Chapter 17 16. Howard Schultz: In a crisis, learn to deal with the unknown

Howard Schultz is the chairman and soul of the world's largest coffee chain and retailer Starbucks, and is considered by Wall Street to be the world's most outstanding business founder. In 1952, Schultz was born in a poor Jewish family in Brooklyn, New York. He graduated from Northern Michigan University in the United States. found an after-school job in Manhattan's ready-to-wear district, pulling animal skins for a fur coat maker, worked in a sneaker store, and steamed yarn in a weaving factory; In 1975, he joined Xerox Corporation, and shortly thereafter, he jumped to a company that imported Swedish kitchenware and became the vice president of the company's American branch; in 1981, Schultz came to the Starbucks headquarters in Seattle for the first time. Overwhelmed by the culture, he decided to join Starbucks; in 1982, he became the general manager of the marketing department and retail department of Starbucks; in 1987, Schultz acquired Starbucks and opened the first store selling drip coffee and espresso drinks; in 1992 , Starbucks was successfully listed on NASDAQ in New York, and has since entered a new stage of development; in 1994, Brazil suffered a severe frost, and Starbucks faced a major price crisis of 330% coffee price increase for the first time. Schultz led Starbucks in two years. , successfully survived the crisis; in 1999, Starbucks entered China and actively committed to making China the largest international market outside the United States. In 2000, Schultz withdrew from the position of CEO and became the chairman of the company; in 2006, Schultz entered the "Forbes" 400 rich list, with a net worth of more than US$1 billion; in 2008, affected by the financial crisis, Starbucks' business was impacted, Schultz came back and led Starbucks to deal with a new round of crisis; by June 2009, Starbucks had 45 markets around the world, with more than 16,000 chain stores and 170,000 employees, including 693 stores in China.

Viewpoint: External forces have the potential to instantly change the fate of a company.It taught me that I must always be alert to the unexpected and always be prepared for it.You can't just deal with the known, you have to learn to deal with the unknown. Why did Mengniu collapse when it encountered melamine, but Starbucks was still Starbucks when it encountered a similar crisis?In fact, price and quality crises occur frequently, but not every company handles them.Schultz's experience tells us: When such a crisis occurs, maintaining transparency with consumers is the basic principle, and communication is the prerequisite for winning the market and the future.That overbearing, self-righteous bureaucratic approach is long overdue.

background of the crisis "This is my Mecca. I have arrived." On a sunny spring day in 1981, Howard Schultz came to Starbucks in Seattle, USA for the first time. For him, this is the sacred place in his life, and he believes that this is the business he will spend his whole life in. Soon after, he resigned from his position as the vice president of the American branch of a Swedish kitchen utensils company and joined Starbucks as a marketing manager. And retail general manager, in 1986, after obtaining the management right of Starbucks, Schultz led Starbucks to expand. After nearly 10 years of development, by 1994, Starbucks had become the largest coffee and catering company in the United States, with 350 stores in the United States. stores, and has achieved 50% growth in both sales and profits for four consecutive years.Convinced that Starbucks was in good shape, Schultz appointed Orrin Smith, Starbucks' chief financial officer for four years, to replace him as president, and decided to take a two-week vacation.

In June 1994, 10 years after taking over Starbucks, his wife finally stopped having to endure him delaying and canceling their vacation time and time again "because of the company's development needs." This was his first vacation in 10 years, The wife and children have been waiting for this for too long.On a sunny day in June, they arrived at their vacation home in Hampton Beach, where his wife and children would be staying for a month. He would be with them for the first two weeks, and the next two, Then you have to go back to the company headquarters in Seattle.Schultz later recalled, "We cleaned up the house in the first two days, and then took the children to hang out in nearby towns and beaches", and a wonderful vacation had begun.

But just like a "black swan event", Schultz didn't know yet that an unpredictable crisis would suddenly befall him. On the third day of the holiday, Monday, June 27, 1994, years of habit led Schultz to call the office at the start of the morning to find out what was going on with the company. "Because of that phone call, my whole life changed—not just this summer, but the next year. In fact, it took us two full years to recover from the blow of that one day." That morning, in sneakers and a baggy shirt, Schultz dialed the phone in the kitchen and watched the children play in the yard through the back window.After hanging up the phone, he stood still and thought for a while about the blow that this sudden incident had brought to him.When he came back to talk to his wife, his wife heard the tension in his voice, and at the same time saw his wife's "stressed and concerned face to force herself to accept the disappointment." He told his wife that he Going back to Seattle.

On the phone, Olin told Schultz: "Brazil has had a severe frost, and coffee prices have gone crazy." Although Starbucks did not import coffee from Brazil, Schultz quickly realized what a severe frost in Brazil meant to them.At that time, Brazil's coffee production exceeded 1/4 of the world's total. The shortage of Brazilian coffee will inevitably affect the rise of coffee prices around the world.Starbucks purchases the world's top coffee, so it pays coffee merchants a premium over the commodity prices on the New York coffee, sugar, and cocoa exchanges.The standard price of green coffee is the C contract price generally listed on the exchange, that is, the comprehensive price of green coffee beans. If this price rises, the purchase price of Starbucks will also rise accordingly.

Sure enough, Olin told him, the price of the coffee contract had skyrocketed that morning, from $1.26 a pound to $1.80, the highest price since 1986, compared with 80 cents in the first four months of 1994, As a result, Starbucks' direct costs will more than double, and unfortunately the price of green coffee beans continues to rise, sending the company's stock down.What worries Schultz even more is that Brazil also suffered a severe frost 20 years ago in 1975, when coffee prices doubled to $3.40 a pound and stayed there for years.What if the price of coffee doubled again this time, as it did in 1975?Schultz is full of worries.This unprepared crisis has become the worst crisis in the history of Starbucks that Schultz has faced. No one can predict this kind of crisis. Therefore, for a while, no one knows how to deal with it .

After the phone call, Schultz took the next flight back to Seattle. The executives were worried, and the worry and fear displayed on everyone's faces let Schultz know how seriously the crisis has shaken the company.But soon, everyone sat down and began to rationally analyze the problems brought about by the crisis, how wide it involved, and how much harm it caused to Starbucks.When Schultz learned that the company had signed a 10-month supply contract of green coffee beans at a fixed futures price during the period of low prices before the price increase, and that the company had a large inventory, he was greatly relieved, but Immediately afterwards, several issues that must be considered made the situation tense again.

First of all, if the price of green coffee beans continues to rise, what should we do? Is Starbucks going to buy coffee to deal with the situation brought about by continued price rises in the future?The second question is that the canned coffee of Nestle, Kraft, and Procter & Gamble, which occupied 70% of the coffee market in the United States at that time, raised the price of coffee immediately after the coffee price rose, and some of them doubled. Then, Will Starbucks raise prices?The third question is that Starbucks' major shareholders, stock analysts, traders, and reporters have called one after another. They want to know how Starbucks will respond to this. Will Starbucks increase prices?How much will the price increase?When will the price increase start?How will it affect sales?Starbucks has to answer.

However, these were not the most difficult, two weeks after the first hit, the second hit one after another. On July 11th, another bad news came: Brazil suffered another frost, worse than the first.As of this day, Starbucks' stock has fallen for three consecutive months. Things never seem to end.In a matter of days, the price of green coffee rose to $2.74 per pound, a 330% increase over the past three months!Traders are predicting that the price of coffee will rise to $4 per pound.Based on a study of the aftermath of the 1975 frost, Schultz and his colleagues are confident that the traders' predictions are on the right track.

The big coffee trio soon raised prices again, and Wall Street investors were watching their moves closely. If their profits failed to grow by 50% for the fifth consecutive year, their stocks would continue to fall, falling to the point where they could not raise enough money. funds for expansion. In the face of these successive bad situations, whether to raise prices or not to raise prices, this dilemma is being debated fiercely within Starbucks. In the end, as prices continue to rise, on July 13, Starbucks announced that it will Start to raise prices, the price increase is within 10%, and the price of each cup of coffee has increased by 5 to 10 cents. This is nothing compared to Starbucks’ increase of US$1.25 per pound of roasted coffee beans.But they are unwilling to use price increases to offset various costs brought about by price increases, and directly pass on the price increases of raw materials to customers. Their price increase goal is only to make the price increase within 1995 Compensation for actual increased costs.However, because Starbucks sells top-quality coffee, the price is already higher than the price of canned coffee in supermarkets, their price increase may still cause customers to not understand and rebound. If so, this is the biggest trouble. In the face of the crisis, Schultz plays a role of cheering up everyone in the company, encouraging employees to strengthen their confidence and overcome the crisis. At the same time, he explains the current situation to his partners and discusses solutions with investors.They opened a conference call, upgraded the nationwide voice mailbox, and posted notices in the store to let customers know the situation at the same time.They communicate with customers, sincerely and frankly explain to customers that the reason for the price increase is due to rising costs, and tell customers that only a moderate price increase can the company continue to operate.After hard work, they gained the trust of customers and partners, and the situation basically stabilized. However, the two impacts of a decision behind this crisis played a decisive role in the smooth development of Starbucks later. At that time, in order to prevent the price of green coffee from really rising to the $4 per pound forecast by traders, they made a decision to buy a batch of Colombian coffee, which was said to be sky-high at the time. This batch of coffee was enough for two years. Soon after the purchase, the price of green coffee beans fell back to the normal price of $1.10 per pound. The reason behind this was that a group of speculators drove up the market price of coffee. , in response to the crisis brought on by the frost, it actually became an excessive burden, but even so, during the crisis, they did not violate their purpose of "providing the best coffee" in order to reduce costs, The persistence of this purpose ensures the consistent quality of Starbucks in the hearts of customers, and this makes customers willing to pay more for the best coffee in their minds when they make price increases. Another effect is that while the price crisis passed quickly, the whole mess that resulted has yet to be sorted out.Since the financial burden cannot be transferred to customers, how to achieve the profit target has become an issue that must be considered.As a result, they proposed a plan called "benefit improvement", hoping to absorb the direct cost of green coffee bean price increases through efficiency gains and savings.In order to successfully complete this plan, they invited experts to provide guidance, and set up an organizational committee to hold regular meetings to find problems, manage the enterprise in a more systematic and professional way, and turn crises into opportunities.Through this plan, they found that there are still many cooperative relationships that have not been rationally utilized. They can also reduce the cost by revising the cooperation contract, make the plan more perfect, do the work in place, and make full use of resources. There is still potential to save money in the warehousing and roasting links. After implementing this plan, Starbucks managed to cut costs in an orderly manner, abandon ineffective operations and improve work procedures. By the end of 1996, the high-priced coffee inventory was finally basically sold out. And achieved the profit target.It took two years for Starbucks to survive this huge crisis. "This incident made me humblingly realize how vulnerable we are, and that external forces can change the fate of a business in an instant. It taught me that we must always be alert to the unexpected and be prepared for it. You can't just deal with the known side, you must also learn to deal with the unknown side." After dealing with this crisis, Schultz concluded this way. Opinion: In the wake of the economic crisis, we can no longer stand by and ignore the pressures our customers are facing.We keep our heads above water and do everything we can to satisfy our customers. Changing the previous inertial thinking and giving up the existing living experience will definitely bring pain and confusion, but it is necessary in times of crisis.Schultz understands that starting from the consumer is the only basis for dealing with the recession in the commodity era. background of the crisis After the baptism of the price crisis in 1994, Schultz said that "Starbucks grew up that summer" and successfully managed the price crisis, "Starbucks became a better company". In the middle of the year, Starbucks achieved rapid growth and rapid expansion, becoming the world's largest coffee retailer and coffee processing factory. By 2008, Starbucks had a total of 45 markets around the world, with more than 16,000 chain stores and 170,000 employees.The third space created by Starbucks has been welcomed by countless people all over the world. Schultz also resigned from the position of CEO in 2000 and only served as the chairman of the company. However, the world financial crisis in 2008 first caused a huge impact on Wall Street, and Starbucks, which has always been optimistic and sought after by Wall Street investors, was inevitably affected by this crisis. In the third quarter financial report of 2008, Starbucks It shows that the net loss in the quarter was 6.7 million US dollars, while the net profit in the same period in 2007 was 158 million US dollars. This became Starbucks' first loss-making financial report since it went public in 1992. After the financial report was announced, Starbucks lowered the company's 2008 profit forecast. .Prior to this, since 2007, due to the impact of the financial crisis on the global business to varying degrees, the company's stock fell from US$35 in 2007 to US$18 at the beginning of 2008. Affected by factors such as Starbucks’ overall cash flow situation, investors are increasingly dissatisfied with Starbucks’ performance. Starbucks’ annual revenue growth rate of 20% and annual profit growth rate of 20% to 25% are clearly planned by Starbucks two years ago. Encountered setbacks, under operating pressure, in January 2008, Schultz, the soul of Starbucks, came back to take charge of Starbucks again.After his comeback, Schultz said in a letter to all employees, "If we can be honest with ourselves today, we know that we have invested too much in systems and facilities in the previous stage of expansion, which has bred bureaucracy. From now on From now on, we have to return to customer-oriented development.” Nearly 15 years after the price crisis, Schulz is facing another crisis. Schultz decided to revive Starbucks.As a global company, Schultz revived Starbucks mainly from two aspects. First of all, after his comeback, Schultz began to clean up the unfavorable situation caused by the over-expansion of the US domestic market.Compared with Starbucks' grand plan two years ago to open about 15,000 stores in the United States and overseas markets within 3 to 5 years, on July 3, when it came back for less than half a year, it faced a continuous decline in performance. Schultz made the decision to close 900 stores worldwide and lay off 12,000 employees.Schultz told shareholders at the shareholder meeting that his fiscal year goal is to save $500 million in expenses.To achieve this goal, it can only be achieved by closing some chain stores and laying off employees.Schultz wants Starbucks to return to quality over quantity and to re-evoke the unique Starbucks coffee experience that American consumers remember.At the same time, in order to adapt to the long-term economic downturn, Starbucks is also making specific consumption strategy adjustments.Starbucks has launched a new breakfast set worth only $3.95 and a series of instant coffee, subverting the prejudice that Starbucks only launched high-end drinks in the past, and convincing consumers that Starbucks coffee is not so expensive.For a long time, people thought that Starbucks was selling high-priced coffee at $4.This time, Starbucks even trained its employees to tell consumers that the average price of Starbucks drinks is actually less than $3, and that 90% of Starbucks drinks are priced below $4.In the launch of the $3.95 breakfast promotion, customers can get a 12-ounce latte and a piece of oatmeal cake or coffee cake for $3.95, or a 12-ounce cup of brewed coffee with a breakfast sandwich or The burrito, which is also the first time Starbucks has paired food and beverages at a discounted price, is a common tactic used by fast food chains. In addition, although people have mixed opinions on Starbucks’s move to launch low-end instant coffee and take a low-end route, many people think that Starbucks is losing its value, but in the face of the huge instant coffee market and poor operating conditions, Shu Ertz is still very confident in launching low-priced instant coffee. "Many of the innovative measures we have implemented have begun to take shape, and they are becoming the traction force for the company's development." The impact of customers, Starbucks should do something about it, "We can no longer stand by and ignore the pressure our customers are facing. We keep a clear head and do everything we can to meet customer requirements." In addition to closing stores and changing sales strategies in the US domestic market, Schultz’s other strategy to revive Starbucks is to find new sources of profit from overseas markets, that is, to accelerate overseas expansion while shrinking business in the US. This is a common practice for many companies that have encountered development bottlenecks in the local market. In the first quarter of fiscal 2008 (October-December 2007), Starbucks’ total global revenue was US$2.8 billion, of which the international market reached US$540 million. Total revenue rose 33% year-over-year. Among Starbucks' overseas market businesses, here is just the most obvious example of Starbucks' business in China.While the U.S. business is sluggish, Starbucks' business in China is booming. After entering first-tier cities in East China, South China, and North China, Starbucks has entered second-tier cities and emerging markets. In 1999, Starbucks entered China. In just 10 years, China has developed into Starbucks’ largest market outside of North America. Starbucks coffee is spread all over China’s major cities, with an average of more than 60 stores per year. Rapid expansion, rapid development, in China The number of stores in China has increased rapidly from 362 in 2005 to 693 in June 2009, nearly doubling. The Chinese market has become an increasingly important development engine for Starbucks. From the perspective of Starbucks headquarters, China will still be developed by it in the future. An important market, "the number and scale of stores may exceed the US market."Therefore, in this revitalization strategy of Schultz, he pays special attention to fast-growing overseas markets like China. While Starbucks is closing stores and laying off employees in its local market and other regions, the speed of opening stores in the Chinese market is accelerating. Wang Jinlong, President of Starbucks Greater China, once said, "In China, Starbucks has neither layoff plans nor plans to slow down its development. "In the Chinese market, Starbucks' top priority is still expansion, and we need to allow more people to accept the culture it represents." However, compared with the "rejuvenation" of the coffee spirit, the primary challenge Starbucks faces in China is whether the Chinese people can gradually be attracted by the pure Starbucks experience in the birthplace of tea culture and let it gradually enter their lives.In order for Starbucks to attract more Chinese consumers, Starbucks' localization in China is getting bigger and bigger, just like KFC gradually localized after entering China. In the Spring Festival of 2009, Starbucks launched the "Classic Black Tea Latte" in the Chinese market. " and "Ruyi Black Tea Latte" two tea drinks.Since then, products with strong local flavors such as "Matcha Frappuccino" have been launched.The purpose is to allow Starbucks, which specializes in coffee, to make innovative breakthroughs in traditional Chinese tea culture. In terms of coffee, the first domestically produced coffee from Yunnan, named Fengwu Xiangyun, has also been sold in China.This localized innovative approach plays an important role in coping with the rising cost of raw material procurement, and also provides Starbucks with stronger price competitiveness. After his comeback, Schultz once said, "We must face the current challenges and know how we should deal with them." In this crisis, these countermeasures.