Howard Schultz ： 40 Years at Starbucks

I was very fortunate to put myself in a position to succeed, but also I've had a lot of luck, a lot of good fortune. But I do say in the book, and when I speak to young people, I think something that happens along the way is that people are somehow encouraged that perhaps they're dreaming too big or their dreams can't come true. And what I try and encourage young people to avoid is don't allow anybody, friends, family, even your parents, to tell you you're aiming too high. Because if you look at my story, it's not a Hollywood movie. It's real. It's authentic. And it happened to me. I'm not... ...of our success is that if coffee companies in America were to have presented good coffee to the supermarket consumer over the last 50 years, perhaps Starbucks would not have had the opportunity it has had. But the fact is that coffee, for the most part over the last 50 years, is sold stale in the supermarket aisle. And... It goes stale after what? Coffee has a shelf life of only 2 weeks. So most of the coffee consumed in America is consumed stale. But the issue I think I want to describe is when you are in the retail business, you have to have an attention to detail that is above reproach. And not about 5 things out of 7 or 6 out of 8 about everything. Because everything matters. Built out the largest footprint of Wi-Fi hotspots in the world now. Thousands. And primarily people are using Wi-Fi to sync up their email. But what's coming is that within a year or so, you'll be able to walk into a Starbucks store and digitally off of the Wi-Fi network be able to get your music off of your MP3 player. Wirelessly. In a Starbucks store. That's A. What's also coming, leveraging the entertainment component of the business, is that we... Starbucks in a way has become this new network. More people went into Starbucks this week than watched the highest ranked TV show on television this past week. And... How many is that? Do you know how many that is? 20 million. 20 million people went into... No, no. 40 million people... Over 40 million people went into Starbucks this week. Yeah. And approximately 20 million watched the highest rated television show. And I say... Even though the average age of a Starbucks partner is young, most of them have worked another place before they came to Starbucks. And their cynicism that they have, or lack of trust, is generally a result of having a poor work experience at their previous job. What I've learned is the first 30, 60 days of any employee's life in a company is mission critical to providing that person an understanding about the values and guiding principles of the company and what we expect. And I think the burden is on the company to demonstrate the authenticity of that to the employee, young or old. But generally speaking, I think younger people today, and I have two kids, 21 and 25, who are probably more cynical and distrusting than I was at that age. But if you take a step back, we're living at a time right now this is not our parents' generation, where most things for these young people have let them down. And they're living at a time when there's such a fracturing of trust of governments, corporations, banks. And as a result of that, the burden of proof is on the people in front of them, not them. My answer is for the company. Italy really is the coffee culture of the world. There's 200,000 coffee bars in Italy, 1,500 alone in the city of Milan, the size of Philadelphia. And what I saw was the connection, the sense of community that the Italians have to coffee. Almost where the coffee bars became an extension of people's front porch. I brought that back with such excitement, and the founders of the company didn't think it was such a great idea to be able to reposition Starbucks to become more of what I saw in Italy. And that was to merchandise the beverage, to bring espresso, cafe latte, and those drinks to life. And for Starbucks to become a gathering place. Profits from that store would totally cover the cost within two years, and often a year and a half. But I'll tell you the economic model that we applied to every single store we were opening. You know, by the way, I chose the first 500 locations myself, so I was in it in so many ways. But the economic model in Wall Street, when we went public in 92, now I'm just, when they heard the model, they said, well, we'd never seen a model like that. And the model basically was a sales-to-investment ratio of two-to-one, and a operating profit of 20%. So what does that mean, sales-to-investment ratio? So if the sales were a million dollars, the investment was 500,000. Just the sales-to-investment had to be a two-to-one. In year one of operation. Yeah, yes. And the operating profit was north of 20%. So the cash-on-cash return was... So yeah, you get that two years at a less payback. The retail world had never seen a model like this before. There was no physical storefront that could have had this business. I've resoaked that Starbucks has created something we don't advertise in a very non-traditional way, that the Starbucks brand quintessentially is defined by the experience, not by marketing or advertising. Or cost. That's right. And that experience is brought to life by the human condition, people. I've said many times now that we're not in the coffee business serving people, but we're in the people business serving coffee. And I mean that literally. We also have... With regard to innovation, any company, small or large, consumer or otherwise, that embraces the status quo as an operating principle today is not going to win. In fact, it's going to be over before you know it. Now, I think you have to embrace the status quo with regard to your values and your core purpose. I believe that the relevancy of what we've built is not steeped in Americana anymore. In fact, it is as relevant in Hangzhou, China, as it is in Madrid. And the relevancy is the third place, the sense of community, bringing people together in a place where they feel comfortable and celebrating coffee. In the heart or the soul or the conscience of the company, they feel like they're doing a good job, but it's not the job that's consistent with the integrity and heritage of what the company has been. Metaphorically, let's say that's a giant reservoir. If you're taking a deposit on a consistent basis out of the reservoir and it's getting dry, you better stop. You better make sure you're making a deposit so they're equal and it's balanced. When you get this, that's when the company loses the plot. And if you get this and you're making a lot of money and the stock price is high, people say, it's okay. We're fine. And that's fool's gold. It's a camouflage because event coffee is not cheap. It's not for everyone, but it is an affordable luxury, unlike a new car or something like that. And we've proven over 30 years that despite the downturns and cyclical change of the economy, that Starbucks is fairly recession-proof. But it is the experience. It is the intimacy. And I think the thing that we did learn is that the place itself, we live at a time right now where we long for human connection. The world is very fragile. We're working hundreds of hours more than our parents' generation. Technology has become a burden as well as a tool. It's very secular, our existence. And the human connection, conversation, the sense of humanity, sense of community that exists in Starbucks has proven to be a real asset for the company. And probably not since the English pub has something been created in which Starbucks really has become this. Let me go back just for a moment and say something about innovation and get to the question. One of the things that I thought was paramount to the turnaround of the company was reminding everyone in the company about the entrepreneurial DNA of Starbucks. And when you get this big, because of process, research, consultants, and all different kinds of things, bureaucracy kind of becomes carcinogenic. And I wanted to strip that away. But let me describe what I think the role of the entrepreneur is, especially with regard to innovation. The great entrepreneurs have to see around corners, which means you have to have curiosity. And it is vital to the role of the organization and the role of the visionary leader. And then that curiosity is not enough. You must have the courage to go after it. Now, I don't want you to bet the company on that curiosity, but there's nothing wrong with taking chances as long as you learn from it. So curiosity and courage. Obviously, it is the quality of coffee. But without that, I don't think we'd be here today. But I think more importantly, or as importantly, there's been a social phenomenon in America. And that is, I think Starbucks stores have become almost a third place, a place between home and work, a place where people can gather, a place where they can meet friends. And the diversity of our customer base is very broad. Whether it's a blue-collar or white-collar worker, people of all ages and diverse backgrounds come into Starbucks for what it is. A great place to get a great cup of coffee, to listen to music. And it's a safe haven for people. This couple of years, given the consumer inflationary time, I think it's become a bit of a problem. And certainly, I've always said, as Starbucks was growing, that the ubiquity of Starbucks was an enemy to the company. And the challenge was, we have to figure out a way to ensure the fact that we are getting smaller as we're getting bigger. And specifically, how do we maintain intimacy and the currency of trust with our customers and our people? That, unto itself, is kind of the capsule of making sure that the growth doesn't become so intoxicating and so seductive that we lose sight of the really secret of the company, which was the internal culture. Specific answer. You go into a Starbucks every day? I go into about 25 stores a week. You visit them and you always have the same thing? I started out with a double short, non-fat latte, three-quarters full. And I want to find people doing... It's always three-quarters full? Yeah. I want to find people doing things right. I'm not there to make people nervous. I love what we do and I love the people that make it happen. You don't want to go by and say, Look, we care. Absolutely. That's what it's about. I'm not here to check up on you. Human service. Thanks so much for having me. Pleasure to see you. Thank you very much. Howard Schultz. I mention that because the soul of the company, I just felt, was being evaporated by what growth represented. Growth cannot be a strategy, and it became a strategy. Growth has to be the outcome. And I just felt, as a result, I wanted to create a higher level of sensitivity with the team and the CEO. So the long-winded answer is, I wrote a memo. And I've written many, many memos along the years. But a few days after I wrote this memo, there was a knock on my door. And one of my colleagues said, You better sit down. That memo is all over the world. It's been leaked. The memo was entitled, The Commoditization of Starbucks. And in it, I was... Remember, I didn't intend for this to be leaked. I was very critical of what I thought the team was pursuing. And I said very clearly in it that I felt I was part of that, but that we needed to press the pause button and really look at ourselves in the mirror and be very, very honest with what we're doing and how we're doing our work. Not even franchising then and don't today. Just for us. I just didn't think that the culture of the company could be sustained in a franchising model, that I wanted to create the kind of company which people really were part of the fabric of the company. So every... We don't franchise. Is that your first bottled drink in retail? Yeah, yeah. So I went to Atlanta and Pepsi in the same day. Atlanta being Coke. I went to Coke. I went to Pepsi in the same day. The Coke meeting was a meeting that lasted less than 30 minutes. I can't remember who I met with. They dismissed me. Didn't view Starbucks. Didn't understand what I was trying to do and didn't give me much time to even explain it. And then I went to Pepsi. And this is 95-ish? Mid-90s. So you have 500 stores, you're a public company. But no one... But on the East Coast, Starbucks wasn't really well-known. So I went to Pepsi in Purchase, New York, met Roger Rico, the iconic CEO, and Craig Weatherup, the president of Pepsi. They loved the idea. And we started talking about this. Subsequently, Craig Weatherup and I, on a napkin, I swear, shook hands and created a multi-billion dollar business. Behavior of the local customer, access to real estate, and just the behavior and the nuances of the culture. We have to be very respectful of that. The worst thing we can do is believe that our success in America is an entitlement to success anywhere else. It's not. Those scores were embarrassing. This question is very short and hard. Which would be the one word to define Starbucks? One word. Humanity. This is a company that believes that you can't build a company unless success is shared. And the humanity of the company, in addition to all the other things that we've measured, is healthier than it ever has been and is the most important attribute and characteristic. Why did Starbucks decide to jump to the supermarket space? Why? Yeah, where you have many competitors in the same cell. And the question is also, if this is going to happen outside the U.S.? Yes. Well, we believe that we have an opportunity. We have 800 stores in greater China, 400 on the mainland. We will have thousands. But this is not an easy thing to do. And there will be many companies who are rushing to China like the gold rush, who are going to get it wrong. You catch it. Now, the thing about social and digital media is the following. You can't use social and digital media to sell stuff, to promote. You have to use it to share information. And you can't milk it. It's not about trying to ring the register. It's about trying to share with your customers, the audience, a healthy, authentic way to emotionally engage with them, to make them better people, or to inform them, or to share, not to sell stuff. If you look at Starbucks, there isn't one single patent that we have. We have no secret sauce. We buy the world's best coffee, roast it to perfection. But the only competitive advantage we have is the relationship we have with our people. We said early on... With your employees. With our employees. We said early on that our pursuit was to exceed the expectations of our customers. You can't exceed the expectations of your customers unless you first, in an enduring way, exceed the expectations of your people. And that's the only advantage we have. That basically says, which you're never supposed to do, right? Walsh was like, we were wrong. We made mistakes. Yeah. That's... Well, I think the hardest thing for any public company is to stand up and say, we've got a significant problem in the business. But when I came back in January of 2008, it was clear to me that one of the things that we had to do was speak with great honesty and transparency both to our people and the marketplace. And in the first three months of me coming back, we began to do two things that were very, very unorthodox. And some of you might remember, the first thing we did was we closed every single store for retraining. Can you imagine standing up in front of the world and saying, we have to retrain our people? And the reason we had to do that is because going back to what I said earlier about measuring and rewarding the wrong things, we were not measuring and rewarding the perfect shot of espresso or the perfect... Many years ago, and it's more true today, we can't exceed the expectations of our customers if we as leaders are not exceeding the expectations of our people. We did $15 billion in revenue this year at $5 an average sale. So we are totally dependent on human behavior and people. The equity of the brand is how people act and the experience they create. People think we're a great marketing company, but we spend almost... It's de minimis, the amount of money we spend on marketing. And I was proposing something that had never been done before. And that was, I wanted to give equity in the form of stock options to every single employee in the company. And they just said, what? What are you talking about? We're not doing that. And so the fight became... Ultimately, we gave 14% of everyone's base pay in the form of stock options at the end of the year based on the strike price. And I had to do it the year before the IPO. Had to. So everyone wouldn't miss it. And I think the turning point of the culture of the company was the day we announced that and we became partners. And to the credit of Craig Foley, who was the VC, and Jamie Shannon, they believed that performance would be enhanced, attrition would be lowered, and that the brand would just elevate as a result of that. And it was true, completely true. That changed Starbucks for decades. And along with some other... You know, I was a good athlete, but not a great athlete. But I was a hungry athlete. And I think if somebody, a coach saw me on the field and said, I would hope he would say that there's a kid I want on my team because he's going to do anything it takes to win and win for the team. And that philosophy, I think, has stuck with me a long time, is that I'm not impressed with where you went to school or what your family name is. What I'm impressed by is the humility you have, the hunger, leaving your ego at the door and doing something that is in our stores. And so for us, we said we can't build the brand externally that is consumer facing until we restore the health of the brand culturally within the company. And because all of our employees were reading the same material that everyone else was, and they were losing faith in the company's future, especially given the decisions we had to make to close stores and lay people off. So we established a... You wouldn't believe the amount of face time that we were committing to our employees and the amount of communication. And in fact, we said we're not going to be able to fix the equity of the brand until we restore the equity of trust internally. And I think that is a model that I would suggest is very consistent. We did something that no other, I don't think any company Western company has ever done before. We had an annual meeting in China of parents of our employees, both in Beijing and in Shanghai. People said, Howard, what are you doing? Why? Because the relationship that the parents have to the children is so paramount to our success. And we had to tell the story and have them understand who we are as people and what we're going to try and do. And that was the turning point in China. Since then, everyone has come to me and said, tell me about this meeting that you had with parents. People said, no one's going to come. They came with their grandparents. It was incredible and emotional. If we had that in America, I think we'd have 10%. Well, thank you, Chris. I think what happened was a result of a series of decisions that the team was making. And I should say, even though I was not the CEO at the time, I was the chairman, and I was culpable as much as anybody else in what the company was up to. But I felt as if the company was drifting towards a sea of mediocrity. And I think growth and success, which was 15 years running, had put us in a situation where, and this is not an anomaly, I think many companies go through things like this, where success and unbridled growth and development covered up mistakes. And at the end of the day, I think the company was measuring and rewarding the wrong thing. Today, although we're a very successful company, the stock has grown dramatically since we went public, the thing that I'm most proud of is the fact that Starbucks is the only company in America to offer comprehensive health care and equity to all employees, including the 65% that are part-time. And so we have shared our success with all, and despite the fact that the growth and development has come not at the expense of our employees, but because of them, and they have won as well. I am proud of the company. And I just felt like the team around me was not going to be able to do it. And we would not have been able to achieve what we've done if I would have just embraced the status quo of those people. What can you do today for the company in this remarkable comeback position? The stock is back up, and all the metrics that you want to look at are really healthy. How do you prevent something like what happened previously from happening again? Yeah. I think that is the most important question that we have to try and answer. It would be tragic if the lessons that we've learned somehow are repeated. And I'm constantly sharing with our people this is not a time to celebrate or take a victory lap. We had a record year of revenue and profit. In the end of 2007, I intuitively smelled something that wasn't exactly right. And it wasn't showing up yet in the stock price or how well we were doing. I think, honestly, growth and success at such a high level covered our mistakes. And growth became a strategy as opposed to a tactic. And we got a little carried away with ourselves. And even though I wasn't the CEO, I was as culpable as anyone else because I was the chairman. But I came back, honestly, because of love. Love of the company, my responsibility. And the last two years have been perhaps the most rewarding of the last 30. So Pete's was actually Starbucks. Starbucks was actually Il Giornale. Yes. It's amazing. Some stats just for listeners to understand the gravity of this situation. For the initial $1.6 million that you raised for Il Giornale, you talked to 242 investors, 217 of which said no. So anybody who's griping about their fundraising journey, those are rookie numbers. Remember, but you asked me a question earlier about what did the years at Xerox teach me. So the rejection I was going through. The Italians turned me down. People in the U.S. turned me down. Nobody would believe in the idea. It was like I was clinging on the customer. And the company, in a way, became complicit with Wall Street. And specifically, I think sometimes the stock price and the P.E. can unfortunately define an enterprise. And that happened to a degree. When Starbucks was at its best, we were exceeding expectations of our customers and balancing profitability with a social conscience. That kind of got away from us as we were expanding the company at such hyper rates. But you take some responsibility as well as others. I read 3 papers, the FT, the Wall Street Journal, New York Times, in print. Make a French press of coffee, walk the dogs, give Sherry coffee, and then I'm here between 7 and 7-30 at Starbucks. I've been told sometimes you put expectations on others that you put on yourself, and some think that's unfair. What do you think? I think that may be true. I think I've been able to see things in people that they don't see in themselves. And I think that's kind of one of my strengths. And in doing so, I ask more of people than perhaps they think they can give. In what ways are you a hard boss? Well, I don't expect anything from them that I don't expect myself. And the expression that I... But as an example, I think you're well aware of this. Last year we spent $260 million on health insurance for our people. At the height of the cataclysmic financial crisis, we would not cut that benefit, as an example. What we do around the world with coffee farmers, we're the largest buyer of fair trade coffee in the world. I think at its core, trying to achieve the balance between profitability and long-term value for the shareholders and not leaving our people behind and having a set of guidelines in which the humanity of the company is as consistent as the stock price. ...and entitlement. We began to believe that we were entitled to this success. And as a result of that, the level of hunger, passion, commitment, and all the things that it took to build Starbucks were being subordinated by the fact that we just got too comfortable. And we started ignoring the very signals that would have absolutely got our attention when we were small. But because the stock price and the revenue and the profit were so much, people were not paying attention. When I wrote that memo in 2007, not that I was smarter than anyone else, but I began to smell the problems. And I couldn't, I just couldn't sit by any longer and allow us to drift towards mediocrity, even though in 2009, on the ubiquity of the Italian coffee bar and saw the sense of community and humanity, and said, we're in the wrong business. Starbucks was selling coffee by the pound. The true essence of the business was in the romance of the beverage. And the founders did not want to do that. So I left. Why didn't they want to do it? They just felt it was a diversion. And so I left and started my own Italian coffee bar company in 85, opened three stores. And then in August of 87, they came back to me and said, perhaps you were right, perhaps. And we'd like to sell it to you. I had no money, not a dime. And they wanted $3.5 or $4 billion. We bought the company for $3.8 million. Million, I'm sorry, not billion. And I convinced a group of investors. I didn't have a dime. And that was August of 87. We ended 87 with 11 stores and 100 employees in a dream to build a different kind of company. This is my office within the foundation. This is an important piece of memorabilia. This was one of your proudest days. No question. This was June 26, 1992, when Starbucks went public. There's the first stock certificate. Here's the interesting thing about this. Starbucks went public and the market cap of Starbucks at the end of the day was $250 million. But the market cap of Starbucks today is $120 billion. So somebody put $10,000 in in 92. It's probably a 40,000% increase. How old were you there? What's that about? We're going to do for tea what we've done for coffee. And I've known Oprah for many years. We were sitting at a friend's wedding. She's telling me how much she loves tea. It was so authentic and real. We've always dreamed about doing something together. Never really could find it. And I think our values match ours. We want to do something to elevate tea, but at the same time do something to help those people get access to education. And Oprah Chai is going to be everywhere come Mother's Day. It's going to be unbelievable. And only her could raise the tent on this. And how big is it going to be? Well, tea is a $90 billion global category larger than coffee. Wow. And there was a second issue that I think is really important. The most important person in all of Starbucks is the store manager. And the question was, if we're going to transform the company, so much of what we do is based on people. You couldn't find a company or a consumer brand that is so defined by human behavior, quintessentially by the experience that our people create. Not by marketing or advertising, but our people in our store. The emotional relationship they have with the customer. And the question I think I wanted to ask myself is how do I get in front of, how does the leadership team get in front of almost 11,000 store managers? So at the height of the cataclysmic financial crisis, we decided that we were going to have a meeting with 11,000 people. We had every municipality in America vying for the meeting because no company was traveling. As soon as we met the people from New Orleans, we knew these were people with like-minded values of our own. And we went to New Orleans at a cost of $33 million. You're talking about the streets concern? I mean, I think they wanted to shoot me. But the question I asked everybody who criticized me was tell me a better investment to make during this crisis than an investment in our people. And of course, there was no better investment. Before we had one hour of our meeting, the company committed 50,000 hours of community service, mostly in the Ninth Ward, for those people who were really victimized by Katrina. That galvanized our company and rekindled and reminded people about the conscience of Starbucks. And then we had our meeting. In that meeting, I asked our people three things. What does it mean not to be a bystander? Do not overlook anything because everything matters. And secondly, what it means to be personally accountable to the outcome of everything in your store. And lastly, what it means to be responsible. But I reduced it to the lowest common denominator and said this, it's not about Starbucks Coffee Company, it's not about the stock price, it's not even about the people you work with. Let's reduce it down to the lowest common denominator. It's about you and your family. Our stock price, we have lost $21 billion. I've also got this question a lot lately. So I told the board that this is not a short-term commitment, that I'm here for a long-term situation. But I think the question that you asked is a very important question, primarily because we're a public company. And that is the role of the CEO today. What is really strategically important is succession planning. And I didn't get it right last time, but it wasn't because he was a bad person. I think I own the fact that I didn't put him in a position where he could have succeeded. I think Starbucks will be best served if the future leader of the company does come from within. Having said that, this is not an entitlement. It has to be earned just like I talked about success. But I think so much of what we have been able to do is linked to the culture. Your company is in today. It's never been more important to understand that your success, if linked to the status quo, will be a death trap. So success can be a humbling factor if, in fact, you are not pushing for reinvention and self-renewal. And what I like to say to our people is we, as a company, need to see around corners before anyone else, which means we need to have the curiosity and the courage to see things before other people see them and then have the moral courage to make a bet on what that's going to be. And I think sometimes success can produce hubris and a mentality. So we walk out and walking around, I think we probably went to Columbia Center to get a coffee and come back. I go back with Scott and Mr. Gates says, Scott, I'm going to see Howard alone. And Scott leaves. Now I'm alone in his office. I hardly sit down and he says, we're going for a walk. And I said, where are we going? And he says, we're going to see the man. Who was Sam Strom. One of your investors. One of the investors. We walk across the street to the Rainier Tower, the old Rainier Tower. I think Sam had one of the biggest offices. We walk in there and I swear, even though it's so many years later, I have a perfect, vivid account for what took place. Sam is sitting behind his desk and this is what happened because it was five minutes. Bill Gates. Remember, he's a huge guy. Leans over to the desk with his hands on Sam's desk and says, I don't know what you are planning, but whatever it is, it's not going to happen. And he says, Howard Schultz is going to acquire Starbucks Coffee Company and he's never going to hear from you again. You came back to what? Save the company? Well, I'm not a messiah, but I came back for the love of the company and my responsibility. Yeah, but you were worried about the company and you didn't... Well, the company was in deep trouble. Exactly. And I came back. But your question about, I'm deeply involved in the company. I've shifted my focus to innovation, specifically, what we're going to do on mobile. And I met a rabbi. And the rabbi asked the question, he says, tell me the meaning of the Holocaust. And there were about ten, fifteen people in a room, all men. And no one really has the answer, but he calls in somebody and he says something ridiculous. And the rabbi says, I thought you were the smart businessman in America. You don't even have an answer to the Holocaust question. And then he's turning and he's going to ask another question and thank God he didn't call on me. I'm kind of crawling into the desk and want to be embarrassed. And he says, let me tell you the essence of the Holocaust and the power of the human condition and the human spirit. And he tells the following story. And he says, as you know, during the Holocaust, men and women were transported mostly by rail cars. And they were in this journey for eight hours and sometimes over 30. No bathroom, no light, no food, no water. And when they got to these death camps, the rail car was swung open. Men were separated from women. Women were separated from children. And in the cold winter night when they arrived at the camp, one person for every six was given a blanket. And the person that got the blanket had to decide, what am I going to do with this blanket since five other people do not have it? And more often than not, the power of the human spirit and human condition, the one person with the blanket shared the blanket with five other people. But there were also some people who didn't. The rabbi stands up and he says, take your blanket back to America and share it with five other people. That was his story. And I encourage you as young people, no matter what you do in life, to remember that there's five people out there who have a lot less than you do. And when you are successful, just take your blanket and share it with five other people. Thank you very much. Well, I think one of the hallmarks of the company has been its real estate selection. I think you have to be very careful not to be seduced by great real estate if it's too high in the cost. And we've been able to do that. But certainly, markets like New York and Tokyo and L.A. are humbling experiences when you look at the unit economics and you've got to be very, very careful and not be seduced by the growth and development of a company but make good, sound business decisions. Where do you like to put a Starbucks? I know there's a Burger King next door in your new location down the street, a Burger King. Do you duel with another fast food or a quick service place? You know, we don't, generally, it's not whether we're locating near another purveyor of food or not. We really want to intercept pedestrian and vehicular traffic. We want to be where people live, where they work, where they play. And we want to make sure that Starbucks is part of the communities in which we do business. Coffee, nothing to do with our core business. But what I've learned in the last couple of years is that the consumer today wants to make buying decisions not only on what a product costs or the convenience of your location, but they will make buying decisions based on the values that you and your company have. And they will support companies whose values are like-minded and compatible with their own. And those companies that will stand up on the side of the people and help America and demonstrate a passionate commitment to understanding that we have a responsibility beyond the government and we can't wait for the government will win. And it's also about preserving the relationship with your employees and creating an aspirational relationship with them that's showing them that we care for something beyond just making a profit. And in fact, you will make more money as a result of doing the right thing. Starbucks is a global company. The CEO of Starbucks has to be a global citizen. You can't manage Starbucks from Seattle. So it's a complicated job. I won't be coming back again, I can tell you that. So when we were in Italy, and you kindly invited us to your party, half of the people that I talked to said they think it will be very hard, if not impossible, for you to walk away, deconnect. I'm on call if they need me, but I'm not looking to insert myself in any way. I am in a very different stage in my life. I want to be the best version of myself, for my family, for my friends, and I want to do things I have not been able to do because... This is executed with each customer, each time. You have to remember that Starbucks has a 40-year history. And that 40-year history has been executing a brand position at a super premium level. So if we were starting today in the midst of a financial crisis, I think it would have been much harder. But when I talked about earlier the equity of the brand is defined by the experience. It's... Many people are saying, what is Starbucks really selling? And, of course, we're selling coffee, but the truth is we're selling much more than that. We're selling a feeling, we're selling an experience, we're selling a sense of community in our stores, and we're certainly selling the relationship that our people have with our customers. You were initially pretty opposed to one, the Frappuccino, and two, the loyalty program. I think Frappuccino is a great example of Howard Schultz being 100% incorrect, wrong, and on the wrong side of the debate. In the early stages of Starbucks, we've been so pure in terms of roasting coffee to perfection and also roasting it in a different way, darker than most other coffee companies. As the customer was getting younger and people were either trying coffee for the first time or wanting something else, they started blending iced coffee. And all of a sudden, it kind of started taking off, we started tasting it, and I, as a purist, said, why do we want to do this? We don't want to be a Frappuccino company, we're a coffee company. I also was afraid that people would be introduced to Frappuccino first and never quite get the essence of Starbucks. It turned out that Frappuccino became a multi-billion dollar business for Starbucks. Not only selling it in our stores and have it being customizable, but then we put it in a bottle and did a joint venture with Pepsi that on its own became a billion dollar business. So I was wrong and it kind of taught me a great lesson. Truly, the customer was always right. So I've heard you can be very... When I walk into a Starbucks store, like right now, there's a rhythm and a poetry to what's happening around the experience. And to me, that experience has a natural life or a natural soul. when I... Real Madrid, the team, when I walked in, I went to a soccer game with Plaza, it was 80,000 people singing for two hours. That was soul. You know, it's just an incredible passion and common belief in something. I also think it's not something you can invent or fake. ...conversations and all of a sudden the music stops playing. And the number one metric that Wall Street uses to evaluate the health and strength of a public retail company or a restaurant company is something called comp store sales. You heard of it? It's an albatross. It's an albatross because it's an important metric but not the most important one for me. But basically what it does is it measures the sales revenue as a percentage of last year's anniversary. So you really are analyzing whether or not a store opened more than one year is growing. And when I said earlier, we were measuring and rewarding the wrong thing and we became complicit with Wall Street, what had happened was that we were doing everything humanly possible to feed the beast of comp store sales. And we were measuring sales per hour, transactions per hour, and doing everything we can for growth. New stores as well as growing existing ones. And there's nothing wrong with that if it's balanced with making sure that the customer is at the center of everything you do. Given your premium on the experience in store and the depth of that Starbucks quality, why did you see McDonald's as a competitor? It seems to me that they're in a completely different space and yet you mentioned it just now because it was on your radar. Well I think Andy Grove had probably the best line which was only the paranoid survive. And that's as relevant today as it was then. But this is what we were facing. The sea change, we were witnessing a seismic change in consumer behavior primarily because of the recession. McDonald's was going to spend $150 million in advertising directed at Starbucks. They had billboards all over the country that said $4 is done. And they were going to spend over a billion dollars in capital to build McCafe. Now I never believed personally that they were going to be the threat they were. But I used McDonald's in many ways internally to demonstrate what was coming. And the irony of what happened was the more McDonald's spent on advertising, it seemed that our sales began to improve because they were raising awareness and every time somebody I think went to their store and maybe tried something and realized this is probably not the experience I want. McDonald's is a fantastic company but they're not a coffee company. I think it helped us. The pace in which consumers change is we have to do our work every day. There is something else that I would like to open up before we get to the question. The short answer is we just have to do our work every single day and understand that success is not an entitlement. We have to earn it every day. There is one thing I want to frame for you. The state of California is almost 60 billion dollars in debt. If we observe what has been happening in Wisconsin and Ohio, and this is not a political statement, the truth of the matter is at the state and federal level the opportunity because of the legacy costs and the insolvency of half of the states in America, that social services are going to be significantly cut. And the question I think that is going to have to be asked. You talked about some of the tough decisions that you had to make. The layoffs, the store closings. Tell me the emotion that was going through you at that point. This is your baby. The decision to close stores in that many was tough. But it wasn't stores. It was people. But then we had layoffs in this building for the first time in our history. And I went home the night before we had to make the announcement. I had asked for a list of every person because I wanted to personally ensure that there was no politicizing with any of the people. And then I stood up that infamous day on the ninth floor in front of the entire company and shared with everyone for the first time in history we were going to have to ask people to leave the company. What was that day like? That was a worst day for you? Without question the worst day of my professional life. And that was a very emotional moment for me where I couldn't hold myself together. And I was looking at people I've known for 10, 15 years and I knew faster than any company's ability to parallel it unless you are a true tech company. But the learning is that every company regardless of the business you're in must be a tech company. How does that affect the offline experience? Well I think how it affects it is that offline the relevancy of the equity of the Starbucks brand and the emotional connection we have with our customers has to be equal to or even greater than what happens inside a store. So as an example we just created for the first time a proprietary digital content series of 10 episodes on people's phones. And in two months time 70 million Americans viewed that content. And that content by the way was unbranded. Have you heard this before? This is Infinite Loop at their old campus? And so I went down there and basically went down and we took a walk. And I just told him all my problems everything was going on. And he just stopped me and he said this is what you need to do. He looked at me and he said you go back to Seattle and you fire everyone on your leadership team. I thought he was joking. I said what do you mean fire? What are you talking about? Fire everybody. He said I just told you. F and fire all those people. He's like screaming at me in my face. Fire all those people. That's what I would do. I said Steve I can't fire those people. Who's going to do the work? He said I promise you in six months maybe nine they'll all be gone. He was right except for one the general council. They were all gone. Your whole leadership team turned over. They were all gone. Wow. That's the story about Steve Jobs. Wow. Did you ever have a in their pursuit of peace of America because he was out of work and no health insurance and no work compensation. I was seven years old and hardly believed that I would one day run a company but in a sense I tried to build Starbucks in a way that my father never got a chance to work for. A company that would have allowed him to heal. And.