Innovation Helps Starbucks To Turn Around Sales

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Now we're going to hear about a company that has recovered from tough times. Starbucks became a household name in the 1990s. Its CEO, Howard Schultz, became a billionaire. And in 2000, when Schultz stepped down, Starbucks was on a caffeine-fueled high. But just eight years later, amid a global financial crisis and some self-inflicted wounds, everything had changed. Starbucks was faltering, which prompted its founding CEO to take back the job.

Howard Schultz has been back in the CEO seat - one might call it the hot seat - for more than two years, and things are looking a lot better.

NPR's Wendy Kaufman paid him a visit.

WENDY KAUFMAN: Sitting in his comfortable office, Howard Schultz looks relaxed and - dare we say - happy. We began by asking if the past two years, trying to get Starbucks back on track, were more difficult than he thought they would be.

Mr. HOWARD SCHULTZ (CEO, Starbucks): I think this was a very difficult climb. However, I never doubted that we would get back to where we once were.

KAUFMAN: With strong and growing sales and a rising stock price, Shultz says his work since returning as CEO has been the most gratifying in all his years at the company. Why? Because by early 2008, some on Wall Street and in the media were saying Starbucks' heyday was over.

Mr. SCHULTZ: Some of the headlines were just brutal. Many people thought that, you know, this was against all odds. And I think what's gratifying is that we were determined not to allow the outside world define the company's future.

KAUFMAN: Schultz went to work - restructuring. Among other things, he closed down about 800 underperforming stores and stopped building new ones - an acknowledgment the company had expanded too quickly.

Ms. SHARON ZACKFIA: I think there were definitely tough decisions that had to be made.

KAUFMAN: Sharon Zackfia is an analyst at William Blair and Company. She says only Howard Schultz had the gravitas to do what he did.

Ms. ZACKFIA: I think you have to credit Howard with making changes very, very quickly. I really can't think of another company that reacted as quickly as Starbucks did.

KAUFMAN: But the CEO was judicious. For example, he did not slash employee benefits, as some on Wall Street urged him to do; and he kept the innovation pipeline flowing. Customizable frappuccinos, and the marketing blitz surrounding them, translated to higher in-store sales and more bottles sold in grocery stores and places like Target. The company also introduced a brand-new product called Via.

Mr. DOUG LANGWORTHY: All right. So, what we're doing right now is, we're brewing up some Colombia.

KAUFMAN: Starbuckss Doug Langworthy is a coffee quality expert.

Mr. LANGWORTHY: And it's - of course - real easy, I'm just emptying out the packet. I'm going to get some hot water.

KAUFMAN: And voila, instant Starbucks coffee. Howard Shultz says people initially thought launching Via was an act of desperation.

Mr. SCHULTZ: But it wasnt a desperate move. It was really finding a -opportunity that we could create, and bring something to the market that our customers would embrace. We have created a business that will exceed $100 million in its first year. That category of instant coffee has not had any innovation over 50 years, and we're going to build a major business.

KAUFMAN: Bob Goldin, with the food industry consulting firm Technomic, says the diversification was a smart move.

Mr. BOB GOLDIN (Technomic): Its a whole 'nother revenue stream and profit stream. And they see this as being a platform for - I believe they've talked about it being a billion-dollar business. That may be over-optimistic, but it's certainly something they have very high hopes for.

KAUFMAN: Still another push by the company was getting its lower-priced Seattle's Best Coffee into new outlets - like Subway, Burger King and convenience stores. Schultz believes this, too, will become a billion-dollar business.

Starbucks has enjoyed several recent quarters of improved financial performance. And same-store sales - a key measure for retailers - were up this spring, though the overall numbers were not as good as some on Wall Street expected.

But Howard Schultz is looking ahead. He says the company will return to growth, with a big push into Asia and new consumer products.

Mr. SCHULTZ: Its a good time for us. Weve worked really hard. I think we deserve to celebrate a little bit, but weve got much more work to do.

KAUFMAN: So not too much champagne. Just coffee - at least, for now.

Wendy Kaufman, NPR News.

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