The secret of Starbucks’ success

Unlike corporate honchos who ignore customer care (see Feb. 2 and 9, 2023 columns), there exists a leader who believes in accountability: Starbucks CEO Howard Schultz.

After taking Starbucks public in 1992 and stepping down as CEO in 2000, Schultz famously did a Steve Jobs. He went back in 2008 to turn the company around. He stepped down again in 2017, only to come back last year as interim CEO until another takes charge this April.

When Schultz returned in 2008, “things were actually worse than I’d thought,” he told Harvard Business Review’s Adi Ignatius in 2010. “[Our] decisions … were very difficult, but first … we stood up in front of the entire company as leaders and made … a confession—that the leadership had failed the 180,000 Starbucks people and their families. “And even though I wasn’t the CEO, I had been around as chairman,” he continued. “I should have known more. I am responsible … We owned the mistakes … Once we did, it was a powerful turning point.”

In 2008, the global financial crisis, plus heightened pressure from competitors, made social media turn against Starbucks, questioning its brand equity, environment stewardship, customer loyalty. Unlike leaders who bury their head in the sand against bad customer reviews, Schultz “saved every analyst’s report and major story” amid “unbelievable pressure from multiple constituents,” even if these reviews hurt him personally.

“Starbucks’ days are numbered,” said some, while others ranted, “How could the board bring back Schultz, who is responsible for all this?”

The market clamored for Schultz to franchise Starbucks and shutter company-owned branches, for the resulting “war chest” would increase returns. “But it would have fractured the company culture,” Schultz said. “Someone told me, ‘You are roasting 400 million pounds of coffee a year. If you reduce the quality 5 percent, no one would know. That’s a few hundred million dollars!’ We would never do that.”

Instead, against the advice of naysayers, Schultz reinvested in their people and their values. He temporarily shut stores for certain hours for intensive staff retraining. To foster community, he took employees to New Orleans to help residents rebuild their homes following a natural disaster. Schultz cut millions in costs, “from supply chain to waste reduction and rightsizing [the] support structure.” But unlike other companies that give poor customer care in exchange for low prices (the delivery company I described in past columns is reportedly the cheapest), for Starbucks, their commitment to the customer is paramount.

“Ninety-nine percent [of the cost-cutting] was not consumer-facing,” said Schultz, and soon “customer satisfaction scores … rose to unprecedented levels.”

As for shareholder value, Schultz believes that it cannot be sustained unless employees and consumers are happy. Starbucks was not built through pricey marketing campaigns, but through “experience that … can come to life only if people … respect and trust [us].”

Unlike company heads who ignore extremely negative online customer reviews, Schultz did the opposite. After being bashed by social media, Starbucks created a website to directly seek ideas from customers.

“There was great resistance inside to allowing the outside world to tell us what we are doing wrong. But the openness led to a different mentality … We … listened to people, and as a result started creating a new methodology, a new language and new tools … to become best of class. We’re the number one brand on Facebook.”

“We live in a sea of mediocrity in all walks of life,” Schultz said. “We also live amid a fracturing of civility … As consumers, we’re getting people who don’t want to reach into our hearts … [but rather into] our wallets. [Our] brand is defined by the quality of the coffee but also by the relationship that the barista has with the customer and whether or not the customer feels valued, appreciated and respected … [That is] the only way we can succeed.”

Queena N. Lee-Chua is with the board of directors of Ateneo’s Family Business Center. Ger her bood “All in the Family Business” at Lazada or Shopee, or the ebook at Amazon, Google Play, Apple iBooks. Contact the author at [email protected]