Do You Hear What Starbucks Hears?

Schultz: That question is really linked to what the business is. Every business really has to understand what their consumer proposition is and be able to strengthen that at every level within the company and the consumer, at every touchpoint that the consumer has. While doing that, you have to have openness and sensitivity to changes in the marketplace and the need to not just embrace the status quo.The fragile balance, though, is in maintaining your relevancy to the consumer within your primary proposition while refining and innovating to the point where you maintain your leadership position.

FC: If you're using Starbucks as an example, how do you feel like you've strengthened the consumer proposition within the company?

Schultz: Over the years? From 1971-1986, Starbucks sold coffee by the pound; that's all we did. By the pound. The beverage did not really get merchandised and introduced until late 1987. Now the beverage, the core beverage, from 1987-90 or -91, was espresso-based beverages.

Then came Frappuccino. That transformed the company because we demonstrated a different daypart. If you look at the evolution of beverages at Starbucks and the percentage of sales from 1971-87, 80% of what we sold was coffee by the pound. That's less than 15% of our business today. Also, from 1971 until probably 1996, we did the majority of our business before 11 a.m. After Frappuccino, that completely changed.

We're now the "Third Place." The physical environment has become as important as anything we do, including the coffee. The environment and the experience is the brand. It's a very important distinction that people use our stores all over the world as an extension of their daily lives, and sometimes the coffee is subordinate to that. That's a big change.