Starbucks thinks out of the box to win hearts, more market share

Howard Schultz believes that unconventional ideas often make the difference between success and failure for companies in overseas markets. Meeting the parents is one such initiative that has made a big difference in China, says the chairman, president and chief executive officer of Starbucks Corp, the US-based global coffee chain.

Catching up with Schultz at the packed hall in Guangzhou during the China Partner Family Forum earlier this month, it was easy to under-stand what the multinational company was looking to achieve in China from such initiatives. Schultz himself admits that the focus is not on marketing or customers, but rather on brand equity and cultural values, as he painstakingly explains some of the recent company initiatives to a group of Chinese parents.

Terming it as the most emotional moment since he joined Starbucks, Schultz says such events help the company establish close connections with its over 1,200 employees and also tell their immediate family about how new tools, resources, education and other opportunities can make tangible benefits in their lives.

"We do not want to be seen as just another foreign company operating in China, but as someone who understands and cares for them and their families," Schultz said adding that the company held similar initiatives earlier in Beijing and Shanghai.

Schultz, son of a delivery driver, who died at an early age, grew up in the Canarsie Bayview Houses of the New York City Housing Authority, which provides public houses for low-income residents. He admits that his childhood experiences have made him realize the importance of a family and the indelible role it plays in shaping destiny.

Such efforts, Schultz says will pay off in the long run, as he expects China to soon become the largest market for the global coffee chain outside of the United States. From a professional viewpoint also these measures will help companies to retain and hire top talent in China. "High rents and labor costs have raised the bar for competition in the Chinese retail sector," he said.

The Seattle-based company has already provided 725,000 training hours for 14,000 employees in China and moved more than 110 young employees back to their hometown to become managers in new stores.

Adapting business models to fit China and making products and plans locally relevant have also helped Starbucks succeed in a country that has a deep-rooted tea-drinking culture.

Fifteen years after it first opened a shop in Beijing, Starbucks has more than belied market expectations that beverages other than tea would not sell well in China.

"The coffee shop market has defied the odds and helped convert people who traditionally don't like coffee, and much prefer tea, to accept a product fundamentally based on the ideas of sophistication and cosmopolitanism that the "cafe lifestyle" represents and promotes," said Matthew Crabbe, research director of Mintel Group Ltd, the US-based research firm.

Starbucks entered China in 1999 and has more than 1,200 stores across 68 cities with plans to expand it to 1,500 stores by 2015. "Going forward, there is no doubt that China will be an important and strategic market for us. The future is very bright in terms of how many stores we are going to have (in China). But it is not something that we can take for granted. We have to earn it," said Schultz.

The passionate and humble approach taken by Schultz and his team stands testimony to how the global coffee chain plans to reach out to more customers in China.

Schultz, says he realized his calling when he first walked into a Starbucks outlet in Seattle's Pike Place Market in 1981. Drawn by quality of the coffee and the passion it instills among followers, Schultz joined Starbucks in 1982. In 1983, Schultz went on a trip to Italy, something that he says made a big difference in his life. Captivated by the Italian coffee bars and the romance associated with the beverage, Schultz decided to become a coffee entrepreneu r.

To pursue this dream, he left Starbucks and started his own coffee company called Il Giornale. In 1987 he purchased the retail business of Starbucks and expanded the coffee chain aggressively in the US. In2008 Schultz returned as CEO of Starbucks after an eight-year hiatus, and helped steer the company through the global financial crisis. The company currently has more than 20,000 stores across 64 countries and regions.

There are two programs that Schultz says he is immensely proud of - the comprehensive health cover-age for eligible full- and part-time workers and employees and the equity program called Bean Stock, which has been offered to Chinese employees also. "They were built as the foundation of Starbucks culture," he said.

Making tailor-made products for specific markets like China is not the only innovation that Starbucks is doing, he said adding that since 2010, the company has also been improving the design of its China outlets to "better reflect the character of their neighborhoods".

Creating a unique experience in store that is very sensitive and locally relevant is what keeps customers coming back. That includes the beautifully designed ambience, thoughtful services and good products, said the chairman.

The coffee chain recently unveiled two iconic flagship stores in Beijing, to create an experience of balancing its 43-year coffee heritage with China's modern lifestyle.

The "coffee tribute" store in east Beijing's central business district was designed by members of the in-house Starbucks Global Design team and the local Starbucks China Design Studio, one of the 18 international design offices worldwide.

Schultz is all praise for it. "It is the most beautiful, elegant and stylish Starbucks outlet in the world," he said in a way that a proud parent talks about his child. "I am so impressed with that store and I want to move in there," he said with pride.

"If we do it right, and if our coffee proves in the cup every time, along with unique, respectful services and happy partners (employees), then growth will take care of itself," said Schultz.

Crabbe of Mintel said the added value of coffee shops is the image and the ambience it provides. People are not just paying for coffee, but for the status that drinking coffee in a Starbucks outlet bestows on them. Having a Starbucks loyalty cards is almost like a badge of success, he said.

Though there is competition for Starbucks in every market it is in, the truth is in China, the competition might be more intense. Based on Mintel's market value estimates, the cafe market grew in value by about 95 percent between 2009 and 2013, with the number of outlets growing by 63 percent. Over the same period, total teahouse sales grew by 47 percent and outlet numbers barely increased by about 4 percent.

But Starbucks is not looking to sell coffee alone in China. The coffee chain is likely to bring its tea business to China at some point in time soon. Last year Starbucks acquired US-based Teavana to tap the tea drinking market, which is estimated at $90 billion globally. The new member to the coffee empire is expected to bring more new consumers and more profits, especially from countries outside of the US, where Teavana has 300 stores currently.

"We are looking at strategies for what we want to do with Teavana and how we are going to expand it," said Schultz. "We do not have any immediate plans for Teavana in China or Asia, but it is certainly on our radar. We will focus on the US tea market for now," Schultz said.