NEW YORK, Dec. 8, 2008
Economy's A Bitter Brew For Starbucks
CBS Evening News Exclusively Interviews "The King Of Coffee," Starbucks CEO Howard Schultz
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Play CBS Video Video Eye To Eye: Coffee Talk Katie Couric speaks with Starbucks CEO Howard Schultz about the failing economy's effect on his company after seeing sales drop 9% since the end of September.
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Video Trouble Brewing At Starbucks Once considered recession proof, Starbucks sales have dropped 9 percent since the end of September, the company's worst decline in 37 years. Katie Couric sat down with Starbucks CEO, Howard Schultz.
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Katie Couric speaks exclusively with Starbucks CEO Howard Schultz. (CBS)
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A Starbucks customer drinks coffee in Palo Alto, Calif., Tuesday, Feb. 26, 2008. (AP Photo/Paul Sakuma)
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Section Weathering The Downturn In this economy, it's smart to save. CBS News shows you how.
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Timeline Financial Meltdown Track major events that lead to one of the most tumultuous times in Wall Street's history.
"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.
© MMVIII, CBS Interactive Inc. All Rights Reserved.
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- p.s. if the music''s too loud, you''re too old.
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- Based on what I''ve read below, I have these thoughts: The funny thing is many of the beans from McDonalds comes from Starbucks farms. If your coffee taste burnt, you have a crummy barista and should complain. If you read the interview, you''re not paying $4 for a cup of coffee. You''re paying for an experiance. $.99 coffee is the price for drive thru coffee. I''m sure Howards feelings won''t be hurt either way. Also, the reason they don''t have free internet anymore is because people would pour into the stores without buying anything and take up the seats for up to 7 or 8 hours. 2 hours of free internet is plenty for buying a drink you''ll finish in 10 minutes. Do your college essay at home.
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- And yes, by and large the Starbuck''s coffees are over-roasted and over-toasted. They taste like Bardahl oil mixed with grease off the tarmacs at Boeing Field, delicately scented with runoff from Weyerhauser mills and the sludge from creeks near now over-populated hillocks and dales of the once-beautiful Seattle area. Like, totally.
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- This is very interesting, and almost devastating news to me. I am a committed Starbucks lover. Starbucks is like the Disneyland of coffee. I worked at a SB all through college and have drank my beverage of choice ever since. I even include SB into my monthly budget, ridiculous or not, it''s a company I believe in! People who speak negatively of the company are simply ignorant of good coffee. Fight on, Howard!
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- There isn''''t a cup of coffee in this world WORTH $4.39.
@anitamoore: I wouldn''t call a bucket full of pumkin-pie-flavored Cool Whip "coffee". - Reply to this comment
- I''m all thrilled for Starbucks, but I do not understand buying coffee out. Don''t get me wrong, I guess people with money to throw away can afford to do that. I''ll brew my coffee at home and if I need to take it somewhere I''ll put it in a mug. I can spent $9 on a container that will last me three weeks. If I bought coffee out every day at $2, that''s $60 a month; that''s pretty stupid!
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- There isn''t a cup of coffee in this world WORTH $4.39. We have Starbucks here where I live but I simply cannot bring myself to pay what they want for a friggin cup of coffee. "You are paying for the experience."...yeah right! What experience? You stand in line, pay way too much for a cup of coffee....and they write your name on your cup....Wooo Hoo!!!! No thanks, I''ll brew my own at home.
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- Couric''s story failed to mention one of the most significant changes SBUX is making to its operations: cutting labor. As a barista I''ve gotten my hours cut down to 12 hrs. a week, though we need 20 to maintain benefits eligibility. My co-worker provides health insurance for her entire family, but is only scheduled FOUR HOURS next week.
Beyond our own concerns about health insurance, the customers will be the ones losing out. We are instructed to improve speed of service, increase beverage quality, maintain beverage standards and temperature, maintain store cleanliness, sample food and beverage multiple times a day, give each customer a welcoming and personal experience... do all of this and MUCH MORE with 2 or 3 people on the floor??
Both our customers and our partners lose out when corporate tries to cut costs by decimating our labor hours. Lines will get longer, people will leave or not come in at all, and our sales will drop even more dramatically. The $200 million Uncle Howie plans to cut from expenses is coming at a cost. He better be careful because the sacred "Starbucks Experience" is heading right down the tubes. - Reply to this comment
- I never had a Starbucks coffee. However, I heard that people were stopping off regularly to pay $4, $6, more? for a cup of coffee. They couldn''t have been the same people complaining of a gallon of gasoline at $4 a gallon could they? Why on earth would anyone pay $6 for a cup of coffee at Starbucks when McDonald''s coffee is great at 99 cents a cup? Why wouldn''t Starbucks be having difficulty in a recession?
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- His ''dream'' business model is starting to collapse,
and why shouldn''t it ? It was only a matter of time. - Reply to this comment
- I think I have had two cups of Starbucks coffee. They were both the worst tasting swill for coffee I have EVER had. The coffee tasted bitter and BURNT, really burnt. I didn''t finish either cup. It''s no wonder their customers always ask for the more expensive "flavors". They need all that other cr@p in there to hide the taste of their burnt coffee.
I grew up drinking Lousiana coffee with chickory, cooked in a perculator on a gas stove and have never tasted coffee worse than Starbucks. Starbucks only claim to good taste can be their marketing department. - Reply to this comment
- Starbucks is not good coffee. But it is an excellent vehicle to deliver a huge dose of caffeine. Look at the top coffee sellers -- Dunkin Donuts, Starbucks, McDonalds. They also have some of the highest caffeine levels. They''re just pushing a legal drug.
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- Reading some of these comments confirms my worst fears. Americans are so acclimated to cheap food that the good stuff tastes bad to them. Quantity over quality. And we wonder why we don''t have much culture here. Heck, a fella can''t even get a good cup of coffee!
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- starbucks coffee, unless it is sugared or covered with whipped cream, tastes bitter and burnt. for the price one pays, it is not worth it. mcdonald''s premium coffee is much better than starbucks. will give starbucks good ratings on their pastries but their coffee is starsucks.
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- The reason Starbucks coffee sucks so bad is because of their beans. The optimum freshness window on roasted beans is less than a week for peak flavor. Not only do they burn their beans, but Starbucks does mass roasting in only a few cities so by the time the beans travel and end up in your cup they''re rancid.
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- King Of Coffee? Dunkin Donuts sells more coffee than Starbucks. Why is CBS handing out fake titles?
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- A few things to comment on. First, is there such a thing as responsible capitalism? Health care benefits should be given to citizens by our nation, but thanks shultz. Do people really save money with those savings cards seeing as they have to pay $25 to activate the card, which is good for a year. Some consumers are saving the majority NOT! It''s not practical. Oh, how about providing your consumers with free internet instead of limiting it to two hours per purchase, its a thought. Oh yeah, how much money did Shultz spend on retraining all of the workers on that infamous Tuesday or was it free publicity to false advertise to the consumers that they are purchasing a "new and improved worthy cup of coffee." Think about this, there is a limit to the empire of coffee you can''t build excessive coffee shops our you will crumble like Rome. Is it quality or quantity that you seek or is greed. Lastly, to who ever remarked on not going to starbucks due to the noise and teens thank god you are staying home and we don''t have deal with your complains it is appreciated. Shultz thanks for the HUMANITY OF COFFEE!
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- A few things to comment on. First, is there such a thing as responsible capitalism? Health care benefits should be given to citizens by our nation, but thanks shultz. Do people really save money with those savings cards seeing as they have to pay $25 to activate the card, which is good for a year. Some consumers are saving the majority NOT! It''s not practical. Oh, how about providing your consumers with free internet instead of limiting it to two hours per purchase, its a thought. Oh yeah, how much money did Shultz spend on retraining all of the workers on that infamous Tuesday or was it free publicity to false advertise to the consumers that they are purchasing a "new and improved worthy cup of coffee." Think about this, there is a limit to the empire of coffee you can''t build excessive coffee shops our you will crumble like Rome. Is it quality or quantity that you seek or is greed. Lastly, to who ever remarked on not going to starbucks due to the noise and teens thank god you are staying home and we don''t have deal with your complains it is appreciated. Shultz thanks for the HUMANITY OF COFFEE!
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- coffeeinsidr, I guess I am not understanding your post to me. Would you be so kind as to elaborate.
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- The King of Coffee is talking thru his bum hole. The quality of the products has gone way down. The baked goods are stale, the drinks are put together sloppy, not something that goes unnoticed. SB''s, just like many a company that caters to the masses, has gotten quick-and-dirty in it''s product/service. That''s why SB''s been losing market share, long before this downturn in the economy. And Mr Coffee King, no, it ain''t Dunkin Donuts to blame, that''s a totally different experience and a totally different clientele, especially considering the price difference. SB''s is supposed to be a gourmet burger to Dunkin Donuts "Big Mac"
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