Whether working as a part-time employee, full-time employee, or supplier, Starbucks is one of the best companies to work for. Their dedication to their product and the employees speaks for themselves in their numbers. Sales for 2004 totalled, in millions, are $5, 294.2, which represents a 29.9 percent increase over 2003 (Murry 2005). Starbucks carries very little debt, which makes it an even stronger company. It was also sitting on $380 million in cash in the summer of 2004 (Rosato 2004). As Rosata said, “Starbucks, with little long-term debt and about $380 million in cash, has a stellar balance sheet.” The company finances their new outlets from their own cash reserves (Rosato 2004 p.124). Not only does Starbucks say their employees are their most important asset, they go out of their way to show it.
With more than 8,500 coffee shops spanning 30 different countries, Starbucks Corporation, headquartered in Seattle, Washington, is the largest specialty coffee retailer in the world (Murray 2005).
Starbucks began in 1971 when three friends with a love of coffee decided to open a small shop and offer gourmet coffee beans and coffee accessories. By 1980 when one of the partners decided to leave, Starbucks was the largest roster in Washington State with six retail outlets (Wilson, 2005).
Howard Schultz first joined the Starbucks team in 1982 after visiting them on a business trip as a supplier for kitchen equipment. He knew that he wanted to be part of Starbucks at the beginning, and spent the next year talking with the current owners before joining (Thompson et al. 2006). After spending time in Europe and seeing the upbeat and trendy market for coffee houses in Milan, he developed a vision of North Americans sitting in a Starbucks, drinking a speciality coffee and reading a paper or chatting among friends. His ideas however, were not shared by the other members of Starbucks who did not want to enter into the restaurant business, and were happy with being a retailer of speciality coffee. Going at it on his own, Schultz decided to open his own coffee retail shop, naming it Il Giornale. (Thompson et al. 2006).
By 1987 the company was up for sale, and it was up to Schultz to promote his vision to investors by raise $3.8 million to open over 100 outlets over the next few years. It was at this point where Schultz changed the name form Il Giornale to Starbucks, and redesigned the mermaid logo to more socially acceptable figure (Wilson, 2005).
Schultz goal of opening 125 stores in five years had a bleak look with the lack of management experience needed to develop a company which projected sales of $60million by 1992. This lead to the hiring of executive VP Lawrence Maltz who had 20 years of business experience, with 8 of those years as President of a public beverage company (Thompson & Gamble 1997).
The company’s first major stumble began in October 1987 when they opened up their first store in the Chicago market, with three more stores opened within six months. People in the city did not take to the idea, and between higher operational costs, and the cost of shipping products from their Seattle warehouse, the stores continued to lose money until 1990 (Thompson & Gamble 1997).
With Chicago stores finally showing a profit, and the expansion into Portland being well accepted by customers, the company ventured into California. Despite zoning issues in San Francisco, the market grew quickly with Starbucks coffee rated the best coffee in America in the LA Times prior to the first store even opening. As the five year mark approached, Starbucks had surpassed their goal of 125 new stores by opening 161 in that time period (Thompson & Gamble 1997).
In June 1992, the company decided to go public with the most successful IPO of the year. The money generated helped Starbucks fast track their expansion plan into new territories. Over the next three years, stores opened into areas which were not previously accessible with their current infrastructure. The plan was to open operations in a major city, to serve as a hub. Once 20 stores in the city were operational, expansion into surrounding areas began. This method became quite successful with stores first-year revenues higher than the past, and over 1500 stores opened by 1997 with only 2 closures (Thompson & Gamble 1997).
Between the time of 1992, and 1997, many strategies occurred to help lower the cost of store start-ups and generate broader customer appeal. Stores expanded seating capacities, and upgraded the atmosphere by adding accessories such as fireplaces, leather seating and couches. The stores also attempted drive-though availability, and opening kiosks in supermarkets, and building lobbies. The company also began to centralize purchasing, and consolidated contract work. Such things as equipment and display cases became standardize which allowed the company to save with discounts on bulk purchasing (Thompson & Gamble, 1997).
Everything Starbucks does is designed to enhance the quality and ambience of the great smell and taste of their coffee. From the farms to the brewing of the coffee, and every process in between, set standards and values that have been put in place by top management to ensure quality and consistence (Thompson et al. 2006).
Until recently, every Starbucks store was completely owned by the parent corporation. Schultz did not believe that franchising the stores will allow Starbucks to control the quality and customer service that Starbucks had built their clientele around (Thompson et al. 2006). As of 2003, Starbucks currently has approximately 2700 stores within the US and internationally which are licensed and pay royalties. These agreements allowed Starbucks to enter into market areas such as hotels and university campuses which were not previously attainable (Thompson at al. 2006).
Starbucks has always taken pride in their quality of their products. Quality starts right at the potential farming locations where Starbucks purchases their beans. Scheduled visits are maintained to insure that the highest quality of bean is sent to their roasting facilities (Thompson et al. 2006). Staff in the roasting plants are highly trained and able to identify quality by the colour and sound of the roasted beans. Automated roasting systems, and high-tech testing equipment ensures that the beans meet the highest standard, with entire batches of product thrown out which do no pass quality testing (Thompson et al. 2006). Starbucks has also mastered the transportation of their coffee by packaging in a vacuum-sealed container, with a one-way valve that allows gasses to escape, but prevents air and moisture from getting in. This has help increase the shelf life of the product (Thompson et al. 2006).
The company consistently looks for ways to improve quality of their product and service. For example, Starbucks innovated a prepaid card, which customers can load with $5 to $500 (Cardline 2004). The card can be automatically refilled on a monthly basis from the customer’s debit or charge card. In October 2004, there was $1 billion on 35 million customer cards (Cardline 2004).
Starbucks also began offering a gift card in 2004, which can also be reloaded automatically with a minimum of $20 per month (Cardline 2004). Customers listen to previews of musical selections and the store burns a CD with the selections. The music is from new, promising artists (Starbucks Mixes Mochas 2004).
Currently Starbucks coffee and be purchased at selected grocery and department stores. From the beginning, Starbucks had offered a mail-order catalogue, targeted at customers who had moved away from the Seattle area, and wanted to continue enjoying the product. In 2003 the program was discontinued with the drop in sales and the ability to purchase the products at most supermarkets. (Thompson et al. 2006).
In general, Starbucks has an advantage globally, with the western way of life being accepting around the world. Between media, clothing, and food, many American companies can successful enter into new global markets with little resistance.
Currently Starbucks has over 12,000 stores, with more than 3000 of those outside of the United States. Although issues have been brought up with concerns of stores opening up in China, they now boast over 400 stores in that country alone, making it one of their largest non-US markets. With a goat set for over 40,000 stores in the near future, they plan on focusing their expansion into countries such as India, Russia, China, Brazil, and Egypt (Starbucks to Doubles North America Stores 2006)
With their social and conscious efforts for individual countries, Starbucks has a simple system for expanding into new territories which is not change anything, or as little as possible. The main focus is to be able to walk into one of their stores, and not know where you are by looking at it. Although there are some cultural difference with certain products that do not sell well in other countries, to them it is all just coffee (Yunker 2006).
The corporate principles have not changed since its foundation, and everyone is expected to live by them. Management fads are attractive to companies because they tend to offer quick solutions, inflated results, easy implementation, and use flashy buzzwords to sell the idea. They tend to die off quickly when an organization tries to implement one, which makes them easy to identify from a useful management tool (Miller & Hartwick 2002).
Authors and analysts consistently report the company actually does live by their principles every day (Stopper 2004). Not only are employees reminded of the principles daily, there is a hotline for employees to report any violations of the principles. The fist two principles are: Provide a great work environment and treat each other with respect and dignity, and Embrace diversity as an essential component in the way we do business (Stopper 2004).
Perhaps the most remarkable thing about Starbucks is the loyalty of its employees. Analysts report the average annual turnover rate for quick-service restaurants is 200 percent; at Starbucks, the turnover rate for employees is 80 percent and for managers, 20 percent (Weber 2005). This is a definite reflection of the company’s attitudes towards actual treatment of employees.
Employees are called “partners,” which sends a hidden message of autonomy and respect (Weber 2005). Schultz had a belief that if you took care of all your employees that they would take care of you. When negotiating with the insurance carrier to include part time employees, Schultz belief is philosophy strong, “More than half of our retail sales force is part-time workers. That tells me that the majority of our customers are coming into contact with part-timers. How we treat our people is directly related to how we treat our customers and to the quality of our product. It’s inarguable that our part-timers are key to the company’s success.” (Rothman 1993).
In 1987, Starbucks became the first company to offer part-time employees the same benefits package as is offered to full-time employees, and they offer spousal benefits to same-sex couples as well as opposite-sex couples (Weber 2005). The company pays approximately 75 percent of the health care premiums. Other benefits include a free pound of coffee each week and a stock option plan where employees can purchase stock at 85% of the market price (Weber 2005). They begin with a wage that is above the minimum wage, and although the company will not divulge its salary and benefits scale, and employee in Boston reported a salary beginning at $8 per hour, where minimum wage is $6.25, and one is San Francisco began at $8.62, where minimum wage is $8.50 per hour (Weber 2005).
The company has a strong and comprehensive 24-hour orientation training program for new employees. Company executives attribute their ability to grow fast to having a stable workforce. Store managers and assistant managers go through a 10-week management training program (Weber 2005). Employee training goes far beyond basic coffee making skills. It includes customer service, brewing the “perfect cup”, learning how to specialize customer orders, and important housekeeping skills. At the end of the training, employees will know how to properly pronounce the different names, take personal responsibility in the cleanliness of the stores, and will able to sell customers home espresso machines (Thompson at al. 2006).
Although many companies in a similar business would find this amount of training extensive and too costly, Starbucks has the advantage of a low turnover rate which allows for this large amount of training. Staff who are better trained are likely to be more satisfied and remain at a job, then those who are not (Anthony et al. 2005)
Managers also received extensive training lasting 8 to 12 weeks long. Not only did their training include areas of store operation, procedures, and information systems, but more importantly how to manage people. The training given by other store and regional managers was designed to train a new manager to understand the value, culture and social responsibility that Starbucks considered part of their corporate culture (Thompson & Gamble 1997)
Conflicts in Staffing
Starbucks is not without challenges. Managers in both California and Florida sued the company for overtime pay, claiming they were performing duties not related to management. The company settled the lawsuit in California, not agreeing they really owed the money to the managers but to avoid prolonged litigation (Ouchi 2005).
Furthermore, as with all non-unionized companies, the union has attempted to invade the company to get a foothold in Starbucks on a regular basis (Holmes 2005). In June 2005, Industrial Workers of the World (IWW) filed a complaint alleging the company used illegal tactics to keep employees in new Starbucks from joining the union. The employees of the Starbucks located at 36th and Madison Ave. in Manhattan formed their own union in 2004, which is independent and not recognized by any other organization or agency. The leader of this union says it has won higher starting wages at their store as well as “recognition of repetitive stress injuries” (Holmes 2005).
Culture and Social Responsibility
Problems aside, it would seem that Starbucks treats its employees a whole lot better than other companies in the same industry, e.g., how many offer full benefits to part-times employees? The company has a dramatically lower turnover rate than other companies, which suggests employees feel that they are being treated fairly.
The corporation has shown the culture at Starbucks, which is one of support and open communication, respect and values. On September 11, the company closed all stores across the country to allow employees to be home with their families (Blassingame 2002). They established crisis management teams, frequent communications to all employees via email, counselling was made available to all employees, upper management flew from Seattle to New York, and they extended their benefits to employees who served in the military (Blassingame 2002).
Diversity at Starbucks is without question. The company is not only supportive of gender, racial, and ethnic diversity, it goes much further to “diversity of opinion, age, cultural experiences, family status, and sexual orientation” (Nagae 2005). They practice what they preach.
The company has a very strong social responsibility division and give back to all communities in which they are located (Starbucks 2005). Farmers in developing nations that supply Starbucks with their beans are insured long-term agreements, and sufficient payments that provide a higher level of living standards, and guarantees of financial security (Thompson et al. 2006).
As a partner of Conservation International, Starbucks has promoted coffee cultivation methods that protect a healthy environment (Thompson et al. 2006). Farmers do no use pesticides, herbicides, or chemicals and clean ground water is used to protect ecosystems. Farming techniques are also used that develop higher yields in smaller fields that help protect against soil erosion on mountainsides (Thompson et al. 2006).
Within the corporation, Starbucks has an Environmental Committee, and a Green Store Task Force which looks at ways to minimize waste, conserve energy, and assist with local environmental efforts (Thompson et al. 2006). Customers are also offered a 10 cent discount off coffee purchases for supplying their own mug (Thompson et al. 2006).
Starbucks environment policies also extend to suppliers who are encouraged to use energy-efficient products and eliminate unnecessary packaging. (Thompson et al. 2006). Although it is widely considered in business that profits and the environment are considered to be separate from each other, and caring for one often means hurting the other, Starbucks seems to look at the long-term aspect of this issue.
Customer service is a top priority for Starbucks, and they understand that proper training, low turnover rates, employee empowerment, and employee satisfaction are all key factors in providing customers the service desired. Not only have they created the staff development model, but the corporate culture has been developed to fully promote a strong working relationship between management and employees, giving the employees the empowerment to provide unsatisfied customers with a free coupon for a coffee no matter what the issue (Thompson et al. 2006).
Starbucks has been able to build a brand name that is recognizable around the world which represents quality, style, and customer care. Despite some short fallings in some of Starbuck’s financial decisions, many companies should look at how Starbucks treat their staff, their suppliers and the environment, and make it their vision to develop a business model around the same values. Their growth throughout the United States, and internationally has been unstoppable since the start, which is all due to the belief that every dollar you spend on your employees shows up on the bottom line (Rothman 1993).
The company is growing and there seems to be no stopping it. It just expands dramatically each year and it is offering new services and products to keep the consumer coming back. Their belief in employee benefits and strong labour-management has lead to turnover rate that is far superior to those other companies in the same category as Starbucks. The company quickly realized that the financial cost of employee turnover far outweighs the extra cost of benefits. Combined with solid negotiations with insurance providers, and a younger, healthier work force, Starbucks is able to provide viable coverage at minimal costs (Rothman 1993).
The advantage that Starbucks has over their competitor is that the value of their employee has existed from the very beginning of the company, unlike others that try to follow management trends and fads.
What makes Starbucks truly different than most companies, and the “Best Company to Work For” is their belief in doing what they preach. Many other company have stated similar values, developed equally in-depth training modules, put social and economic responsibilities in their mission statements, and state that their “employees are their greatest resource.” While these companies use these terms and goals only at face value, and do not make the commitment to follow through on their promise for a better company, they in fact neither have the commitment nor the desire to implement a positive work environment which they can be proud of. Very few companies can equate the cost of additional support and training for their employees to the company’s bottom line. More importantly, although such things at additional training have a high short-term cost, they typically have long-term benefits with financial gains.
Despite the recent debate on their move into China, Starbucks has proven that with the correct store placement and motivation, there is no location in the world that they cannot be successful in. Over the next few years it will be important for the company to focus on developing strong relations with these new countries to help facilitate expansion. As companies such as Wal-Mart needed to address the issue of worker relations and unionization in China where there company needed to accept government-sponsored labour relations, so must Starbucks be ready for these outside forces affecting their business model.