Newco Shift Forum 2018
Kevin Johnson, CEO of Starbucks, in a wide ranging conversation on the role of an iconic retail brand in the age of Amazon
The Starbucks brand is ubiquitous — especially for anyone who’s visited a major city around the world. But what’s less well known about the iconic company is its long term commitment to, in its CEO’s words, “redefine what it means to be a public company.” To kick off the second annual Shift Forum, we invited Kevin Johnson, CEO of Starbucks, to join us in conversation about the challenges and opportunities driving a company that, even in an age of Amazon, opens one new store somewhere in the world every four hours. Below is the video interview, in full, and a transcript, edited for clarity.
John Battelle: Please join me in welcoming Kevin Johnson. He’s got his Starbucks cup. You are on brand, brother. [laughter]
Kevin Johnson: I only saw one water up here. I thought I better bring my own beverage.
If you walk around a major city, the scope of Starbucks hits you at every corner. Tell us how many stores, how many employees, how many countries? Give us some metrics that help us understand this $80 billion market cap company.
Over the last 47 years, we’ve grown to a company now with over 28,000 stores in 76 countries around the world, over 350,000 partners. We call all our employees “partners.” 350,000 partners who proudly wear the green apron serving roughly a hundred million customers a week.
A hundred million customers a week. Give me the number of hours between store openings?
We’re opening a new store globally on average about every four hours. Last year, we opened 2,200 stores globally. Those stores performed higher annual unit volumes than the prior generation. We continue to open stores in communities where there’s more opportunity, more demand, and where the brand has an opportunity to succeed.
Starbucks as a brand sometimes gets…It’s on every corner. You’re rarely very far from a Starbucks, particularly in a city. It has this ubiquitous quality to it. When I first became aware of Starbucks, I was not aware of the values and the mission and where the founder’s vision came from. Can you give us a sense of your mission and what the values are that guide the company?
I give Howard (Schultz, founding CEO) all the credit in the world. Certainly, this transition from what I refer to as a “founder-led” to a “founder-inspired” model is all about staying true to the mission, the values, and the guiding principles that built the company to what it is today. One of the things that attracted me to Starbucks is that I’ve known Howard for almost two decades, I’ve been on the board for nearly a decade.
When Howard approached me to join the leadership team — the mission statement of the company is, “To inspire and nurture the human spirit — one person, one cup, one neighborhood at a time.”
That mission statement has two very relevant attributes of it. The brand in what we try to create in our stores is human connection, recognizing the human experience.
As I travel around the world and I talked at round tables with our partners and customers in any part of the world, the one thing that everyone of us in this planet has in common is the human experience. It’s grounded in that.
The second thing is grounded in the power of one — one person, one cup, one community. Every one of those stores, 28,000 stores, represents a community. It’s a team of great partners who create that experience in our stores every day that really is about human connection over coffee.
We are in the people business serving coffee.
One thing about Starbucks that I’ve noticed is that a lot of those people who are sitting there having coffee with headphones on, buried in a laptop. You’re from the technology industry, Microsoft to Juniper, an industry that has disrupted this idea of human connection. I’m going to get to Amazon in a second…
How do you respond to that in terms of the goal of creating a community connection in a store when you have these forces in technology that seem to be extra pushing the other direction?
First of all, the concept of Starbucks was built around something called the third place, which is a warm, welcoming environment that’s not your home and not your work, where you can go and you can congregate. If you want to read the newspaper, if you want to share a coffee, converse with a friend or somebody, it was the third place.
If you think about over the last two decades, and really in this last decade, what technology has done is dramatically amplified what I refer to as the “need state of convenience.” I can sit on my couch at home, and I can order something that will be delivered to my home tomorrow. I could shop from home, shop from my couch.
That need state of convenience is something that consumers seek and want to have in their experience. It doesn’t mean that they also don’t use or appreciate the need state of what I call community or connection. For us, it is about embracing both. It’s not about the tyranny of “or.”
We have to stay true to who we are and what we try to create in our stores around human connection. We’ve also extended that to a digital mobile relationship with customers that allow them to do mobile ordering. We’ve built stores that have drive-throughs. Those are just two examples of ways for customers to interact with Starbucks around the need state of connection.
There are implications of these. Looking back, I was reading a Fortune magazine article a year ago. Headlined on the article in Fortune was an epidemic of human loneliness. One of the contributing factors is that as humans, we are tribal. We get energy from one another. We communicate and share ideas and connect. There’s energy created in those relationships.
How many times have you gone to dinner, you see a family of four sitting at a table at a restaurant having dinner, and all four members of the family are buried in their mobile device? I’ve been guilty of that, I’m sure, time or two, as we all have. That is one thing that is contributing to what we think is potentially an epidemic of human loneliness.
There’s neuroscientists and researchers that are studying this. In many ways, what we try to do at Starbucks is stay true to that mission statement of human connection but acknowledge that the need state of community is sometimes what customers are looking for. Other times, it’s the need state of convenience.
Maybe a mother that’s got their children in the car, taking them to school or taking them to soccer practice, and just has time to go through the drive-through. Maybe the person that’s hurrying to get to work or get to school. They want a mobile order and pick up their coffee. We have to be great at both. That is, in many ways, the new opportunity. We’re very optimistic about how we’re approaching that.
Now we’ll get to the Amazon question. Amazon has retrained consumers to not necessarily feel like they need to go to the mall. They don’t need to go down to the corner store. Soon enough, you’ll be able to not get it tomorrow but in an hour. If you’re in San Francisco, you already can get it in an hour. With malls dying and so many of your stores attached to that trend, how do you rethink what retail means?
It is true. If you look at mall traffic, it has been declining for the past several years. For Starbucks, fewer than seven, eight percent of our stores are in malls. We have seen some impact in our mall stores.
I believe there are two transformative elements that are required for all retailers to survive in the future. The first is experiential retail. Is a retailer creating an experience in their stores that customers seek out as a destination? That needs to be augmented then with a digital mobile connection. Those are the two transformative elements that we are very focused on at Starbucks.
Do we create the experience in our stores such that it’s a destination, a bricks-and-mortar destination? Do we extend that experience to a digital mobile experience? Our belief is that by doing those two things and doing them well, that we’re going to be able to continue to differentiate and create the demand for what we offer our customers.
As a third place, it strikes me that the third place prior to Starbucks was the public square, which was a public place where people gathered. There were, of course, coffee houses and so on. This idea of a public good, a public commons, is necessarily a place where politics breaks out. You have had politics break out at Starbucks in all sorts of ways. I’m curious, what’s different in the last 13 months? Anything?
Let me go back to the mission and the core values of the company, because one of the things that we are clear about as an aspiration is to redefine the role and responsibility of a publicly traded company. Yes, we have an obligation to create shareholder value and all the things that a publicly traded company has.
But we also and always have had a social impact agenda in addition to our shareholder value creation agenda. The reality is, those two things are connected, and they go way back. You go back to many, many years ago when Howard first started building this company.
Being one of the first companies that offered part-time workers of 20 hours or more healthcare insurance. We call all of our employees partners, because we give them equity in the company, called Bean Stock. They are partners. They are shareholders. They are partners with us building this company.
We have since focused on things around a Starbucks College Achievement Program through a partnership with ASU, where we’re now helping our partners who want to go to undergraduate school and get a degree through ASU and graduate debt-free. We provide that opportunity.
You’ve had your first 700 or so graduates, haven’t you?
That’s right. I think we’ve got over 9,000 students enrolled and we continue to focus on that. We have and always will have a social impact agenda that is connected to our mission. It begins with taking care of partners. Then it extends into, how can we leverage our scale for good?
In fact, the social impact agenda that we have is woven into our strategy as a company. It’s something we review with our board of directors as part of our five-year strategic plan.
We look at the things that we think we are uniquely capable of doing and that align with our agenda — things like sustainability. We source coffee from over 350,000 coffee farmers around the world. We invest in partnership with Conservation International to make coffee the first sustainable natural resource.
Programs around opportunity, whether it is the commitments we’ve made to hire veterans, military veterans and their spouses. Commitments that we’ve made around Opportunity Youth, the six million or so young people in this country between the ages of 16 and 24 who are not in school and not in work — we’ve committed to hire a hundred thousand of those young people. Opportunities for refugees, globally.
I wanted to ask you about the refugee…Because that was significant, particularly with the refugee crisis of last year and the year before. Did that reach the board level? Was that a decision that was taken slowly? How does the organization make a decision like that?
The first thing we do is we’re very clear about the pillars of our social impact agenda — sustainability, opportunity, and community. Within each of those pillars, we outline specific things that we set as goals and initiatives that we’re going to drive and hold ourselves accountable to.
In the area of opportunity, we had set a goal to hire 10,000 veterans, military veterans, or their spouses. As we began, we actually exceeded that goal and raised the goal to hire 25,000 military veterans and spouses by the year 2025.
It was our military veterans that had suggested to us that there were a number of refugees in America that had been accepted by the American government. They were refugees from Iraq and Afghanistan that had served the US military as translators and interpreters during the Iraq and Afghanistan wars.
Our military veterans were at the center of helping us identify these people who had basically served our military veterans in service who are now here in America. For us to extend what we had worked on with our veterans to these refugees…Now, the refugees was something that was a global initiative as well, because there are many countries accepting refugees.
It’s an example of what is core to our mission and core to our values. Now, as you point out, sometimes these things get politicized and that’s not our intention. It’s part of what we’re trying to do to reach out and create opportunities for people in the countries that they reside.
Do you feel more pressure or maybe even more desire to have a stronger voice in politics, as I set up earlier, given the way that your home country is being run?
As a citizen, of course. As a citizen, I think we all feel that way. We care about our country and we want to have a voice and we want to speak up.
As the CEO and representing Starbucks, I’ve got a responsibility to make sure we are doing those things that are consistent with our mission and our values that have gotten our company to where we are.
That’s why I think we are a unique brand and a unique company — because we do embrace a social impact agenda that oftentimes can get politicized. But that doesn’t stop us from doing what we believe is right for our partners, what we believe is right for our business, and what we believe is right to create the environment in our stores for a warm, welcoming environment for all customers.
Are there any policy issues that are currently in the news or that are coming up that you have a strong point of view about that you might want to let us in on? Are we about to hear any news …?
You’re not making any news here today, but I think one of the topics that we have been in the press about relates to DACA. We have a number of partners who are DREAMers who are partners of Starbucks.
We’ve been vocal, along with many other businesses, that we think the right thing to do is to figure out an appropriate resolution for these young people who have grown up here in America and are contributing to society to continue to have that opportunity. That’s an example.
Part of the thing that we talk about here is how very large companies handle this very loaded term of “innovation.” Eric Ries is next. He wrote The Lean Startup and has a consultancy to help companies figure out how to innovate. What’s your approach to this?
For us at Starbucks, and I think this is probably true of any major consumer brand, is that if you’re not constantly reimagining the art of the possible in ways that allow you to increase your relevance to the customer, then by definition you are becoming less relevant.
For us, we have to constantly reimagine everything from how we design our stores. We reimagine the food and beverage offerings we can create customers. We have to reimagine how we extend the brick-and-mortar experience to a digital mobile experience.
You look at all those things as innovation agendas. What are we doing to accelerate the pace of innovation on store design, on food and beverage innovation, on digital?
But we extend it even further. You think about what we have done and are doing around the benefits for our partners. An example would be China — a very significant market opportunity for us. We’re at about 3200 stores in China. It is our second largest and fasting growing market. One day it will be larger than the US. We are building more company operated stores in China and we’re going to continue to grow.
We recognized in China, for example, for our partners in China, one of the most important things for them was being able to care for their aging parents. We worked to create the first of its kind insurance program, catastrophic insurance, for parents that we gave to our partners in China as an example. That’s another example of innovation and reimagining the work you do.
For us, it’s constant. I would also say that any organization with the size, with the scale and complexity that we have to deal with, scale and complexity oftentimes can slow that pace of innovation. It’s hard. You have to find ways that allow you to not be afraid of taking risks, making change, and also not be intimidated by the scale at which you have to make change.
I invite the audience to the microphones please. Come up to the mics if you have a question. I have one more for you before we go to that.
When you talk about the benefits to your partners, the college benefits, the healthcare for 20-plus hours, death benefit in China, those are the kinds of things that activist shareholders can say, “Those are not necessary. That should be profit. That should go to your EPS and, therefore, into my pocket as your shareholder.” Have you run into that resistance? How do you handle it?
I’d say first we’ve been very clear and transparent with our investors that these investments in taking care of our partners pay dividends back to the company. They say, why is that? People say, how is it that Starbucks can attract the kind of partner who is able to connect with customers, serve them, and create that kind of an experience?
The answer is because we are an inside out company. We start by taking care of our partners. We have much lower attrition than many others in our industry. We can prove that in stores that have longer tenure of partners they perform at higher profitability.
Part of it is our responsibility to build a case on how this helps us to attract the caliber of partners who proudly wear the green apron, how we retain them, how that translates into the customer connection, and how that translates into fueling our business. That’s on us and our responsibility to build that case and communicate that. That’s what we do.
All right, we have questions over here.
Delegate: Hi. Chris Mayer. I work with EY. Maybe this is a broadening of John’s last question. You talked about having to do what your values tell you you have to do. Sometimes that takes in political stances or stances that turn out to be political. I think that frightens a lot of people in your position. I’m wondering what kind of repercussions you’ve ever experienced, if any, when Starbucks has taken a position like that.
I would say it’s not our intent to necessarily make some political policy statement. Others with any broadly visible consumer brand can interpret things we do and try to pull us in to make us political.
The fact is we serve a hundred million customers a week. They have all types of views and perspectives on what the right thing to do is politically, but for us I think it has to do with having the courage to stay true to doing what’s right for us. Are we doing the right thing for our partners?
Not every decision is an economic decision. You have to look at what the brand, what the culture, and the values are that got us to where we are today. Much of my job is having the wisdom to know what to stay true to and the courage to change what I need to change.
For me, the mission, the values, and the core principles are something that I’ve learned through my travels and just over the last three years in connecting with our partners and really understanding not just intellectually but understanding emotionally what this means to our people.
I get up every morning knowing that it is my job and my responsibility to serve those 350,000 partners who proudly wear the green apron. If I do that well, they will in turn serve 100 million or more customers a week that walk into our doors.
Delegate: You can’t point to an incident where that’s caused you a significant problem?
No, not really. We’ve had things where people will try and stir up a problem. We had the red cup problem a couple years ago. That actually generated more traffic into the store. [laughter]
Yeah, we’ve had some of those.
Politics is good for business. Thank you. Hi, Elissa.
Delegate: Hi, John. I was hoping you could speak to the company’s position on banning single use plastics, especially the lid.
The lids for the cups? One of the pillars on social impact that we’ve been driving is around sustainability. Under sustainability, part of that is the work we’re doing to make coffee the first sustainable natural resource.
We also have work to do on recyclable cups and lids. It is top of mind on things that we’re working on and things that we would hope to see improvement on. We have made a lot of progress. In fact, our cups are recyclable in the municipalities that have the recycling capability, but we realize that that’s still a subset of all the markets that we serve. This is a journey and there’s more to be done.
We want to go over here for one and then we’ll finish with you.
Delegate: My name’s Julia Freeland. I’m from Seattle. My passion is reinventing careers, helping people figure out how do you progress forward. I’m really interested in hearing more about the 700 graduates and how you’ve encouraged your partners to pursue that additional education and what’s the track for them going forward after that.
I know that Amazon has tried to introduce that same type of idea with their warehouse employees and is not having very much success on it. I’m curious if you could tell me a little bit more about that, if you know.
As we created this program, and we created this program about four years ago, the intent behind it was just acknowledging that in America there are many young people that go to get their four-year undergraduate degree. They graduate with such a significant amount of debt that they struggle to dig themselves out of that.
That debt became a barrier for those who are seeking opportunity to a better life, and so our thought was let’s figure out a way to do this. In partnership with ASU that has a phenomenal online education program in a variety of degrees, we partnered with President Michael Crowe and helped create this program.
What we found is the first wave of students…Many of them had maybe started to go to school but couldn’t afford it or for whatever reason it was difficult for them to work and go to school so this was an attractive option. That first wave of students now that are starting to graduate are creating incentive and motivating many other Starbucks partners to pursue that kind of degree.
One of the things that we’re trying to do now is make sure that as a company as those young people graduate with those degrees, if there are opportunities that we have in the company, to recruit them to advance them to other roles.
I like people to think about their career at Starbucks. That means we have a responsibility in our recruiting. If we’re recruiting for software developers in Seattle and we see here’s a Starbucks partner that got their degree in computer science, we ought to be recruiting that person to move to Seattle and come help us write software for our digital flywheel.
That’s our responsibility and that’s work that we’re doing right now. By doing that, I think it creates a great cycle because it encourages more people to get into the program and it gives us a feeder pool for great talent that already have affinity for Starbucks.
The last question. Let’s make it quick because we’re a bit over time.
Delegate: Hi. We’re doing preventative healthcare through food. You touched on human loneliness epidemic. My question is about diabetes epidemic and how Starbucks is tackling that in the beverage section. I’m not talking about what’s going on in over the counter prepared salads, especially that some are like 25 donuts and the impact is real.
The second question is regarding the seeking growth in developing countries. How is that also scaling the bad sides of the American diet and bringing obesity to other countries?
Yeah, on the beverages I’ll just comment quickly. Many of our beverages, especially coffee, there’s no added sugars and very healthy. With coffees with latte with dairy, dairy has some natural sugar but no added sugar. The sugar comes in the flavors and in some of the more indulgent beverages that we offer. We’ve been on a program to constantly reduce the amount of added sugar in those beverages.
On the food side, we launched a new fresh food set of offerings that we call Mercato in Chicago and Seattle, soon to be coming to San Francisco, which are fresh healthy salads and sandwiches made fresh each day and sold through our stores each day.
For any of the food that we don’t sell through the stores, that fresh food, we donate that to FoodShare, which is a national program that we’ve embraced as part of our community social impact pillar to help feed the hungry instead of having that food go to waste. We’re very focused on both healthy beverages and healthy food, and reducing waste and helping feed the hungry.