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Annual Meeting Report

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By shuksan77
March 22, 2001

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I attended the annual meeting this morning until I had to leave at 11:55. I hope someone was there for the questions and can report on them.

Prior to the meeting I asked Craig Weatherup, CEO of Pepsi, about the Japan IPO and he indicated that the structure of the deal wasn't finalized yet, but that it wouldn't result in any loss of capital or income to SBUX.

I also asked him about the KO cold coffee announcement and he indicated that this would probably be a ways away since Frap has a 90% share, PEP's distribution is very good, and KO has a lot of other things on its agenda just now. I would, however, caution readers to remember I am speaking to the CEO of Pepsi, who is unlikely to cast anything KO does in a good light.

The meeting opened with the announcement of the 2:1 split and I wished I'd had Ricochet there so my fellow Fools could have heard it first...C'est dommage, comme on dit...

The most exotic part of the meeting was early, and featured a video of Howard Schultz, Orrin Smith, Peter Maslen, and Paul Davis doing a take-off of their recent World Tour. They were all in full Alice Cooper drag with makeup, playing guitars before a few thousand employees there for a meeting. Very cute, but a little bizarre...

Mr. Smith pointed out some of the highlights for 2000:

--Forbes ranked SBUX #1 in consumer brands globally
--Fortune ranked it #1 most admired in food service
--In Japan, it is the most preferred restaurant chain in Tokyo
--In the UK, coffee sales are now greater than tea for the first time ever, thanks to SBUX
--A consultancy brought in to survey partner loyalty said SBUX was the best in their class and said that they had "never seen scores like this"

Loyal customers now number about 14,000,000 and adding about 3,000,000 per year. Most of these only frequent SBUX.

He discussed their people at length and observed that they take regular people and give them opportunity, training, and hope--which makes them extraordinary. Here's what I think is a stunning story:

The store manager at an Orange County store, "Kelly," notices that they have a handful of deaf people coming into the store and they are having some trouble getting their signs across. (Do YOU know the sign for "Tall Double Mochiato with a dash of..." etc.?) So, she hires a couple of staff who sign and has them help out with the orders, making the drinks etc. Word spreads. Pretty soon there are a lot of deaf people coming into the store. She then finds a band--this part is a little unclear to me--which plays in such a way that the music is "audible" to the hearing impaired. So, they play Friday nights. The regional manager comes to the store, opens the door, and is awestruck to see 400-600 people--all swaying to the music and having a wonderful time.

I love this company.

Peter Maslen commented on International:

--That Myondong store (Seoul--5 stories, 7000 square feet) is always packed and is being expanded to 10,000 square feet
--The 3rd place concept is much more relevant outside the US where people's home personal spaces are much smaller--or non-existent--so SBUX is a place of choice to go
--Their Arab partner is a huge SBUX fan (now drinks it only), has 28 other brands, and is all over the Middle East. He will be a huge force in getting SBUX accepted all over that area
--That Shibuya store (highest volume store) was completely mocked up in a warehouse so they could get the logistics right before they built it on the ground
--The growth in International is accelerating. They want to be in six European countries in 6-18 months
--The Zurich store is still packed. The team opening it came from other stores all over the world and that staff plus locals trained 13 weeks in Seattle before they opened.

A final story about International. Howard Schultz was talking about the meeting they had in Tokyo with the local employees. At this meeting they announced the plan for the IPO and they also announced that there would be stock options available for regular partners--making them shareholders in the company. Since, prior to that time, no company EVER in Japan had done this for its everyday employees, they all started crying and it was all he could do to keep on talking.

So, what are the takeaways from this meeting?

First, I am completely convinced that despite a few glitches with staff here and there, this company is one of the most formidable forces acting globally on behalf of its partners. Say what you will about PR and be cynical all you want, the stories and incidents tell of a company acting in an unprecedented fashion to enhance the relevance and value of the work experience around the world.

Second, the "3rd place" concept is profoundly attractive to places where a comfortable pleasant place to spend time is often not available or unpleasant.

Third, this is a company that leaves nothing to chance. The vignette about setting up the Shibuya store in a warehouse was shocking in its revelation about the extent of the pains the company takes to get it right.

Howard Schultz is a believer. Not a great title in this day of extreme cynicism, broken presidential promises, and so on. And he is very fond of challenging cynics. He still tells the story about Japan. "No way," the cynics said. "Japanese won't carry coffee in cups, they won't go to a place where there is no smoking, and all the suited businessmen will get coffee elsewhere."

This is followed by a slide showing a store packed with women and young people, all cheerfully not smoking, and many carrying cups outside.

If there is one thing Starbucks understands pretty well, it is people. Their staff and their customers prove repeatedly the value of this franchise's knowledge of how to attract and retain both and to do well at the same time.

Peter Maslen is a great communicator. I hope he continues to do well.