Howard Schultz: chief executive of Starbucks

Howard Schultz: chief executive of Starbucks

Noelle McElhatton at interviews  Starbucks chief executive Howard Schultz on marketing in London.

Howard Schultz is the man who took a three-store coffee-shop chain in a provincial US city and turned it into a global phenomenon. Marketing has never been very high on the agenda for the Starbucks presid­ent, chief exec­utive and chairman, but this is all about to change as the brand gears up to fight growing competition.

Schultz was in London as part of a European tour to promote his comp­any’s support for African Aids relief through its pre-pay RED card. Speak­ing to a standing-room-only crowd at the Marketing Society, he took the opportunity to celebrate its results for the past three months: it has posted a 4% growth in total sales and a 200% rise in profits, to $353m.

The figures mark one of the great business turnarounds of the past dec­ade, which was catalysed by Schultz’s decision in 2008 to resume the roles of chief executive and president, relinqu­ished by him in 2005.

The 56-year-old was polite and eng­aging, showing none of the swagger one might expect from a success­ful US business leader. He sounded almost proud when admitting that he had no relevant qualifications when he took over marketing at Starbucks in 1982.

His assertion that the coffee chain’s brand ‘has not been defined by trad­itional advertising or marketing, but, quintessentially, by experience’ could have disappointed his audience, had it not been balanced with an acknow­ledge­ment that Starbucks now needs to bolster its activity in these areas.

The brand is a relative latecomer to TV advertising – the first UK campaign debuted only last year. Press ads push­ing its reward card are currently run­ning in UK national papers, using a pun on the phrase ‘daily grind’. Star­bucks’ avowed aim now is to become a leader in the digital space, taking advantage of its 5.1m followers on Facebook.

Schultz on marketing

Were you consciously trying to build a brand when you bought Starbucks?
I have no business degree and hadn’t taken a marketing course in my life before joining Starbucks, so the word ‘brand’ would not have been part of my vocabulary.

We raised $3.8m to acquire Star­bucks in August 1987. [Back then] it was 100 people in 11 stores. The aim wasn’t to build a brand, but to build a different kind of company.

Even then it was a different kind of business model – to achieve a balance between responsibility and social conscience. The first thing we did in 1988 was to provide health insurance for every employee and equity in the form of stock options.

The feeling was that we couldn’t build an enduring ‘brand’ so to speak – that wasn’t a word we used then – by exceeding the experience of our customers, without exceeding the expectations of our people first.

How has Starbucks fared in the recession?
Unfortunately we seem to have been a leading indicator of the recession. Our business really suffered very early on [in terms of] compression of traffic and average takings. I made some comments on a tele­vision show a year ago, which Lord Mandelson didn’t appreciate [they evinced a four-letter word response from the UK business secretary], about European economies and specifically the United Kingdom. However, I was refer­ring to Western Europe. Spain and Greece are in deep trouble.

The UK has been incredibly resilient – much more so than I thought – but I don’t think we should be misled by the UK’s growth of 0.1% [in the past quart­er] and I don’t think we should be mis­led in the US. We’re far off from being out of the woods yet. Unemployment in the US is 10.5% and it’s going to get higher before it gets lower. We’ve had some good results but we’re not taking that for granted.

How do you use marketing as a way of dealing with competitors McDonald’s and Dunkin’ Donuts?
We created an industry that did not exist. For 15 years as a public company, we pretty much did not have a comp­etitor. Now, all of sudden, we have a plethora of companies trying to steal market share, small and large. One of the things that would be very danger­ous for us would be to allow any comp­any outside of ourselves to define who we are. So I think we have to be more market­ing-driven and invest in ad­ver­tising for the first time. In the first 30 years of our company, we spent more money on training than marketing.

Which one channel will take precedence?
I think social media is a natural exten­sion of our brand because we want to do things that are unexpected, and to speak to all sorts of people who are engaged in social media. It’s tough to measure but there is an incremental benefit to sales.

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