At one time, Starbucks was golden. “Everything Starbucks did in the past, more or less, had worked,” Howard. Schultz, the CEO, said in an interview in January, 2011 at the company’s headquarters. “Every store we opened was successful, every city, every country.” This led--not inevitably though seemingly so--to a phenomenal intoxicating growth in the number of stores. In 1987, Schultz bought Starbucks, which at the time had just six stores. By 1995, it had 677 shops, and by 2000, when he stepped down as CEO, it had 3,501. According to Schultz, “Growth had a life of its own — and that’s O.K., when you’re hitting the cover off the ball every time, but at some point, nothing lasts forever."  The New York Times reports that after decades of "breakneck expansion . . . tight-fisted consumers abandoned" the megachain's stores during the recession. Starbucks' overreaching under Schultz was thus exposed. Ironically, it was then, in 2008, that Schultz returned to Starbucks as CEO to keep it from becoming the target of a take-over or going bankrupt. Starbucks "ultimately closed 900 locations worldwide and cut $580 million in costs." Fortuantely, by April 2009, "same-store sales, though still down from a year earlier, were finally rising. By the holidays, they had turned positive." In spite of this turnaround, lest history repeats itself, is should be asked whether Schultz had been cured of his taste for the growth drug.

According to The New York Times, "Friends and colleagues say this hellish experience left [the CEO] a changed man." Specifically, he had become more humble or realistic concerning how much expansion a given customer base could allow. “We have won in many ways,” he told employees after the recession, “but I feel it’s so important to remind us all of how fleeting success and winning can be.” In actuality, business is not like a game that lasts for a set period then ends; a business does not "win" or "lose."  That analogy fails even if it seems to have value in motivating susceptable sycophants. Instead, running an ongoing company is like riding a roller coaster through boom and bust. One does not "win" or "succeed" during the ongoing ride. Even this analogy can only be partial, for managers are not passive riders; their stategic decisions can affect their firm's profitability.

Even if the so-called hellish experience changed the CEO, "(o)ne thing hasn’t changed: the man dreams big." Specifically, his post-recession strategy as of Starbucks' annual stockholders' meeting in March of 2011 involved expanding into still more products and in markets like China. According to USA Today, there was "one core item on the agenda"--growth--"but in a very un-Starbucks-like way." In fact, the reporter took pains to stress the different nature of this growth. "Still smarting from the lessons of the recession and about expansion, it’s clearly not growth in the traditional sense for Starbucks." I beg to differ with respect to this qualification; the growth being planned was very Starbuckian, and thus not reflecting any lessons that could have been learned from having overexpanded before the recession of 2008. While diversifying the product line into a variety of consumer packaged goods may seem at first glance to represent a different kind of growth, opening more stores abroad is errily similar to the overexpansion that occurred prior to the recession.  Simply stated, Schultz loves to open new stores, even if they happen to be on the same block as an existing store. Although power comes with expansion, it is growth itself that is being sought in such an exercise of empire-building.

In Success, Ostdick writes that Schultz referred to China as a significant opportunity and to diversifying into consumer packaged goods as growing another business. Ostdick cites a stock trader after a Starbucks' presentation in December of 2010 as being convinced of Starbucks' "ability to evolve from a predominantly retail business into a well-diversified consumer packaged goods--of CPG--and retail platform." The company may indeed have been able to diversity thusly; the question is whether that strategy fits with the company, given its track-record of over-expansion. In other words, it hasn't done well under the growth drug.  Similarly, an alcoholic might be able to work in liquor store, but that doesn't mean that he or she should.

As of early 2011, Starbucks already had roughly 430 stores in mainland China and the company was planning to have 1,500 there by 2015. India beckoned as a potential growth market in this "go-go growth" strategy as well. Additionally, Schultz had the words “Starbucks Coffee” removed from the company’s green mermaid logo because he wanted, according to the paper, to "waltz his brand up and down the grocery aisles." The product strategy was to sell a wider variety of drinks and foods, such as Kind fruit and nut bars, in grocery stores as well as in the company's own stores. The company was even selling a book on love. Observing one being purchased, I asked the customer if it was a book on coffee. "No, it's on love, actually. I didn't know Starbucks was into that sort of thing." This statement illustrates the risk to Starbuck's brand identify from wandering off into fields of love and even packaged goods. Diversifying packaged products rather than concentrating on developing new coffee-based items could stretch the talent too thin and compromise Starbucks' identity.

At the stockholders' meeting, Schultz said new Starbucks-branded products could include teas, juices “and who knows what?” One might also ask: who knows what Starbucks will be?  He said the consumer products expansion will ultimately “rival” the size of sales at Starbucks retail stores. What the company is known for could thus change substantially--perhaps into something like a nondefinitive blob. Trying to be everything to everyone, as though conglomerated P&G wannabe, the company almost synonymous with the American coffee house was positioning itself to lost its strategic advantage--essentially losing the soul of its identity to wander the isles of grocery stores rather than try to capture the coffee isle. Does taking such a risk, particularly in the wake of excessive expansion, merit a record CEO bonus? Beyond bad strategy, Starbucks might have been suffering from a corporate governance system too cozy with its CEO.

Howard Schultz did not give up the growth ghost after all; in fact, he was bragging about it at the stockholder meeting, saying "fasten your seatbelts"--essentially saying, "you ain't seen nothing yet!" He was simply shifting the expansion off shore and actually widening it by expanding by diversifying at the product level. That is to say, he was still being seduced by the drug of what he had called "go-go growth." Even so, The Wall Street Journal reports that he received a  record $3.5 million bonus for the year ended October 3, 2010. The bonus, his biggest ever, far surpassed the $1 million he had received the year before.  The board was presumably discounting the chance of repeating the bubble of over-expansion that had almost ruined the stockholders' value--perhaps being overconfident of Schultz's recovery. The board would be well advised to remember that what goes up too high or too fast is apt to come crashing down when it is least expected, and that the "vision" of a charismatic leader can be intoxicating. The surging Chinese economy could falter, for example, with Chinese consumers quickly going back to basics, especially given their history of subsistence consumption and saving. 

A Changed Starbucks.

                 A Changed C.E.O.