Starbucks

Coffee, & CultureIn An

American Global Company

1971Starbucks opens first store in Seattle’s Pike Place Market.

1983Howard travels to Italy, where he’s impressed with the popularityof espresso bars in Milan. He sees the potential to develop a similarcoffeehouse culture in Seattle

1984Howard convinces the founders of Starbucks to test thecoffeehouse concept in downtown Seattle, where the firstStarbucks® Caffè Latte is served. This successful experiment is thegenesis for a company that Schultz founds in 1985.

1987Il Giornale acquires Starbucks assets with the backing of localinvestors and changes its name to Starbucks Corporation. Opens inChicago and Vancouver, Canada.Total stores*: 17

1985Howard founds Il Giornale, offering brewed coffee and espressobeverages made from Starbucks® coffee beans.

1988Offers full health benefits to eligible full- and part-time employees.Total stores: 33

1991Becomes the first privately owned U.S. company to offer a stockoption program that includes part-time employees.Opens first licensed airport store at Seattle’s Sea-Tac InternationalAirport.Total stores: 116

(Note: In 3 years, the number of stores more than TRIPLED – 350%!

1992Completes initial public offering (IPO), with common stock beingtraded on the Nasdaq National Market under the trading symbol“SBUX.”Total stores: 165

1993Opens roasting plant in Kent, Wash.Announces first two-for-one stock split.Total stores: 272

1994Total stores: 425

1995Begins serving Frappuccino® blended beverages.Introduces Starbucks® super-premium ice cream.Announces second two-for-one stock split.Opens roasting facility in York, Pa.Total stores: 677

90’s Growth: Stores Quadrupled,TWO Stock Splits!

The Late 90’s Agenda :

International Expansion

Growth, Growth, Growth !!!!

1996Begins selling bottled Frappuccino® coffee drink through NorthAmerican Coffee Partnership (Starbucks and Pepsi-Cola NorthAmerica).Opens stores in: Japan (first store outside of North America) andSingapore.Total stores: 1,015

1997Establishes The Starbucks Foundation, benefiting local literacyprograms in communities where Starbucks has coffeehouses.Opens stores in: the Philippines.Total stores: 1,412

1999Partners with Conservation International to promote sustainablecoffee-growing practices.Acquires Hear Music, a San Francisco–based music company.Announces third two-for-one stock split.Opens stores in: China, Kuwait, Lebanon and South Korea.Total stores: 2,498

Store Growth in the 90’s: 116 2,498

2002Starbucks enters into licensing agreements with national FairTrade organizations to sell Fair Trade Certified™ coffee in thecountries where Starbucks does business.Establishes Starbucks Coffee Trading Company (SCTC) inLausanne, Switzerland.Opens stores in: Germany, Greece, Indonesia, Mexico Oman, PuertoRico and Spain.Total stores: 5,886

2003Acquires Seattle Coffee Company, which includes Seattle’s BestCoffee and Torrefazione Italia coffee brands.Opens new state-of-the-art roasting facilities in Carson Valley, Nev.,and Amsterdam, Netherlands.Opens stores in: Chile, Cyprus, Peru and Turkey.Total stores: 7,2252004

Opens first Starbucks Farmer Support Center in San Jose, CostaRica.Releases Ray Charles, Genius Loves Company CD through acollaboration between Concord Records and Starbucks Hear Music.Introduces Starbucks Coffee Master Program.Opens stores in: France.Total stores: 8,569

2005

•Orin Smith retires as Starbucks president and chief executiveOfficer

•Jim Donald promoted to president and chief executive officer.•.Acquires Ethos Water and sets a goal of donating $10 million tosupport clean water projects over the next five years.

•Announces fifth two-for-one stock split.Opens stores in: Bahamas, Ireland and Jordan.

•Total stores: 10,241

2006Launches the industry’s first paper beverage cup containing postconsumerrecycled fiber, saving more than 75,000 trees each year.Opens stores in: Brazil and Egypt.Total stores: 12,440

Social responsibility continues:

Starbuck fortunes slid right along with the rest of the economy: the stock price slid almost in sync with the S & P 500, the Dow, and the NASDAQ Composite, bottoming out in March ‘09

What effects were seen at Starbucks?

•Starbucks had to close 600 underperforming U.S. stores (2008)

•The openings of 400 more stores were postponed

•300 Additional stores had to be closed in 2009

•977 Locations had to be closed world-wide

•18,400 Jobs were eliminated

Tale of the Tape:

Starbucks’ Financial History

Synopsis

What’s the big deal about flat sales? Starbucks internal culture had come to expect phenomenal growth like this to continue…indefinitely?

Sales flattened out (2007 – 2009). Never seen before at Starbucks!

PRE-2007 SALES GROWTH PEAKED IN 2004.

Year-over-year sales growth slid in ’07 and actually went negative in ’08 and ’09.

While some companies lost money or went under, Starbucks strength showed through, with operating income of “only” $843 million, its worst year since 2006.

“Expansionistic” philosophy was replaced by a series of moves designed to maximize returns in each existing location. These changes were largely customer-centric and designed to re-brand Starbucks back from corporate commercialism to “coffee culture”

Financial & Philosophical Change: 2008

The ‘Real Story’: Note the high percentages of cash from operations plowed back into growth (2006-08). Not so, in 2009-10. Growth at all cost was replaced by more conservative re-investment by Schultz.

Human Resource Changes:2008 Howard Schultz came back as CEO in 2008 with a transformational leadership style. The first thing he did to overcome resistance to any drastic changes that might be needed, was to appoint a CEO who he knew would face the least resistance in the first place: Howard Schultz.

Other human resource moves by Schultz :

• He surrounded himself with seasoned executives who shared his vision.

•He “re-trained” 10,000 managers and key employees in the basics.

•He invited those who wanted out, to leave, NO DRAMA!

•Opened communication lines with employees top to bottom.

Starbuck New Customer-Centric Initiatives

•Cut back on breakfast food, so Starbucks would smell like coffee in the morning. (Extremely important!!)

•Reduce the clutter on counters devoted to other merchandising (teddy bears, etc.)

•MyStarbucksIdea.com – website where customers could voice their feelings, good or bad.

•Mastraena – New machine to enhance the espresso experience

MORE CUSTOMER-CENTRIC CHANGES

•Clover – New brewing machine to enhance flavor and “theatre” of fresh-brewed.

•The Rewards Program – Incentives to reward loyal and repeat customers

•Pike Place Roast – Better tasting coffee designed to broaden the market.

•Re –Affirmation of Eco-Commitment through Conservation International

Post-Transition Starbucks: How Well Did The Changes Work?

2008 Stores : Opens stores in: Argentina, Bulgaria, Czech Republic and Portugal.Total stores: 16,680

2009 Stores : 16,635

Number of locations definitely pulled back.

Looking ahead to financial results….

2009Starbucks helps save lives in Africa through our partnership with(RED)™. Millions of daily purchases of (STARBUCKS)RED productshave generated contributions equal to more than 7 million dailydoses of antiretroviral medicine..

Starbucks the most engaged brand in social media according toENGAGEMENT db Report. Launches myStarbucks and StarbucksCard iPhone apps.

Opens stores in: Poland and Aruba.Total stores: 16,635

Continuing Global Commitment

Starbuck best reported revenues ever.

Year-to-year sales growth back to healthy levels.

Once again for 2012, solid sales growth year-to-year.

Record revenues. Starbucks is back on track. 18,066 Stores.

•Almost $2 billion operating income

•Highest margins ever

•Reinvestment creeping back to 49%

•Strong cash flow.

Healthier profit margins.

Capital re-investment still low (37%). Maximizing existing stores.

Simply put, the back-to-basics approach re-initiated by Howard Schultz starting in 2008 has had four full years to show results. Record revenues and profits, and a much stronger cash position, poised for continued conservative growth are in place today. It will be interesting to see what the future holds, but for now:

Starbucks Is Back!