In 2006, Starbucks, the ubiquitous coffee retailer, closed a decade of astounding financial performance. Sales had increased from $697 million to $7.8 billion and net profits from 436 million to $540 million. In 2006, Starbucks was earning a ROI of 25.5% which was impressive by any measure, and the company was forecasted to continue growing earnings and maintain high profits through the end of the decade. How did this come about?
Thirty years ago, Starbucks was a single store in Seattle’s Pike Place Market selling premium roasted coffee. Today, it is a global roaster and retailer of coffee with more than 12000 retail stores, some 3000 of which are to be found in 40 countries ...view middle of the document...
Reasoning that motivated employees provide the best customer service, Starbucks executives developed employee hiring and training programs that were the best in the restaurant industry. Today, all Starbucks employees hiring are required to attend training classes that teach them not only how to make good coffee but also the service oriented values of the company. Beyond this, Starbucks provides progressive compensation policies that gave even part-time employees stock option grants and medical benefits – a very innovative approach in an industry where most employees are part time, earn minimum wage and have no benefits.
Unlike many restaurant chains, which expanded very rapidly through franchising arrangements once they established a basic formula that appears to work, Schultz believed that Starbucks needed to own its stores. Although, it has experimented with franchising arrangements in some countries and in some situations in the US, such as airports, the company still prefers to own its stores whenever possible.
This formula met with spectacular success in the US, where Starbucks went from obscurity to one of the best known brands in the country in a decade. As it grew, Starbucks found that it was generating an enormous volume of repeat business. Today, the average customer comes into a Starbucks store around twenty times a month. The customers themselves are a fairly well heeled group – their average income is about $80,000.
As the company grew, it started...