Howard Schultz
speaker
633 appearances
1 recordings
1 series
first heard Jun 2024
last heard Jun 2024
Howard Schultz’s voice in public audio — every appearance, attributed to the second.
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Many, many years later.
But this is one of the great observations, David. Il Giornale buys the Starbucks stores, rebrands Il Giornale Incorporated as the Starbucks Corporation. Yeah. And the original Starbucks had owned Pete's and now needs a new name. So it rebrands the company Pete's. So Pete's was actually Starbucks. Starbucks was actually Il Giornale. Yes. It's amazing.
Some stats, just for listeners to understand the gravity of the situation. For the initial 1.6 million that you raised for Il Giornale, you talked to 242 investors, 217 of which said no. So anybody who's griping about their fundraising journey, those are rookie numbers.
But you asked me a question earlier about what did the years at Xerox teach me? So the rejection I was going through The Italians turned me down. People in the US turned me down. Nobody would believe in the idea.
It was like I was cold calling again at Xerox. The other thing that is worth pointing out is The Starbucks company with the six stores, when they bought Peet's with that six to one debt to equity ratio, basically backed themselves into a corner where now they had these big debt service payments to make.
There was really no risk they could take or innovation that they could do because the whole business needed to spit out a certain amount of cash every month so they could pay down the debt. And so when you're in that situation, Starbucks, in the 40 years ahead from this point in the story, has tried all sorts of crazy things to become the business that it is today.
And when you first created this combined company, you were pretty religious about no debt. No debt. I don't want any debt again because of my childhood. I was going to ask you, was that informed by what you had seen with the Starbucks situation or your childhood?
No, it was totally my childhood. My parents were always in debt. Bill collectors were always calling. And no, we never had any debt the entire time. Never.
And I could begin to see even early on the accretive nature of frequency. Where I can see what was going on here is people were not coming for coffee in the morning anymore. They were starting. The morning rush was getting bigger, the need for more labor.
And I could sense that the business that Starbucks was in was going to be significantly in the back and the beverage and the romance of the theater. And the third place was the hero. It didn't take us long to realize we had the beginning of lightning in the bottle.
in the Northwest, when we were really at our peak, where the average customer was coming 18 times a month. I should rephrase it. Maybe the most loyal was coming 18 times a month.
There's some magic to this idea that it's not a terribly expensive item. I think I saw some research that said that it's sub 1% of someone's household income, and often far less than that. But it is repeat, and it is high gross margin.
And so when you say lightning in a bottle, there's a cultural lightning in a bottle, but there's also this ridiculous business model where the way it shows up is your stores, basically from this point forward for all of Starbucks' life, you build a new store, and the profits from that store would totally cover the cost within two years, and often a year and a half.
But I'll tell you the economic model that we applied to every single store we were opening. By the way, I chose the first 500 locations myself. So I was in it in so many ways. But the economic model in Wall Street, when we went public in 92, when they heard the model, we'd never seen a model like that. And the model basically was a sales to investment ratio of two to one.
and a operating profit of 20%.
So what does that mean, sales to investment ratio?
Yeah, yes. And the operating profit was north of 20%. Wow. So the cash on cash return was just- So yeah, you get that two years or less payback.
Early on, it became clear to us that customers were also starting to customize the beverage on their own. So we were just, barista was behind the counter and somebody would say, can you put something else in there? Yeah, what do you want? And then, so that just started, you know, the average ticket started growing as a result of the customers personalizing and customizing their beverage.
And to be clear, like the era of Starbucks we are in right now, you produce drip coffee and you produce espresso. And you can put that espresso in frothed milk. And that's basically your options. Yeah. Like none of this, you know.
Yeah, exactly. But can I tell you a mistake I made?
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