[News Inside] From Brooklyn Slums to Ruling the World with Coffee

Howard Schultz, Honorary Chairman of Starbucks

▲Howard Schultz

[Asia Economy Reporter Kwon Jaehee] Despite the impact of COVID-19, there was a company whose sales actually increased. This is the story of 'Starbucks,' the company that has dominated the world with just one cup of coffee.

Although lockdowns were imposed worldwide and Starbucks could not avoid the impact, Starbucks achieved sales of 28 trillion won globally last year alone. The secret lies in Starbucks adopting the app service introduced by Starbucks Korea in 2015 at its headquarters and expanding it as a global standard. Features like 'Order & Pay' (Korea’s Siren Order), which allows ordering regardless of location, and beverage recommendations tailored to customer preferences using machine learning projects, brought Silicon Valley talent onboard to expand the concept of 'space'?which Starbucks valued highly?into the untact era.

Starbucks’ transformation did not stop there. As ESG (Environmental, Social, and Governance) investing, which focuses on investing in socially responsible companies, became a global trend, Starbucks’ brand has evolved day by day to fit the times and circumstances, including plans to eliminate disposable cups by 2025.

To talk about Starbucks’ DNA, one cannot leave out Howard Schultz, Honorary Chairman (former Chairman), who made today’s Starbucks possible.

Schultz, who grew up in a poor neighborhood in Brooklyn, New York, is one of the most notable self-made success stories in the land of opportunity, the United States. Living in a basement studio, he experienced misfortune when his truck driver father had an accident without medical insurance when Schultz was seven years old. After that, his family’s financial situation deteriorated rapidly, and he had a difficult childhood.

▲Howard Schultz [Image source=AP Yonhap News]

However, Schultz, who excelled in American football, received a sports scholarship and was able to attend Northern Michigan University to continue his studies. In 1975, he joined Xerox as a sales representative and honed his business skills. Three years later, he moved to the Swedish company Hammerplast, where he quickly rose to sales manager and vice president. But his real achievement at Hammerplast was encountering Starbucks for the first time.

At that time, Starbucks was just a coffee shop that had recently started in Seattle. Starbucks, founded by Zev Siegl, Jerry Baldwin, and Gordon Bowker, purchased coffee machines from Hammerplast, which led to Schultz’s first meeting with Starbucks. Hammerplast’s main product was drip coffee makers, and Schultz noticed that a small coffee shop in Seattle had ordered this machine. Schultz then visited Seattle and formed a connection with Starbucks. He later recalled, “I was impressed by the coffee taste, which was on a different level from any coffee I had tasted before.”

One year later, at the age of 29, Schultz moved to Starbucks as head of distribution and marketing. While working at Starbucks, Schultz attended an international consumer goods expo held in Milan, Italy, which became another turning point in his life. There, he realized that coffee was not just a beverage but an important medium that connects people. At that time, Italy had coffee spaces on every street, not just selling coffee beans but providing places where anyone could rest or gather. Schultz was deeply impressed by this 'cafe' culture.

[Image source=AP Yonhap News]

After returning from the trip, Schultz persuaded Starbucks CEO Baldwin that Starbucks should evolve from just selling coffee beans to selling both coffee and space. However, the three Starbucks co-founders were not enthusiastic about Schultz’s idea, and in 1985, Schultz resigned from Starbucks and established his own coffee brand, 'Il Giornale,' focusing on the Italian coffee experience. Interestingly, before starting his own brand, he sought advice from 242 acquaintances and industry experts, of whom 217 opposed the idea. Nevertheless, with strong conviction, he pushed forward with the business at the age of 34.

Afterward, the three Starbucks founders decided to focus on their original goal of selling better quality coffee beans and left Seattle to concentrate on 'Peet’s Coffee & Tea,' a business passed down from their mentor Alfred Peet, a legendary American coffee expert. They sold Starbucks to Schultz for $3.8 million. At that time, Starbucks was a small business with only six stores.

After acquiring Starbucks, Schultz led the company to great success amid a global wave of coffee franchises. Upon acquisition, he converted all six Il Giornale stores he owned into Starbucks stores and transformed them into spaces where customers could enjoy coffee, expanding not only in Seattle but across the United States. At the same time, he ensured high coffee quality was maintained at all stores nationwide. Schultz’s belief was firm: while selling space was important, the essence of coffee must never be forgotten. Thanks to Schultz’s conviction and aggressive store expansion, Starbucks became a publicly traded company in 1992.

[Image source=Reuters Yonhap News]

Having established Starbucks’ position, Schultz stepped down as chairman in 2000 after six years but returned to the management stage in 2008 after eight years when new coffee franchises like Blue Bottle threatened Starbucks’ status during a period of complacency. As CEO from 2008 to 2010, Schultz led Starbucks’ golden era, tripling net profits from $315 million in 2008 to $945 million in 2010.

Starbucks’ success as a global company was not only due to its strategy of selling 'experience' and 'space' to customers but also because it increased employee loyalty, which contributed to enhancing the Starbucks brand value.

During his tenure as CEO, he referred to employees as 'partners,' instilling the perception that they were equal colleagues working together. He also provided scholarships covering four years of college tuition for all U.S. employees. Remembering his own childhood struggles due to lack of medical insurance, he extended medical insurance benefits to all employees, including contract workers.

In July 2016, Schultz made a groundbreaking decision to raise wages by 5-15% for all 150,000 Starbucks employees in the U.S. Since then, Starbucks has employed veterans, single mothers, and young people aged 16 to 24, and has been a leading company pushing for bold wage increases ahead of minimum wage discussions.

Starbucks’ challenges and changes continue to this day. Perhaps it is because Schultz’s deeply rooted DNA remains embedded in Starbucks even after he stepped down.

"If you are an entrepreneur, you must dream big, and then dream even bigger." ? Howard Schultz