Interview: For the record
>> why doesn’t starbucks appeal to the biggest institutional investe “for the record” asked howard schultz and jim donald. among the biggest restaurant companies you actually have the smallest percentage give us sense how do in terms of the stock.% of institutional ownership.% you keep the big institutional investors interested in the stock?
>> i think the only word i can think of is performance. and if you’ve been a holder of starbucks this year alone, the stock―your increase is up over 70%. i don’t think there’s retailer or restaurant that you can point to that thathad that kind of year. let’s look back every year. starbucks story began at $200 million in terms of market cap in june of 1992, we’re sitting at $23 billion today. i think it speaks for itself.
>> you think big institutional investors are making a mistake?
>> over the long term, institutional investors have turned their back on starbucks have been sorry. i can silt here today as i have in the past and tell you that i’ve never been more excited and enthused about the prospects of the company as i am today because of the strength of the brand, and the leadership that we have in the company and i must say not because jim is sitting here, but the fact that jim has come to starbucks with a level of insight and guide answer that i think is going to really serve us well.
>> jim, what is going to look different when you become c.e.o.?
>> just a continuation, it’s a―it’s a continuation of all the things that we’re doing. obviously this company has been successful for a long period of time will continue to be that way. as i came in and saw all the moving parts i saw that it was doing 100 things 1% better each and every year i think howard said it best. howard always says, you can’t forget where you came from and growing big and staying small something that i think about every single night. i think about all of the partners around the world and experience they provide in
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Listen Interview: For the record
>> your typical cup of brewed -starbucks coffee just a few pennies worth so why does the company wantof ingredients making for heavy profit margin.% to sell you a sandwich? howard you’re making this big push into food, give us a sense why.
>> i think our customers have told us for years that our food wasn’t that good. to be honest―honest with you i think one of the achille’s heels is we in the long we did not want fob a restaurant.% refused% -to bake anything.% run we’ve cracked the code on how to bring great innovative food into the company, have it be fresh, have it be innovative and the kind of things that people would expect. also we want to surprise our customers. what we have seen this year d jim’s leadership with his team that we have really reinvented the whole food experience at starbucks got more food in the pipeline that we’re excited about.
>> what is interesting is the food growth really has been accelerating, but at the lower profit margin business. so why the focus?
>> well, you could say that it has been accelerating nicely, i might add. in the mix, not just the mix of that one particular product or the margin on that one particular product it’s a combination of bringing people into the store, where they purchased beverage or purchased pastries to go with that.
>> pru changing the face of what starbucks looks like in terms of the product? because you also have the music bars that you’re testing now where cbon summers can burn their c.d.’s.
>> i think that it’s critically important that over the long run starbucks maintains and enhances our leadership position in credibility of being the authority around coffee. the challenge and art form with any great retailer i think ifis how do you do that while creating new and exciting products.% you look at this year alone where our music has become an important driver of excitement, and interest with% -our customers, we’ve demonstrated that we can create this kind of balance. but we are and always will be a coffee company first.
>> my understanding, for example, where a grande latte about 15 cents of product for coffee that cost more than $3. is it all really about selling the coffee?%
>> it’s not the profit. i think it’s what we stand for. it’s what our customers expect from us. i think when you talk to our customers you ask them the spral u proposition of starbucks. they givespecifically, tell me about% us very high marks, still today for value proposition of what starbucks represents. i think that speaks to the equity of the brand, the experience, relationship they have with our people. and most importantly hardest thing to achieve in any market , that’s the trust that people have in what starbucks stands for.
>> give us a sense of how it translates overseas because you’re make just but it’s a business that’s% making this big expansion internationally.% turning profitable this year. so jim what’s the goal?
>> we’re in 34 countries right now. but the brand translates very well oversees. we go market by market . we can talk stories all day long about it being a third place over there as i think howard ran into nuns in japan that were from indiana. i justwell.% got back from london i ran into some partners from connecticut over there. and experience now it’s a global experience and something thatso the starbucks% our customers have come to expect no matter what country that we’re in.
>> what about in terms of profitability. because as i said just turning profitable this year in profit margin is about 10 percentage points less than domestic business. how quickly can you close that gap?
>> i think if you examine what we have achieved we opened our first international store in japan in 1996. and in less than eight years now we’ve got over 2,000 stores almost 35 countries. we would be profitable in 2004, we were. i think this is the beginning of a long term significant business for our company which we’re going to have at least 15,000 stores internationally. a very profitable business that will mirror our domestic business. i think long term growth of the company is we will challenge over the long term the fact that international will one day be larger than the u.s. for example we have less than 200 stores in china. that market could be larger than america.%
>> let me make sure i understood, you’re saying interthat i can tallly could be bigger than the u.s. how quickly?
>> clear to us that the number of people that live outside of north america, the relevancy of the brand and experience, the iconic status of starbucks, able to do this year in france was stunning. and as i just said, the unbelievable opportunity that% -we know we have in china.
>> starbucks shares are trading near record high. how does the company plan to keep investors interested? when we return we’ll ask howard schultz and jim donald.
