CASE STUDY 1

HOWARD SCHULTZ: STARBUCKS

1. Biography
Howard D. Schultz was born in Brooklyn, New York, on July 19, 1953, and
moved with his family to the Bayview Housing projects in Canarsie, a neighborhood in
southeastern Brooklyn, when he was 3 years old. Schultz was a natural athlete, leading
the basketball courts around his home and the football field at school. With little money,
both parents worked long hours to support the family. To escape being "poor" young
Howard turned to sports and played football, baseball, and basketball. He did so well in
high school that he was awarded an athletic scholarship to Northern Michigan
University. He made his escape from Canarsie with a football scholarship to Northern
Michigan University in 1970. When he left New York to go to college, Shultz's father was
a broken man. He had never gotten ahead in any of his low-paying jobs and was rarely
shown any respect by his employers. "I watched my dad's self-esteem fracture," Schultz
commented to Sather in 1995. Because of his family's financial troubles, Schultz made the
most of his college days, both athletically and academically. He received a bachelor's
degree in business and marketing in 1975, proud to be the first member of his family to
attend college.
After graduating from the university with a Bachelor of Science degree in
communication in 1975, Schultz found work as an appliance salesman for Hammarplast,
a company that sold European coffee makers in the United States. Rising through the
ranks to become director of sales, in the early 1980s, Schultz noticed that he was selling
more coffee makers to a small operation in Seattle, Washington, known then as the
Starbucks Coffee Tea and Spice Company, than to Macy's. "Every month, every quarter,
these numbers were going up, even though Starbucks just had a few stores," Schultz
later remembered. "And I said, 'I gotta go up to Seattle.'"
Howard Schultz still distinctly remembers the first time he walked into the
original Starbucks in 1981. At that time, Starbucks had only been around for 10 years and
didn't exist outside Seattle. The company's original owners, old college buddies Jerry
Baldwin and Gordon Bowker and their neighbor, Zev Siegl, had founded Starbucks in
1971. The three friends also came up with the coffee company's ubiquitous mermaid
logo.
"When I walked in this store for the first time—I know this sounds really hokey
—I knew I was home," Schultz later remembered. "I can't explain it. But I knew I was in a
special place, and the product kind of spoke to me." At that time, he added, "I had never
had a good cup of coffee. I met the founders of the company, and really heard for the
first time the story of great coffee ... I just said, 'God, this is something I've been looking
for my whole professional life.'" Little did Schultz know then how fortuitous his
introduction to the company would truly be, or that he would have an integral part in
creating the modern Starbucks.
A year after meeting with Starbucks' founders, in 1982, Howard Schultz was
hired as director of retail operations and marketing for the growing coffee company,
which, at the time, only sold coffee beans, not coffee drinks. "My impression of Howard
at that time was that he was a fabulous communicator," co-founder Zev Siegl later
remembered. "One to one, he still is."
Early on, Schultz set about making his mark on the company while making
Starbucks' mission his own. In 1983, while traveling in Milan, Italy, he was struck by the
number of coffee bars he encountered. An idea then occurred to him: Starbucks should
sell not just coffee beans but coffee drinks. "I saw something. Not only the romance of
coffee, but ... a sense of community. And the connection that people had to coffee—the
place and one another," Schultz recalled. "And after a week in Italy, I was so convinced
with such unbridled enthusiasm that I couldn't wait to get back to Seattle to talk about
the fact that I had seen the future."
Schultz's enthusiasm for opening coffee bars in Starbucks stores, however, wasn't
shared by the company's creators. "We said, 'Oh no, that's not for us,'" Siegl
remembered. "Throughout the '70s, we served coffee in our store. We even, at one point,
had a nice, big espresso machine behind the counter. But we were in the bean business."
Nevertheless, Schultz was persistent until, finally, the owners let him establish a coffee
bar in a new store that was opening in Seattle. It was an instant success, bringing in
hundreds of people per day and introducing a whole new language—the language of
the coffeehouse—to Seattle in 1984.
But the success of the coffee bar demonstrated to the original founders that they
didn't want to go in the direction Schultz wanted to take them. They didn't want to get
big. Disappointed, Schultz left Starbucks in 1985 to open a coffee bar chain of his own, Il
Giornale, which quickly garnered success.
Two years later, with the help of investors, Schultz purchased Starbucks, merging
Il Giornale with the Seattle company. Subsequently, he became CEO and chairman of
Starbucks (known thereafter as the Starbucks Coffee Company). Schultz had to convince
investors that Americans would actually shell out high prices for a beverage that they
were used to getting for 50 cents. At the time, most Americans didn't know a high-grade
coffee bean from a teaspoon of Nescafé instant coffee. In fact, coffee consumption in the
United States had been going down since 1962.
According to the company's website, Starbucks has been "committed to ethically
sourcing and roasting the highest-quality arabica coffee in the world" since 1971.
Schultz quotes:
“We're not in the business of filling bellies, we’re in the business of filling souls.”
“Not every decision is an economic one.”
“When I walked [into Starbucks] for the first time—I know this sounds really
hokey—I knew I was home. I can't explain it. But I knew I was in a special place, and the
product kind of spoke to me.”
“From day one, I wanted to build the kind of company my father never got a
chance to work for. A company that honors and respects the dignity of work and the
dignity of all men and all women.”
One lesson Schultz learned from his childhood was to never forgot how his
father was treated by his employers. Schultz went in the opposite direction, treating all
 Starbucks employees as important members of a team. "I believe very strongly that the
success of our company," Schultz told Business Journal-Portland, "has been achieved
because of the relationship with our people." Not only are Starbucks workers (called
"partners") given a thorough training program, but both full-and part-timers receive
generous health benefits and after five years can buy shares in the company. The shares
are called "Bean Stock."
Howard Schultz took the name for this book, Pour Your Heart Into It: How
Starbucks Build a Company One Cup at a Time from one of his many business
guidelines: "If people relate to the company they work for, if they will form an emotional
tie to it and buy into its dreams, they will pour their hearts into making it better."

2. Beginning of Starbucks
Starbucks was founded by Jerry Baldwin, Gordon Bowker, and Zev Siegl,
opening its first store in 1971 near the historic Pike Place Market in Seattle. The three
Starbucks founders had two things in common: they were all coming from academia,
and they all loved coffee and tea. They invested and borrowed some money to open the
first store in Seattle and named it “Starbucks” after the first mate, Starbuck, in Herman
Melville’s classic novel Moby Dick.
Alfred Peet, a coffee-roasting entrepreneur, was a major inspiration to the
founders of Starbucks. Peet was a Dutch immigrant who had begun importing fine
arabica coffees into the United States during the 1950s. In 1966 he opened a small store,
Peet’s Coffee and Tea, in Berkeley, California, that specialized in importing first-rate
coffees and teas. Peet’s success encouraged the Starbucks founders to base their business
model on selling high-quality coffee beans and equipment, and Peet’s became the initial
supplier of green coffee beans to Starbucks. The partners then purchased a used roaster
from Holland, and Baldwin and Bowker experimented with Alfred Peet’s roasting
techniques to create their own blends and flavors.
By the early 1980s Starbucks had opened four stores in Seattle that stood out
from the competitors with their top-quality fresh-roasted coffees. In 1980 Siegl decided
to pursue other interests and left the two remaining partners, with Baldwin assuming
the role of company president.
Despite its apparent commitment to buying ethically sourced coffee, Starbucks
has faced allegations of purchasing from farms and plantations that use child labour and
slave labour or that house workers in unsanitary conditions. In 2018 and 2019 two
Starbucks C.A.F.E. plantations in Brazil were found to have “slavery-like” conditions,
and an investigation in 2020 found children under the age of 13 were working on five
Guatemalan farms that supply Starbucks.
Starbucks sales are affected by political factors, directly and indirectly. The
patterns of sourcing the raw materials have evolved into a significant political factor that
directly affects the business, which has attracted the attention of the politicians in the
countries from where it sources its raw materials. For this reason, Starbucks is keen on
adhering to social and environmental norms. It is willing to follow appropriate sourcing
strategies and it gives importance to fair trade practices. Another political factors that
Starbucks need to follow is the laws and regulations of the countries where there it
sources its raw materials from. The activism and increased political awareness in the
developing countries have made his essential.
The economic factors which affect Starbucks could be exchange rates, and
interest rates. Starbucks is affected by exchange rates when dealing with international
trade if the currency of the country of a coffee supplier falls this enables Starbucks to
paid less when importing the goods to their country. So that the saving can be passed
along to the customer by cutting down on their coffee consumption are changing to
lower-priced which are an opportunity for Starbucks. Besides that, an increase in interest
rates means that the firms may delay or cancel their plans to expand as the cost of
borrowing money is high for Starbucks and its suppliers. This means that the cost of
borrowing increases thus people will borrow less more incentive to save, so the
consumers have less income to spend on luxury products such as coffee. This causes
Starbucks with customers spending less on their product so the sales will drop.
Social factors examine the social environment of the market like cultural trends,
demographics, population analytics. Starbucks would like to locate to an area where has
high population which has more customer. However, Starbucks should widen their
market this is the most profitable way. Due to the social culture, Starbucks can offer
cheaper products with the sacrifice of quality.
The developments in the technology such as coffee making machines this will
enable their worker to work more quickly and this used to lower the labour cost and
save time. Nowadays Starbucks uses social networking to advertise through world-wide
to reach to people’s minds easily. Furthermore, Starbucks is also doing online delivery of
their produced coffee it is convenience for the customer.