Starbucks CEO Says Japan Disruption Tempered by Chain’s Size
Starbucks Corp. (SBUX) Chief Executive Officer Howard Schultz said his coffee chain’s scale will help it withstand this month’s natural disasters in Japan, which shuttered more than 10 percent of its stores there.
“The impact financially will be diminished because of the size of Starbucks,” he said in a talk yesterday at the 92nd Street Y in New York with Norman Pearlstine, chief content officer for Bloomberg and chairman of Bloomberg Businessweek. “It’s an extremely important market, not only for its size and profitability, but the emotional connection we have with the Japanese people.”
Schultz, 57, is promoting his book “Onward: How Starbucks Fought for Its Life Without Losing Its Soul,” out yesterday. His coffee chain, the world’s largest, entered Japan 15 years ago, its first market outside North America. The 9.0-magnitude earthquake and its ensuing tsunami, which has left more than 27,000 people dead or missing, shuttered about 100 of Starbucks’s 900 Japanese locations, with about 10 permanently destroyed, he said.
The company has about 17,000 locations in more than 50 countries. Schultz also told Pearlstine “there is a gold-rush mentality by every western brand known to mankind rushing into China” and that many of these companies will fail. Starbucks has about 400 stores on mainland China with plans to grow to 1,500 cafes by 2015.
Schultz, who first joined Starbucks almost three decades ago, took back the reins in 2008 after sales growth sagged during a too-quick store expansion. He revived the business by closing more than 800 cafes and now aims to get into more people’s homes, offering Starbucks coffee through grocery stores and introducing single-cup brewing machines.
His strategies helped profit more than double in the year ended Oct. 3, surpassing $940 million. Starbucks and other food makers now face mounting expenses for ingredients such as coffee beans and sugar, forcing them to raise prices or cut into earnings. In January, Starbucks’s 2011 profit forecast missed analysts’ projections, partly on surging commodity costs.
The Seattle-based company fell 14 cents to $36.72 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have risen 14 percent this year.
Schultz has expanded further into the single-cup market this year, forging partnerships with closely held Courtesy Products and Green Mountain Coffee Roasters Inc. (GMCR) The deal with Green Mountain may be worth $1 billion, Schultz said. Starbucks also makes single-serve Via instant coffee.
The company also has flirted with the idea of expanding into sales of alcohol by testing beer and wine at a few locations.
“It’s succeeded, but we don’t know what to do with it,” Schultz said.
Schultz joined Starbucks about 10 years after it opened its first store. The company, named for the first mate in the novel “Moby Dick,” had more than 11,000 cafes in the U.S. and over 5,800 international locations as of January.
Starbucks credits Schultz with bringing Italian coffeehouse traditions to the U.S. after he traveled to Milan in the 1980s. Schultz left the CEO position in 2000 after 13 years at the helm before returning in 2008.
Schultz also wrote “Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time,” published in 1997. In the book, he recounts growing up in a working-class neighborhood in Brooklyn, New York.
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