&... b 1999$

The Store Expansion Strategy

In 1992 and 199# Starbucks de/eloped a three0ear geographic e"pansion strateg that targeted areashich not onl had fa/orable demographic profiles but hich also could be ser/iced and supported b thecompan's operations infrastructure$ or each targeted region& Starbucks selected a large cit to ser/e asa hub3 teams of professionals ere located in hub cities to support the goal of opening 2. or morestores in the hub in the first to ears$ Once stores blanketed the hub& then additional stores ereopened in smaller& surrounding spoke areas in the region$ *o o/ersee the e"pansion process& Starbuckscreated 4one /ice presidents to direct the de/elopment of each region and to implant the Starbucksculture in the nel opened stores$ +ll of the ne 4one /ice presidents Starbucks recruited came ithe"tensi/e operating and marketing e"perience in chain0store retailing$

Starbucks' store launches gre steadil more successful$ In 199-& ne stores generated an a/erage of56..&... in re/enue in their first ear& far more than the a/erage of 5726&... in 199.$ *his as partl dueto the groing reputation of the Starbucks brand$ In more and more instances& Starbucks' reputationreached ne markets e/en before stores opened$ 8oreo/er& e"isting stores continued to post ear0to0ear gains in sales (see !"hibit 1)$

Starbucks had notable success in identifing top retailing sites for its stores$ *he compan had the bestreal estate team in the coffee0bar industr and a sophisticated sstem that enabled it to identif not onlthe most attracti/e indi/idual cit blocks but also the e"act store location that as best$ *he compan's

site location track record as so good that as of 1996 it had closed onl 2 of the 1&-.. sites it hadopened$

Real Estate, Store Design, Store Planning, and Construction

Schult4 formed a headuarters group to create a store de/elopment process based on a si"0monthopening schedule$ Starting in 1991& the compan began to create its on in0house team of architects anddesigners to ensure that each store ould con/e the right image and character$ Stores had to becustom0designed because the compan didn't bu real estate and build its on freestanding structureslike 8c:onald's or %al08art did3 rather& each space as leased in an e"isting structure and thus eachstore differed in si4e and shape$ 8ost stores ranged in si4e from 1&... to 1&-.. suare feet and erelocated in office buildings& donton and suburban retail centers& airport terminals& uni/ersit campusareas& or bus neighborhood shopping areas con/enient to pedestrian foot traffic$ Onl a select fe ere

in suburban malls$ %hile similar materials and furnishings ere used to keep the look consistent ande"penses reasonable& no to stores ended up being e"actl alike$

In 1997& Starbucks began to e"periment ith a broader range of store formats$ Special seating areasere added to help make Starbucks a place here customers could meet and chat or simpl en;o apeaceful interlude in their da$


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*o better reduce a/erage store0opening costs& hich had reached an undesirabl high 5#-.&... in 199-&the compan centrali4ed buing& de/eloped standard contracts and fi"ed fees for certain items& andconsolidated ork under those contractors ho displaed good cost0control practices$ *he retailoperations group outlined e"actl the minimum amount of euipment each core store needed& so thatstandard items could be ordered in /olume from /endors at 2. to #. percent discounts& then deli/ered ;ustin time to the store site either from compan arehouses or the /endor$ 8odular designs for displacases ere de/eloped$ +nd the hole store laout as de/eloped on a computer& ith softare thatalloed the costs to be estimated as the design e/ol/ed$ +ll this cut store0opening costs significantl andreduced store de/elopment time from 27 to 1= eeks$

+ stores of the future pro;ect team as formed in 199- to raise Starbucks' store design to a still higherle/el and come up ith the ne"t generation of Starbucks stores$ Schult4 and Olsen met ith the teamearl on to present their /ision for hat a Starbucks store should be like>an authentic coffee e"periencethat con/eed the artistr of espresso making& a place to think and imagine& a spot here people couldgather and talk o/er a great cup of coffee& a comforting refuge that pro/ided a sense of communit& a thirdplace for people to congregate beond ork or the home& a place that elcomed people and reardedthem for coming& and a laout that could accommodate both fast ser/ice and uiet moments$ *he teamresearched the art and literature of coffee throughout the ages& studied coffee0groing and coffee0makingtechniues& and looked at ho Starbucks stores had alread e/ol/ed in terms of design& logos& colors&and mood$ *he team came up ith four store designs>one for each of the four stages of coffee making?groing& roasting& breing& and aroma>each ith its on color combinations& lighting scheme& andcomponent materials$ %ithin each of the four basic store templates& Starbucks could /ar the materialsand details to adapt to different store si4es and settings (donton buildings& college campuses&neighborhood shopping areas)$ In late 199@& Starbucks began opening ne stores based on one of thefour templates$ *he compan also introduced to ministore formats using the same stles and finishes?the brevebar & a store0ithin0a0store for supermarkets or office0building lobbies& and the doppio& a self0contained =0suare0foot space that could be mo/ed from spot to spot$ 8anagement belie/ed the pro;ectaccomplished three ob;ecti/es? better store designs& loer store0opening costs (about 5#1-&... per storeon a/erage)& and formats that alloed sales in locations Starbucks could otherise not consider$

or a number of ears& Starbucks a/oided debt and financed ne stores entirel ith euit capital$ Autas the compan's profitabilit impro/ed and its balance sheet strengthened& Schult4's opposition to debtas a legitimate financing /ehicle softened$ In 199@ the compan completed its second debt offering&netting 51@1 million from the sale of con/ertible debentures for use in its capital construction program$ !"hibit @& !"hibit 6& and !"hibit = present Starbucks' income statement and balance sheet data for recentears$

Product Line

Starbucks stores offered a choice of regular or decaffeinatedcoffee be/erages& a special coffee of the da& and a broadselection of Italian0stle espresso drinks$ In addition& customerscould choose from a ide selection of fresh0roasted hole0beancoffees (hich could be ground on the premises and carriedhome in distincti/e packages)& a selection of fresh pastries and

other food items& sodas& ;uices& teas& and coffee0relatedhardare and euipment$ In 1996& the compan introduced itsStarbucks Aarista home espresso machine featuring a neportafilter sstem that accommodated both ground coffee andStarbucks' ne read0to0use espresso pods$ Poer rappuccino>a /ersion of the compan's popular rappuccino blendedbe/erage& packed ith protein& carbohdrates& and /itamins>as tested in se/eral markets during 19963 another promising

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ne product being tested for possible rollout in 199= as hai *ea BattC& a combination of black tea&e"otic spices& hone& and milk$

*he compan's retail sales mi" as roughl @1 percent coffee be/erages& 1- percent hole0bean coffees&1@ percent food items& and = percent coffee0related products and euipment$ *he product mi" in eachstore /aried& depending on the si4e and location of each outlet$ Barger stores carried a greater /ariet of

hole coffee beans& gourmet food items& teas& coffee mugs& coffee grinders& coffee0making euipment&filters& storage containers& and other accessories$ Smaller stores and kiosks tpicall sold a full line ofcoffee be/erages& a limited selection of hole0bean coffees& and a fe hardare items$

In recent ears& the compan began selling special ;a44 and blues :s& hich in some cases erespecial compilations that had been put together for Starbucks to use as store background music$ *he ideafor selling the :s originated ith a Starbucks store manager ho had orked in the music industr andselected the ne tape of the month Starbucks plaed as background in its stores$ De had gottencompliments from customers anting to bu the music the heard and suggested to senior e"ecuti/esthat there as a market for the compan's music tapes$ Eesearch that in/ol/ed looking through to earsof comment cards turned up hundreds asking Starbucks to sell the music it plaed in its stores$ *heStarbucks :s& created from the apitol Eecords librar& pro/ed a significant addition to the compan'sproduct line$ Some of the :s ere specificall collections designed to tie in ith ne blends of coffee

that the compan as promoting$ Starbucks also sold Oprah's Aook lub selections& the profits of hichere donated to a literac fund supported b the Starbucks oundation$

*he compan as constantlengaged in efforts to de/elop neideas& ne products& and nee"periences for customers thatbelonged e"clusi/el to Starbucks$Schult4 and other senior e"ecuti/esdrummed in the importance of alasbeing open to re0in/enting theStarbucks e"perience$

Store mbience

Starbucks management looked uponeach store as a billboard for thecompan and as a contributor tobuilding the compan's brand andimage$ !ach detail as scrutini4ed toenhance the mood and ambience of the store& to make sure e/erthing signaled best of class and that it reflected the personalit of thecommunit and the neighborhood$ *he thesis as !/erthing matters$ *he compan ent to greatlengths to make sure the store fi"tures& the merchandise displas& the colors& the artork& the banners&the music& and the aromas all blended to create a consistent& in/iting& stimulating en/ironment thate/oked the romance of coffee& that signaled the compan's passion for coffee& and that rearded

customers ith ceremon& stories& and surprise$ Starbucks as recogni4ed for its sensiti/it toneighborhood conser/ation ith the Scenic +merica's aard for e"cellent design and sensiti/e reuse ofspaces ithin cities$

*o tr to keep the coffee aromas in the stores pure& Starbucks banned smoking and asked emploees torefrain from earing perfumes or colognes$ Prepared foods ere kept co/ered so customers ould smellcoffee onl$ olorful banners and posters ere used to keep the look of Starbucks stores fresh and inkeeping ith seasons and holidas$ ompan designers came up ith artork for commuter mugs and *0


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shirts in different cities that as in keeping ith each cit's personalit (peach0shaped coffee mugs for +tlanta& pictures of Paul Ee/ere for Aoston and the Statue of Bibert for Fe Gork)$

*o make sure that Starbucks' stores measured up to standards& the compan used mster shoppersho posed as customers and rated each location on a number of criteria$

Building a Top !anagement Team

Schult4 continued to strengthen Starbucks' top management team& hiring people ith e"tensi/ee"perience in managing and e"panding retail chains$ Orin Smith& ho had an 8A+ from Dar/ard and 1#ears' e"perience at :eloitte and *ouche& as brought in as chief financial officer in 199. and then aspromoted to president and chief operating officer in 1997$ *he four ke e"ecuti/es during the compan'sformati/e ears>Doard Schult4& :a/e Olsen& Doard Aehar& and Orin Smith>contributed the most todefining and shaping the compan's /alues& principles& and culture$ +s the compan gre& additionale"ecuti/es ere added in marketing& store super/ision& specialt sales& human resources& finance& andinformation sstems$ Schult4 also took care to add people to Starbucks' board of directors ho hade"perience groing a retail chain and ho could add /aluable perspecti/es$

Employee Training

+ccommodating fast groth also meant putting in sstems to recruit& hire& and train baristas and storemanagers$ Starbucks' /ice president for human resources used some simple guidelines in screeningcandidates for ne positions? %e ant passionate people ho lo/e coffee $ $ $ %e're looking for a di/erseorkforce& hich reflects our communit$ %e ant people ho en;o hat the're doing and for homork is an e"tension of themsel/es$1@ Some =. percent of Starbucks emploees ere hite& =- percenthad some education beond high school& and the a/erage age as 2@$

!/er partnerHbarista hired for a retail ;ob in a Starbucks store recei/ed at least 27 hours training in thefirst to to four eeks$ *he training included classes on coffee histor& drink preparation& coffeeknoledge (four hours)& customer ser/ice (four hours)& and retail skills& plus a four0hour orkshop calledAreing the Perfect up$ Aaristas ere trained in using the cash register& eighing beans& opening the

bag properl& capturing the beans ithout spilling them on the floor& holding the bag in a a that keepsair from being trapped inside& and affi"ing labels on the package e"actl one0half inch o/er the Starbuckslogo$ Ae/erage preparation occupied e/en more training time& in/ol/ing such acti/ities as grinding thebeans& steaming milk& learning to pull perfect (1=0 to 2#0second) shots of espresso& memori4ing therecipes of all the different drinks& practicing making the different drinks& and learning ho to make drinksto customer specifications$ *here ere sessions on ho to clean the milk and on the espresso machine&e"plain the Italian drink names to customers& sell an 5=6- home espresso machine& make ee contactith customers& and take personal responsibilit for the cleanliness of the coffee bins$ !/erone asdrilled in the Star Skills& three guidelines for on0the0;ob interpersonal relations? (1) maintain and enhanceself0esteem& (2) listen and acknoledge& and (#) ask for help$ +nd there ere rules to be memori4ed? milkmust be steamed to at least 1-. degrees ahrenheit but ne/er more than 16. degrees3 e/er espressoshot not pulled ithin 2# seconds must be tossed3 customers ho order one pound of beans must begi/en e"actl that>not $99- pounds or 1$1 pounds3 ne/er let coffee sit in the pot more than 2. minutes3alas compensate dissatisfied customers ith a Starbucks coupon that entitles them to a free drink$

8anagement trainees attended classes for = to 12 eeks$ *heir training ent much deeper& co/ering notonl the information imparted to baristas but also the details of store operations& practices and proceduresas set forth in the compan's operating manual& information sstems& and the basics of managing people$Starbucks' trainers ere all store managers and district managers ith on0site e"perience$ One of theirma;or ob;ecti/es as to ingrain the compan's /alues& principles& and culture and to impart theirknoledge about coffee and their passion about Starbucks$


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!ach time Starbucks opened stores in a ne market& it undertook a ma;or recruiting effort$ !ight to 1.eeks before opening& the compan placed ads to hire baristas and begin their training$ It sent a Starteam of e"perienced managers and baristas from e"isting stores to the area to lead the store0openingeffort and to conduct one0on0one training folloing the compan's formal classes and basic orientationsessions at the Starbucks offee School in San rancisco$

Product Supply

:a/e Olsen& Starbucks' senior /ice president for coffee& personall spearheaded Starbucks' efforts tosecure top0notch coffee beans to suppl the compan's groing needs$ De tra/eled regularl to coffee0producing countries>olombia& Sumatra& Gemen& +ntigua& Indonesia&


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+lso in 199-& Starbucks orked ith Seattle's Eedhook +le Areer to create :ouble Alack Stout& a stoutbeer ith a shot of Starbucks coffee e"tract in it$

Licensed Stores and Specialty Sales

In recent ears Starbucks had begun entering into a limited number of licensing agreements for store

locations in areas here it did not ha/e abilit to locate its on outlets$ *he compan had an agreementith 8arriott Dost International that alloed Dost to operate Starbucks retail stores in airport locations&and it had an agreement ith +ramark ood and Ser/ices to put Starbucks stores on uni/ersit campusesand other locations operated b +ramark$ Starbucks recei/ed a license fee and a roalt on sales atthese locations and supplied the coffee for resale in the licensed locations$ +ll licensed stores had tofollo Starbucks' detailed operating procedures& and all managers and emploees ho orked in thesestores recei/ed the same training gi/en to Starbucks managers and store emploees$

Starbucks also had a specialt sales group that pro/ided its coffee products to restaurants& airlines&hotels& uni/ersities& hospitals& business offices& countr clubs& and select retailers$ One of the earl usersof Starbucks coffee as Dori4on +irlines& a regional carrier based in Seattle$ In 199-& Starbucks enteredinto negotiations ith nited +irlines to ha/e Starbucks coffee ser/ed on all nited flights$ *here asmuch internal debate at Starbucks about hether such a mo/e made sense for Starbucks and the

possible damage to the integrit of the Starbucks brand if the ualit of the coffee ser/ed did not measureup$ +fter se/en months of negotiation and discussion o/er coffee0making procedures& nited +irlines andStarbucks came up ith a a to handle ualit control on some -..0plus planes ith /aring euipment&and Starbucks became the coffee supplier to the 2. million passengers fling nited each ear$

In addition& Starbucks made arrangements to suppl an e"clusi/e coffee blend to Fordstrom's for saleonl in Fordstrom stores& to operate coffee bars in Aarnes N Foble bookstores& and to offer coffee ser/iceat some %ells argo Aank locations in alifornia$ 8ost recentl& Starbucks began selling its coffees inhapters& a *oronto book retailer ith sites throughout anada& and in ostco arehouse club stores$ +1996 agreement ith $S$ Office Products ga/e Starbucks the opportunit to pro/ide its coffee to orkersin 1$- million business offices$ In fiscal 1996& the specialt sales di/ision generated sales of 5116$@million& eual to 12$2 percent of total re/enues$

'nternational Expansion

In markets outside the continentalnited States (including Daaii)&Starbucks' strateg as to license areputable and capable local companith retailing kno0ho in the targethost countr to de/elop and operatene Starbucks stores$ In somecases& Starbucks as a ;oint /enturepartner in the stores outside thecontinental ntied States$ Starbuckscreated a ne subsidiar& Starbucksoffee International (SI)& toorchestrate o/erseas e"pansion andbegin to build the Starbucks brandname globall /ia licensees3 DoardAehar as president of SI$


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to open as man as 7. stores in the Pacific Eim b the end of September 199=$ *he licensee in *aianforesa a potential of 2.. stores in that countr alone$ *he potential of locating stores in !urope andBatin +merica as being e"plored$

Corporate Responsibility

Doard Schult4's effort to build a compan ith soul included a broad0based program of corporateresponsibilit& orchestrated mainl through the Starbucks oundation& set up in 1996$ Starbucks as thelargest corporate contributor in Forth +merica to +E!& a orldide relief and de/elopment organi4ationthat sponsored health& education& and humanitarian aid programs in most of the *hird %orld countrieshere Starbucks purchased its coffee supplies3 Starbucks began making annual corporate contributionsto +E! hen it became profitable in 1991$ In addition& +E! samplers of coffee and +E!0relatedmugs& backpacks& and *0shirts ere offered in the compan's mail0order catalog3 a portion of the price onall sales as donated to +E!$ In 199- Starbucks began a program to impro/e the conditions of orkersin coffee0groing countries& establishing a code of conduct for its groers and pro/iding financialassistance for agricultural impro/ement pro;ects$ In 1996& Starbucks formed an alliance ith +ppropriate*echnolog International to help poor& small0scale coffee groers in


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distributed their coffees through supermarkets$ *here ere also a number of specialt coffee companiesthat sold hole0bean coffees in supermarkets$ Aecause man consumers ere accustomed topurchasing their coffee supplies at supermarkets& it as eas for them to substitute these products forStarbucks$

Building the Starbucks Brand

So far& Starbucks had spent /er little mone on ad/ertising& preferring instead to build the brand cup bcup ith customers and depend on ord0of0mouth and the appeal of its storefronts$ *he compan as&hoe/er& engaged in a groing effort to e"tend the Starbucks brand and penetrate ne markets$ Inaddition to e"panding internationall& /enturing into ice cream ith :reer's and into rappuccino ithPepsi& partnering ith licensees& and de/eloping specialt and mail0order sales& Starbucks had recentlbegun selling its coffees in supermarkets$

Supermarket sales ere test0marketed in o/er -.. stores in hicago in the summer of 1996$8anagement belie/ed that the tests confirmed the appeal of offering Starbucks coffee to e"istingcustomers in con/enient supermarket locations hile at the same time introducing ne customers to itsproducts$ *o0thirds of all coffee as sold in supermarkets$ In Fo/ember 1996& Starbucks hired Festl,/eteran& Jim +iling& as senior /ice president of grocer operations to direct Starbucks' supermarket sales

effort$ *he compan started rolling out supermarket sales of its coffees in 1. ma;or metropolitan areas inthe spring of 199=$ Starbucks coffee sold in supermarkets featured distincti/e& elegant packaging3prominent positions in grocer aisles3 and the same premium ualit as that sold in its on stores$Product freshness as guaranteed b Starbucks' la/orBock packaging& and the price per poundparalleled the prices in Starbucks' retail stores$

*he compan as also said to be testing light roast coffee blends for those customers ho found itscurrent offerings too strong$ +nd& in the summer of 1996& Starbucks uietl test0marketed four 2. percentfruit0;uice be/erages in one market$19 *he single0ser/e bottled drinks ere priced around 52& and at leastone contained caffeine$ +lso on the ne0product front as an apple cider made e"clusi/el for Starbucksb Fantucket Fectars$ Plus& the compan as selling chocolate bars and other cand& and had plans tobring cand production in0house if sales ent ell enough$

The (uture

Industr analsts in 199= sa Starbucks as being ell on its a to becoming the Fike or oca0ola ofthe specialt coffee segment$ It as the onl compan ith anthing close to national market co/erage$*he compan's most immediate ob;ecti/e as to ha/e 2&... stores in operation b the ear 2...$ Itslonger range ob;ecti/e as to become the most recogni4ed and respected brand of coffee in the orld$*he compan's efforts to greatl increase its sphere of strategic interest /ia its ;oint /entures ith Pepsiand :reer's& its mo/e to sell coffee in supermarkets& and the possibilit of marketing fruit0;uice drinks andcand under the Starbucks label represented an ongoing dri/e on Schult4's part to continuall rein/entthe a Starbucks did business$

In order to sustain the compan's groth and make Starbucks a strong global brand& Schult4 belie/ed

that the compan had to challenge the status uo& be inno/ati/e& take risks& and alter its /ision of ho itas& hat it did& and here it as headed$ nder his guidance& management as posing a number offundamental strategic uestions? %hat could Starbucks do to make its stores an e/en more elegant thirdplace that elcomed& rearded& and surprised customersL %hat ne products and ne e"periencescould the compan pro/ide that ould uniuel belong to or be associated ith StarbucksL %hat couldcoffee be>besides being hot or liuidL Do could Starbucks reach people ho ere not coffee drinkersL%hat strategic paths should Starbucks pursue to achie/e its ob;ecti/e of becoming the most recogni4edand respected brand of coffee in the orldL


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+rthur +$ *hompson& *he ni/ersit of +labamaJohn !$


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fine& dark0roasted coffees& and functioned as the partnership's retail e"pert$ *he other to partners kepttheir da ;obs but came b at lunch or after ork to help out$ :uring the start0up period& Aaldin kept thebooks and de/eloped a groing knoledge of coffee3 Aoker ser/ed as the magic& mster& andromance man$1 *he store as an immediate success& ith sales e"ceeding e"pectations& partl becauseof a fa/orable article in the Seattle Times$ In the earl months& each of the founders tra/eled to Aerkeleto learn more about coffee roasting from their mentor& +lfred Peet& ho urged them to keep deepeningtheir knoledge of coffees and teas$ or most of the first ear& Starbucks ordered its coffee beans fromPeet's& but then the partners purchased a used roaster from Dolland and set up roasting operations in anearb ramshackle building$ Aaldin and Aoker e"perimented ith +lfred Peet's roasting proceduresand came up ith their on blends and fla/ors$ + second Starbucks store as opened in 1962$

A the earl 19=.s& the compan had four Starbucks stores in the Seattle area and could boast of ha/ingbeen profitable e/er ear since opening its doors$ Aut the roles and responsibilities of the cofoundersunderent change$ e/ Siegel e"perienced burnout and left the compan to pursue other interests$ JerrAaldin took o/er da0to0da management of the compan and functioned as chief e"ecuti/e officer3aSedish maker of stlish kitchen euipment and houseares>noticed that Starbucks as placing largerorders than 8ac's as for a certain tpe of drip coffeemaker$ urious to learn hat as going on& hedecided to pa the compan a /isit$ *he morning after his arri/al in Seattle& Schult4 as escorted to thePikes Place store b Binda


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Schult4 as o/erfloing ith ideas for the compan$ !arl on& he noticed that first0time customerssometimes felt uneas in the stores because of their lack of knoledge about fine coffees and becausestore emploees sometimes came across as a little arrogant$ Schult4 orked ith store emploees onde/eloping customer0friendl sales skills and produced brochures that made it eas for customers to learnabout fine coffees$

Schult4's biggest idea for Starbucks' future came during thespring of 19=# hen the compan sent him to 8ilan& Ital& toattend an international houseares sho$ %hile alkingfrom his hotel to the con/ention center& Schult4 spotted anespresso bar and ent inside to look around$ *he cashier beside the door nodded and smiled$ *he barista (counter orker) greeted Doard cheerfull& then gracefull pulled ashot of espresso for one customer and handcrafted a foamcappuccino for another& all the hile con/ersing merril iththose standing at the counter$ Schult4 ;udged the barista'sperformance as great theater$ Just don the a on aside street& he entered an e/en more croded espressobar& here the barista& hom he surmised to be the oner&as greeting customers b name3 people ere laughingand talking in an atmosphere that plainl as comfortableand familiar$ In the ne"t fe blocks& he sa to moreespresso bars$ %hen the trade sho concluded for the da&Schult4 alked the streets of 8ilan e"ploring espressobars$ Some ere stlish and upscale3 others attracted ablue0collar clientele$ %hat struck Schult4 as ho popular and /ibrant the Italian coffee bars ere$ 8ost had fechairs& and it as common for Italian opera to be plaing inthe background$ !nerg le/els ere tpicall high& and thebars seemed to function as an integral communit gatheringplace$ !ach one had its on uniue character& but the allhad a barista ho performed ith flair and e"hibited acamaraderie ith the customers$ Schult4 as particularl

struck b the fact that there ere 1&-.. coffee bars in 8ilan& a cit about the si4e of Philadelphia& and atotal of 2..&... in all of Ital$ Dis mind started churning$

Schult4's first fe das in 8ilan produced a re/elation? *he Starbucks stores in Seattle completel missedthe point$ Starbucks& he decided& needed to ser/e fresh0breed coffee& espresso& and cappuccino in itsstores (in addition to beans and coffee euipment)$ the barista made ashot of espresso& steamed a froth pitcher of milk& poured the to together in a cup& and put a dollop offoam on the top$ Schult4 concluded that it as the perfect drink& and thought to himself& Fo one in

+merica knos about this$ I'/e got to take it back ith me$-

Schult*2s 3ro#ing (rustration

On Schult4's return from Ital& he shared his re/elation and ideas for modifing the format of Starbucksstores ith Aaldin and Aoker$ Aut instead of inning their appro/al& Schult4 encountered strongresistance$ Aaldin and Aoker argued that Starbucks as a retailer& not a restaurant or bar$ *he fearedthat ser/ing drinks ould put them in the be/erage business and dilute the integrit of Starbucks' missionas a coffee store$ *he pointed out that Starbucks as a profitable small& pri/ate compan and there as


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no reason to rock the boat$ Aut a more pressing reason for their resistance emerged shortl>Aaldinand Aoker ere e"cited b an opportunit to purchase Peet's offee and *ea$ *he acuisition took placein 19=73 to fund it& Starbucks had to take on considerable debt& lea/ing little in the a of financialfle"ibilit to support Schult4's ideas for entering the be/erage part of the coffee business or e"panding thenumber of Starbucks stores$ or most of 19=7& Starbucks managers ere di/iding their time beteentheir operations in Seattle and the Peet's enterprise in San rancisco$ Schult4 found himself in Sanrancisco e/er other eek super/ising the marketing and operations of the fi/e Peet's stores$ Starbucksemploees began to feel neglected and& in one uarter& did not recei/e their usual bonus due to tightfinancial conditions$ !mploee discontent escalated to the point here a union election as called& andthe union on b three /otes$ Aaldin as shocked at the results& concluding that emploees no longertrusted him$ In the months that folloed& he began to spend more of his energ on the Peet's operation inSan rancisco$

It took Doard Schult4 nearl a ear to con/ince Jerr Aaldin to let him test an espresso bar$ +fterAaldin relented& Starbucks' si"th store& hich opened in +pril 19=7& became the first one designed to sellbe/erages and the first one in donton Seattle$ Schult4 asked for a 1&-..0suare0foot space to set up afull0scale Italian0stle espresso bar& but Jerr agreed to allocating onl #.. suare feet in a corner of thene store$ *here as no pre0opening marketing blit4 and no sign announcing Fo Ser/ing !spresso>the lack of fanfare as part of a deliberate e"periment to see hat ould happen$ A closing time on thefirst da& some 7.. customers had been ser/ed& ell abo/e the 2-.0customer a/erage of Starbucks' best0performing stores$ %ithin to months the store as ser/ing =.. customers per da$ *he to baristascould not keep up ith orders during the earl morning hours& resulting in lines outside the door onto thesidealk$ 8ost of the business as at the espresso counter3 sales at the regular retail counter ere onladeuate$

Schult4 as elated b the test results3 his /isits to the store indicated that it as becoming a gatheringplace and that customers ere pleased ith the be/erages being ser/ed$ Schult4 e"pected that Aaldin'sdoubts about entering the be/erage side of the business ould be dispelled and that he ould gainappro/al to take Starbucks to a ne le/el$ !/er da he ent into Aaldin's office to sho him the salesfigures and customer counts at the ne donton store$ Aut Aaldin as not comfortable ith thesuccess of the ne store3 he belie/ed that espresso drinks ere a distraction from the core business ofselling fine arabica coffees at retail and rebelled at the thought that people ould see Starbucks as aplace to get a uick cup of coffee to go$ De adamantl told Schult4& %e're coffee roasters$ I don't ant tobe in the restaurant business $ $ $ Aesides& e're too deepl in debt to consider pursuing this idea$@ %hilehe didn't den that the e"periment as succeeding& he didn't ant to go forard ith introducingbe/erages in other Starbucks stores$ Schult4's efforts to persuade Aaldin to change his mind continuedto meet strong resistance& although to a/oid a total impasse Aaldin finall did agree to let Schult4 putespresso machines in the back of to other Starbucks stores$

O/er the ne"t se/eral months& Schult4>at the age of ##>made up his mind to lea/e Starbucks and starthis on compan$ Dis plan as to open espresso bars in high0traffic donton locations that ouldemulate the friendl& energetic atmosphere he had encountered in Italian espresso bars$ Schult4 hadbecome friends ith a corporate laer& Scott


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e/erthing about the ne stores>the name& the presentation& the care taken in preparing the coffee>as calculated to lead customers to e"pect something better than competitors offered$ Aoker proposedthat the ne compan be named Il there ere no chairs$ Fational and international papers hung from rods on the all$ A closing timeon the first da& #.. customers had been ser/ed& mostl in the morning hours$ Schult4 and Olsen orkedhard to make sure that all the details ere e"ecuted perfectl$ or the first fe eeks& Olsen orked

behind the counter during the morning rush$

Aut hile the core idea orked ell& it soon became apparent that se/eral aspects of Il


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Si" months after opening the first store& Il


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employees. The turnover rate of employees at Starbucks was '() and the rate of managers was

*() a year +owever, the rates of other national chain retailers are (#) to "##) and (#)

respectively. ompared with them, the turnover rate of Starbucks is much lower than otherindustries on averagely. $ichelli, *##' %s a result, Starbucks would be one of the optimal

business models for the strategies of employee motivation, customer satisfaction and cooperation

of teamwork.

!n the first stage, the historical background of Starbucks will be introduced. Secondly, an issueabout the methods of motivating employees are going to discuss. /e0t, the strategies, which are

used by Starbucks to make their teamwork performance well, will be pointer out. !n the end,

there is a conclusion about the effect of policies in motivation and teamwork.

*. The history of Starbucks

Starbucks began by three friends, 1erry Baldwin, 2ev Siegl, and 3ordon Bowker, who knew each

other in the 4niversity of Seattle. !n 56, the first name of their store is 7Starbucks offee, Tea,

and Spice8 in Seattle, 9ashington&s :ike :lace $arket. They engaged in making profit fromselling coffee beans roasted to individual customers and restaurants. 4ntil 5;*, they had

increased the number of stores to four. had been one

part of people&s daliy life. There were numerous coffee bars around the area and the publicusually liked to socialize in a coffee bar. 4nder those circumstances, Schultz had an idea of anew flavor of caf> and a stylish environment to communicating with friends.

%fter the trip, he prepared the business plan for his vision. +owever, the three initiators did not

want to transfer their business into restaurant industry. onsequently, in 5;( he chose toestablish a new coffee shop, named !! 3iornale, in Seattle. %fter the ne0t two years, due to the

successful strategy of Schultz, the original three owners of Starbucks decided to sell their

corporation to Schultz. Then Schultz gathered other investors and took over the name of !!3iornale to Starbucks. +e sought to pursue his dream to make everyone taste his coffee, so he

focused on the rate of e0panding. %t that time, he though that the most efficient way to grow the

amount of branches is to set up new stores in other places. !n !5;6, Starbucks had the first

overseas store in 1apan.

!n the subsequent years, owing to the rising e0penses with the worldwide broadening, there was

a deficit in Starbucks for the ne0t three years. !n contrast, he firmly believed that not to 7sacrifice

long-term integrity and values for short-term profit8 $ichelli, *##'. !n 55, it turned loss intogain and its sales grew up sharply to ;" percent. 4ntil the end of *##*, Starbucks has developed

from 6 stores to (,';; spreading over ?# countries in by this strategy, it is an over ?## times

growing in these ten years@ shown as A0hibit rom ortune magazine, Starbucks was ranked


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the th best company to work for in *##( in the 4S% and then risen up in *##' to *5th. %s to

*##6, it was ranked as the 'th best. !n the same year, Starbucks was also voted as one of the top

ten 4C workplaces by the inancial Times. DesourceE wikipedia

A0hibit E ST%DB4CS STFDA GF%T!F/S

Source E Starbucks orporation

?. $otivation

$otivation is a vital factor for business in the process of making their production. Gabours are

not working machine, so that they can not always do the same affairs with equal passion.%ccordingly, the efficient method to make staffs keen on their Hobs should be to motivate them. !t

might even gain a better yield than purchasing plenty of equipments and facilities.

+owever, to be contrary to the classical management approaches, some reports had proposed that

the ways to motivate employees are not only money. Cohn 55? showed a survey that if a

reward frame only offers physical rewards, the produce from workers might decline, especiallyin the creativity industries. 9hat is more, other factors are essential as well, such as working

environment or relationship between employees and managers. /icholson 55; reported that7workers had strong social needs which they tried to satisfy through membership of informal

social groups at work place8. Besides, 7the importance of informal social factors in the work

place such as co-worker relationships and group norms that influence employee motivation and performance is highlighted8 $acky I 1ohnson, *##?

% pervious researcher, :ugh I +ickson 5;5 cited Alton $ayo 5?? made an investigation

called J+awthorne A0periment&. %ccording to the results, if managers provided a suitable

working environment considering each personal requirement and their sense of satisfaction

rather than a higher salary or bonus, workers were encouraged to be more hard-working andefficient. +e also verified that if managers of an organisation do not consider about individual

works& needs and wants, then treat them as equal units would 7ma0imise payment and minimiseeffort8. %s a result, how to use non-financial incentives would be an important issue for

nowadays business.

The chief e0ecutive officer of Starbucks corporation, +oward Schultz, considers that the tip of

success in Starbucks is not coffee but employees. onstantly accumulating the workinge0perience of employees and providing chances of promotion in a company for working partners

is the way to operate sustainability. +e firmly believes that the spirit of Starbucks is employees

and feels honored about the value of Starbucks employees. or this reason, it is necessary to have

a perfect education and training policy for better performance in a company $ichelli, *##'.Starbucks offers an interactive structure that makes personnel instill themselves into their HobK

hence they can motivate partners to satisfy themselves then achieving a new level of

performance.

?. Aqual treatment


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The managers in Starbucks treat each workpeople equally and all of the staffs are called

Jpartners&, even the supervisors of each branch are called it as well. !n order to narrow the gap

between managers and employees, they also co-work with the basic level staffs in the front line.


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". The strategies to keep well relationship

Starbucks establishes a well-developed system to keep good relationship between mangers and

employees. %t first, the leaders of a retail shops use the same title 7partner8 as a basic levelworker to narrow the gap of bureaucracy. urthermore, they co-work in the first line to eliminate

the distance between different statuses. Secondly, the numbers of employees are usually fromthree to si0. Such a small size of a retail shop makes staffs acquaint with each other easily and

deeply. !n the co-working period, this helps a team to match different personalities and maHorsquickly to achieve well performance. /e0t, the suggestions and complaints provided by

employees are treated of equal importance. !n the same way, they have a right to participate in

the process of revising company policies as well as a manager. !n that case, each staff thinks thatthey also play an important role in company operating, and they can Hoin to work out a direction

of Starbucks. These give employees not only a respect, but a sense of participation.

".* % goal of public welfare

Starbucks has endeavored to create 7third place8 outside from home or office for people to takea rest resourceE wikipedia. They want to provide such a comfortable environment to increase

the harmoniousness of the society. %part from this, Starbucks contributes part of its profits to

public serviceK on the other hand, it also set a goal to improve and donate to the society. %s a

consequence, the aim makes all staffs have an idea that what they do for Starbucks is for thesociety as well. %s the goal theory, Starbucks set a challenging and specific goal, and it permits

all partners to decide the direction. %fterward, employees embrace to do what they chose and

they get some feedbacks form the goal. The concept causes an increase of the power ofagglomerate and enthusiasm in relation with a positive effect to the profit of Starbucks.

(. onclusion

Starbucks changes the behaviours and view points of global consumers to coffee, and this

successful e0ample has caught global attention. /evertheless, it was also a small retail coffeeshop in /orth %merican initially. /owadays, it is not only one of the fastest growing corporation,

but also an outstanding business model with lower employee turnover rate and higher profit

performance. %ccording to the case of Starbucks, it shows that motivation is the key factor of a

company policyK in other words, opposite to the principles of classical management which onlyconcerns about produce but ignore workers& ideas. !n recent successful businesses, the

appropriate management for labours should include financial and emotional rewards. Besides,

motivation and personal satisfaction should be put into first rank. % good relationship betweenmanagers and employees could maintain a high quality of performance. 1ust like Starbucks, to

use the correct strategy would lead to a successful path.

Documents

Starbucks Becomes a Public Company