Economy's A Bitter Brew For Starbucks

He's the king of coffee, who oversees more than 16,000 Starbucks worldwide, and for putting lingo like "can I have a doppio espresso macchiato" into everyday lexicon.

"Why do you have to do that? Why can't you say small, medium and large like normal people?" CBS News anchor Katie Couric asked Howard Schultz, CEO of Starbucks.

"It's just what happened. I went to Italy and saw these names and it just made sense," he said. "And now people tell me there are over 70,000 different ways that our customers can, and do, order a Starbucks coffee."

It's all, Schultz says, part of the Starbucks experience.

But today, this Wall Street star, now seen as an everyday symbol of "Grande Indulgence" is struggling. In June, the company announced that it would close 600 underperforming stores in the United States and cut more than 1,000 jobs.


Couric: Did you grow too big, too fast, do you think?

Schultz: Well, I think in hindsight, if we knew what was going to happen with the economy, one can conclude yes.

Couric: Did you have a business plan for a severe recession? And if not, why?

Schultz: I ... don't think we had a business plan for the severity of what has taken place. History demonstrated to us that a downturn in the economy would not affect us, and in fact, we would be recession-proof.

But Schultz has learned the hard way and now it's recession that for some, has made justifying a Starbucks run hard to swallow. In New York City, a Venti latte at $4.39 a day adds up to more than $1,500 a year.

Schultz: We have seen people who perhaps are making a discretionary decision, either in the afternoon, or perhaps not to come in today because they don't have the money.

Dunkin Donuts is providing some strong competition. It was once thought of as a northeast brand but it's now expanding to states like Nevada and Texas. It's trying to be the cup of joe for the average Joe by mocking the Starbucks approach.

Couric: Will you bring your prices down, when somebody says, "I can't afford a Venti latte?"

Schultz: We're selling more than just a cup of coffee.

While Schultz says he will be offering discount cards and less pricey coffee - he refuses to cut corners. In fact, he regrets some past moves like buying more-efficient espresso machines and replacing couches with tables and chairs to accommodate more customers.

Schultz: Those changes should not have been made. But there was so much pressure on our stores because so many customers were coming through and people were complaining about the speed of service.

He believe he can save the company more than $400 million like cutting transportation costs and reducing waste. But he says his loyal customers who come in for much more than coffee won't even notice.

Schultz: Post-9/11 we saw an immediate uptick in the amount of people in our stores. People wanted that human connection and the sense of community. We are not going to do anything that will fracture the Starbucks experience.

Nor will he stop providing health insurance for all his employees, even part timers. It's something he strongly believes in after watching his father, a delivery driver in Brooklyn, suffer without health insurance. He calls it "responsible capitalism."

Can Starbucks keep its mission statement in this economy? Schultz says he's optimistic. But he's also realistic and offers would-be entrepreneurs this piece of advice.


Schultz: Great opportunities can be and have been created during tough economic times. And, this may sound a bit naïve but I got here, personally, by believing in big dreams. And I think if you're an entrepreneur, you've got to dream big - and then dream bigger.

And speaking of responsible capitalism, philanthropy is an important part of the Starbucks brand. In October, 10,000 managers travelled to New Orleans and put in 60,000 hours of community service. The company is helping farmers in Costa Rica, Ethiopia, and Rwanda. And they're donating millions of dollars to AIDS victims in Africa.
  • Katie Couric

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