Howard Schultz says he has devoted a chapter to China in his new book. Provided to China Daily

Starbucks CEO outlines remarkable resurgence of the coffee giant in his new book

Shanghai - When Howard Schultz returned as Starbucks CEO in 2008 after an eight-year hiatus, the coffee chain was facing an avalanche of problems.

Its stock fell 42 percent in 2007, creating huge headaches for the now $10-billion company. Meanwhile, its reputation as a culturally respectful purveyor of the world's finest coffee was taking a battering, compounded by the effects of the global recession. Stores were mushrooming, but the brand's strength was being diluted.

"There was a feeling inside Starbucks that we were invincible, but we weren't," Schultz said of the gold rush that saw the Seattle, Washington-based company rapidly expand to its current 17,000 stores. When the global credit crunch hit, it had to shutter hundreds of newly opened stores.

He spoke about the company's former dip in fortunes in Shanghai in April at the launch of the international tour for his new book, Onward: How Starbucks Fought for its Life Without Losing its Soul.

Starbucks' fall from grace was symbolized in China by a blog and media-led campaign to boot its relatively small and incongruous store from Beijing's 600-year-old Forbidden City, after it had enjoyed six years of brisk business there. Although initially popular with punters, the outlet was ultimately demonized as a symbol of American cultural power.

Some compared its "invasion" of China's national treasure to America's bombing of the Chinese embassy in Belgrade during the 1999 Kosovo crisis. Others asked why the guardians of the Palace Museum could not have installed a traditional Chinese tea shop instead.

By mid-July 2007, when Starbucks had about 250 stores in China, this controversial outlet shut up shop, apparently by mutual agreement.

Now Starbucks is attaching great importance to China, according to Schultz, the inspirational figurehead who revived the brand's flagging fortunes after returning to the helm. He even titled the final chapter of his book Ni Hao, "hello" in Chinese.

"It is the only country I devoted a chapter to, so that should tell you something," Schultz said, who aims to more than triple the number of Starbucks stores in China from 400 to 1,500 by 2015.

The chain also aims to more tightly control how its China stores are managed. It announced earlier this month that it plans to acquire full ownership of all its stores in China from joint venture partner, Maxim's Caterers Ltd.

The agreement will allow Starbucks to boost profitability in China through direct control of more than half of Starbucks stores in Chongqing municipality and five other provinces, including Hainan and Sichuan, the company said in a statement.

"China will be the second-biggest market outside North America," Schultz said. "Most of the new stores will be in second- and third-tier cities, where our research shows that awareness of Starbucks is as good as in the big cities we are already in."

Part of Schultz's radical transformation of the brand - which is now banking on the success of its VIA instant coffee product - involved dropping the word "coffee" from the logo. This paved the way for the company to expand outside its traditional outlets and focus more on its consumer packaged goods in supermarkets and grocery stores.

"We're looking to build a portfolio of $1 billion brands," said Schultz, who is also giving Seattle's Best Coffee, one of Starbucks' subsidiaries, a revamp. "We're going to be developing lots of food and beverage products that don't have any coffee in them and we're going to be bringing those products to China.

"I think you will see more food that is consistent with Chinese tastes, both sweet and savory. But we want to see innovation around that," Schultz said.

VIA was launched in China in April and is already exceeding expectations, said Schultz, who expects VIA to become a billion-dollar-a-year business. Starbucks will soon start offering more products that use the VIA technology, he said.

"We're going to start doing business here in a way we've never done business before," he said, giving the example of plans to grow coffee beans in Southwest China's Yunnan province.

In the ghost-written book, Schultz outlines how innovation and his love affair with the personalized nature of Italian coffee culture lie at the heart of Starbucks' rebirth. He explains in five emotionally charged "parts" how he achieved this turnaround. The parts are named, respectively, Love, Confidence, Pain, Hope and Courage.

"I also wanted a written record of the lessons learned, and for young entrepreneurs facing troubles in these difficult times," he said.

The book is easy to read and no doubt of use to budding entrepreneurs. It is also peppered with sports analogies from the boy who escaped from the Bronx courtesy of a football scholarship. Readers who are pressed for time can skip to the epilogue, or Tribute, which sums up the author's roadmap to success during his second term as CEO.

Schultz cites the following ingredients: being the undisputed coffee authority; igniting the emotional attachment with customers, which he achieved by establishing a loyalty program and venturing into social media; expanding Starbucks' global presence; being a leader in ethical coffee sourcing and sustainability; and delivering a sustainable economic model, which involved a supply chain overhaul, among other measures.

However these points fail to capture the essence of Schultz's leadership skill. One of the keys to Starbucks' success is the way it has preserved its place at the center of communities, providing a "third base" for customers outside the home and office. But its success also boils down to Schultz's knowing when and how to send out strong messages of intent at crucial bends in the river.

When he returned in 2008, he closed 7,100 stores in the United States for several hours to re-educate baristas on how to pour the perfect espresso, an unprecedented gesture that cost the company $6 million.

Similarly, when it came to the annual Starbucks managers' meeting in 2008, an event worth approximately $30 million to the host city's economy, he chose New Orleans, which was struggling to recover from the effects of Hurricane Katrina three years earlier.

At the meeting, U2 front man Bono impressed upon store managers the need to fight against AIDS in Africa by promoting a new line of "RED" products in their stores to generate proceeds for the singer's charity. Meanwhile, Starbucks employees put in 50,000 man hours of charity work in the disaster-struck city.

"Consumers want to support companies that share the same belief systems," Schultz said. "I painted yesterday (here in Shanghai). I talked to children at a school. Then we toured a nursery home, and shook the hands of the people there."

"We wanted to earn the respect of the Chinese people," he said. "Our business in China used to be mostly expats. Today it is mostly Chinese."

He also spent four hours talking with 800 Chinese store managers, who admitted they were shocked at his transparency about the company's problems. As another gesture of goodwill, proceeds from the royalties of the Chinese-language version of Schultz's book will go to the Starbucks Foundation and the CUP Fund.

This points to another of the man's natural talents: he is nothing if not a marketing genius, eschewing traditional forms of advertising to build one of the best-known brands in today's consumer-driven society.

Even the Forbidden City incident was a winner in terms of raising awareness of the brand, and what it cost in terms of goodwill, Schultz has taken pains to make up for.

"You can't build a great company by just serving your customers. You must also serve your people," he said, explaining how he refused to do away with healthcare plans for employees to keep shareholders happy during the credit crunch.

He described his decision to close 600 stores - 8 percent of the US retail profile - and let go of 7 percent of Starbucks global workforce as heart-wrenching.

"The decisions we are making now in China are disciplined, thoughtful and researched", he said, adding that the hubris that led to Starbucks decline, and swathes of layoffs, is now gone.

China Daily