Starbucks' Bitter Brew | The Founder's Curse | 1

0:10That was a really good slurp. Let's see if we can go a little louder. Let's try it again. It's November 2021 in Buffalo, New York, and Starbucks is having labor pains. Baristas who have been keeping America caffeinated throughout the global pandemic want Starbucks to give them a jolt. They're asking for more pay and better working conditions. And at a few Buffalo stores, they're even talking about forming the first union in Starbucks' 50-year history. Starbucks executives have spent months trying to stop that from happening. And tonight, in a hotel ballroom filled with executives and employees, many of whom are wearing Starbucks trademark green aprons, the company's anti-union push will come to a head with a speech from Starbucks' legendary former CEO, Howard Schultz.

1:03So, welcome Howard Schultz.

1:10As he soaks in the cheers, Schultz projects a relaxed coffeehouse vibe. The man who built Starbucks from a sleepy Seattle coffee cellar into a billion-dollar behemoth is wearing a tan cardigan, khakis, and brown suede shoes. But Schultz is anything but chill. He's come on his own accord to speak at this emergency meeting because he sees the unionization effort as a threat to the familial corporate culture he helped build during his two stints as CEO, the last of which ended four years earlier. To save that culture, Schultz makes an appeal that he says comes from his heart. In a very vulnerable way, I have to share with you my own origin story, my own personal story.

1:55because much of the values, the guiding principles, and really the culture of the company comes out of what I experienced as a young boy. The room is silent as Schultz speaks and slowly paces the room. He shares a story of his father getting fired after being injured at work and the family sunk into poverty. And when I knew I wanted to start something, I always knew that if I got the opportunity, I was going to build the kind of company that my father never got a chance to work for, a company that was steeped in respect and dignity for everyone who worked in the company. Schultz doesn't say the word union, but his message to the workers, actually Schultz calls them partners, is this.

2:48Sure, he's a billionaire, but he's also offered stock options and health care to all Starbucks workers, including part-timers. They can trust him now to protect them without needing a union. But then Schultz's speech takes a turn. He tells a story about the Holocaust. Eyes widen in the room as Schultz says that one out of every six people sent to concentration camps was given a blanket when they arrived at those camps. Not everyone, but most people, shared their blanket with five other people. And so much of that story is threaded into what we have tried to do at Starbucks, is share our blanket.

3:34Comparing the tragedy of the Holocaust to the challenges of a coffee chain leaves some workers feeling colder than a frappuccino. And weeks later, MSNBC reports that a vote on unionization is held in Buffalo. As is often the case, almost always the case, the company put up a huge campaign against the union, which included the company's former CEO, Howard Schultz, showing up and using an ill-fated Holocaust analogy to describe the company's mission to help convince workers not to unionize. Today, the vote was counted as workers watched on a live stream, and they saw their store become the first company-owned Starbucks to unionize in its 50-year history.

4:16Starbucks has lost the first round to organized labor And more losses are on the way Soon, sales will slide And competitors will rise And many will start asking Will the king of coffee be dethroned?

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6:43From Wondery, I'm David Brown, and this is Business Wars.

7:11Hey, anyone in the mood for a cup of coffee? What's your drink? Double espresso, perhaps? Maybe a latte? Iced coffee? I take mine... Black. Large. Three sweet and lows. Pink stuff only, please. These days, we've all got our Java preferences, thanks at least in part to Starbucks. The company was founded way back in 1971 as a coffee bean wholesaler. And since then, it's transformed the way people all over the world get their morning, afternoon, or even evening caffeine fix. Howard Schultz bought Starbucks in 1987. That year, the company made$1.3 million. In 2024, Starbucks made$36 billion. But lately, Starbucks has been brewing up some bitterness, too.

8:00Since 2021, Starbucks has been tussling with baristas and others who have unionized hundreds of stores. For Schultz, who built this brand with promises to put employees first, well, that's been a gut punch. And that's just one of the problems Starbucks now faces. Its complex menu with endless customization has led to longer wait times. And that's led some customers to go elsewhere. After all, today you can find coffee concoctions at big chains like Dunkin', Tim Hortons, Pete's, and the fast-growing Dutch Bros, as well as at independent shops across the country. Many chains like Intelligentsia, Blue Bottle, and Stumptown come to mind.

8:42That external competition is troubling for Starbucks. But internal strife has hit the company too, and not just in the unionized stores. Activist investors have rattled the gates of the company, calling for a new strategy. Meanwhile, four different CEOs have led Starbucks since 2017. Yes, Starbucks still commands 40 % of the coffee chain market, but the question is, can it remain dominant? Or has Starbucks permanently lost its buzz? This is Episode 1, The Founder's Curse.

9:27It's March 2022 on Wall Street. On the New York Stock Exchange's trading floor, CNBC's Jim Cramer frowns. He's trying to figure out the breaking news out of Seattle. Starbucks CEO Kevin Johnson, who succeeded Howard Schultz as CEO in 2017, has decided to retire. But Starbucks has no successor waiting in the wings. Instead, and to Jim Cramer's surprise, the company says it's bringing back Howard Schultz on an interim basis. I find it extraordinarily quizzical and can draw no conclusions other than the fact that the idea that Howard Schultz is coming back is extraordinary. He's confused. Why? After Starbucks had a year notice of Johnson's departure, it doesn't have a better succession plan already in place.

10:19It's just three months after Starbucks executives shuffled off from Buffalo, having lost in a union showdown for the first time. Since then, five more Starbucks stores, most in the Buffalo area, voted to unionize. While that has Starbucks brass rattled, there is some good news for the company's bottom line. In the first quarter of 2022, Starbucks posts a 13 % increase in same-store sales year over year, and first-quarter revenues top$8 billion. It's not all good news, though. Sales are slumping in China. But in the U.S., customers are spending about 3 % more per visit. That might be thanks to the growing line of Starbucks' popular iced oat milk drinks.

11:02A grande version of the iced brown sugar oat milk shaken espresso will set you back$6. That's good for Starbucks' bottom line. But how long consumers can stomach those high prices? That's another question. It's April 2022 in Seattle. Howard Schultz boards a company jet. It's just days after his return as CEO, and he's told the board he'll serve just 12 months. The clock is ticking. Schultz flies into action. On the corporate jet, he hopscotches across the country to meet with baristas and other workers. He's hoping to talk them out of unionizing. That won't be easy. Starbucks store workers have been ground down by the pandemic.

11:51Declared essential workers, they wore masks while making macchiatos for the masses. But neither the company nor its customers seem to fully appreciate how difficult that would be. Remember how poorly some flight attendants were treated by travelers during the pandemic? Some passengers got aggressive. Punches were thrown. Well, the same kind of thing happened at Starbucks. In North Carolina, after the store instituted a mandatory mask policy for all workers and customers in July 2020, customers became so irate that a barista called the cops. In New York, a customer threw hand sanitizer at a store manager.

12:29In Louisiana, a customer chucked a cappuccino toward a barista's head. Schultz hears all about those tense moments as he touches down in places like Nashville, Phoenix, Chicago. He also gets an earful about the supply chain shortages that have left many Starbucks stores without basic ingredients and with broken equipment that's not getting repaired. In return, Schultz offers an apology. Starbucks, he says, has failed them. He promises change, and he asks his employees to give him a chance to deliver.

13:09It's April 2022 in Long Beach, California. Starbucks corporate jet lands at Doherty Field. Schultz, a fit and active 68-year-old, bounds down the air stairs and heads to an office building near the airport grounds. There, he meets with about 20 workers from a handful of Starbucks stores where unionization is being considered. The lights are dimmed to begin the meeting. A video plays showing Schultz leading a town hall of Starbucks executives in Seattle. And in that video, Schultz talks about the threat he now sees from unionization. We can't ignore what is happening in the country as it relates to companies throughout the country being assaulted in many ways by the threat of unionization.

13:59The lights come up. A group discussion begins. Tensions mount. One of the workers brings up complaints filed against Starbucks by the United States National Labor Relations Board. The complaints allege that Starbucks harassed and fired pro-union workers. Schultz, sitting at the back of the room, then recounts his personal story. The same one he told back in Buffalo about growing up poor and vowing to create an empathetic company. But one pro-union barista interrupts with a long list of complaints. Among those complaints, that Starbucks benefits aren't as good as Schultz often makes them out to be.

14:39That the company isn't being transparent about how it has pushed back against unions. And that federal officials are looking into allegations the company has illegally harassed and fired pro-union workers. Schultz loses his patience. Look, if you're not happy at Starbucks, you can go work for another company. The barista takes that as a threat. And although Schultz doesn't know it yet, Schultz's outburst may have just violated federal law.

15:14It's late April 2022 in Seattle. At Starbucks headquarters, a group of top executives gathers in front of cameras. They're about to broadcast live to Starbucks store managers across the country. The executives take seats in front of the cameras. Howard Schultz sits down and smooths out his black sweater. There are four white stripes on one shoulder, a nautical look. That might have been a fashion faux pas. Schultz and his executive team are here to talk about the danger they see from unions. And Schultz, as many Starbucks workers know, happens to be a billionaire. One who happens to own a 252-foot-long superyacht worth upwards of$120 million.

15:57With a crew of 18 and enough bedrooms to sleep 12, Schultz's yacht is the kind of thing a James Bond villain might sail around in. But Schultz says the unions are the villain in the Starbucks story. There is an outside force that is trying to disrupt the future of our company. The solution, Schultz says, is to reinvent Starbucks, making it strong enough to repel the union invaders. We are going to co-create and together reimagine the future of the company. Now, what does that mean? Well, it means that we have to reimagine the customer experience, the partner experience, the third place experience.

16:35We have to reimagine mobile order and pay, the drive-thru. We have a lot of work to do. Now, listeners, did you catch that bit near the end? The part where Schultz talked about the third place experience? It's worth taking a second to explain that. The third place is a concept first designed by a sociology professor in 1989. According to the theory, third places are public gathering spots where people of all sorts of occupations, viewpoints, and socioeconomic statuses can come together. Schultz cribbed that theory and applied it to Starbucks in the 1990s, and it's been central to his vision ever since.

17:13Initially, Schultz's third place was infused with the smell of brewing beans, the whirring sounds of burr grinders, the kinds of caffeinated drinks that had long been popular in Italy, but were new to many Americans. You remember those early days? Well, now that there's a Starbucks on every corner, it's pretty easy to forget just how unusual it was to have a place in town that specialized in coffee. I mean, how many still remember what it was like the first time entering a Starbucks? It wasn't just about the Java, right? It was the vibe, the sense of something special, maybe a bit uptown, a place that somehow transcended the everyday, right?

17:50Even the sizes, medium, large, don't you mean grande or venti? That whole idea took off in the 1990s. In 1992, Starbucks began a string of 190 consecutive months where same-store sales went up. The company had just 165 locations, mostly in the U.S. that year. It's got 40 ,000 now, all over the world. Starbucks took off at the same time another Seattle cultural movement, grunge music, was on the rise. But where grunge could be navel-gazing and angry, Starbucks was considered communal and welcoming. The stores were designed to encourage lingering and chatting with friends. Oh right, friends. That TV show debuted in 1994, and you probably know where much of the action took place, right?

18:42New York coffee shop called Central Perk. There, Monica, Phoebe, Ross, Joey, and Chandler all drank coffee from big mugs. Her pal Rachel was their waitress. Though, she wasn't always happy about that. Everyone I know is either getting married or getting pregnant or getting promoted, and I'm getting coffee, and it's not even for me! Starbucks stores weren't quite as cozy as Central Perk. Schultz had them designed with dark woods and packed them with chairs and couches. The stores targeted a customer who was a little swankier than someone who'd buy their cup of joe at the local diner. Then, as now, Starbucks' pricing was premium level.

19:22But baristas got to know customers by name, even if they might have spelled those names wrong when scribbling them on the side of a to-go cup. But culture should be more than a feel-good brand statement. It's a business asset. If you build a company on values, well, people expect you to live by them. If you don't, your customers and employees will hold you accountable. And that's exactly what was happening at Starbucks when Schultz returned to lead his company for the third time.

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22:51It's June 2022, decades after Starbucks' 1990 boom era. Critics say many of its stores are now lookalikes with little charm. Those cozy leather armchairs that were once a given, they've been taken out in many places, and the seating options have grown less plentiful. That's in part because more customers have been grabbing and going from Starbucks, including the drive-thru lane, rather than lingering. And the pandemic only accelerated those changes. Back in 2020, when health officials and lawmakers decided that third places, like Starbucks, were great places to spread COVID-19, Starbucks started removing couches and chairs entirely.

23:34They also 86ed the self-serve coffee bar where patrons could add their own milk and sugars, months after the worst of the pandemic is over. Many Starbucks stores still seem cold and uninviting. But that's not the case for the store that Howard Schultz has just walked into in Washington, D.C. And that's because he's entered a so-called community store. Starbucks created community stores in 2011. That was during Schultz's second go-round as CEO. These community stores were first rolled out in Harlem, New York, and Crenshaw, Los Angeles. They're designed to, as Starbucks puts it, reflect and embrace the individual culture, character, and needs of each of these neighborhoods.

24:19Like with Harlem and Crenshaw, the area that Schultz is in today, called Anacostia, is a historically significant neighborhood for black residents. Schultz takes a moment to pose in front of a massive mural that depicts Frederick Douglass, who was born into slavery in nearby Maryland. Community stores to Schultz are a sign of the positive impact his company can have on communities and on workers' lives. He's always seen himself as one of the good guys of capitalism. Schultz believes he's on a mission to prove that making money doesn't have to come at the cost of doing good. Or at least that's what Schultz says later that day when he attends a live onstage interview in downtown D.C.

25:01Eventually, Schultz digs into the union issue. Now, I've said publicly, I'm not anti-union, but the history of unions. And we have to talk about this. The history of unions is based on the fact that companies in the 40s, 50s and 60s abused their people. The sweeping issue in the country is that businesses are not doing enough and the business is the enemy. And so our vision for our people and our company is we have a different vision. We don't believe that a third party should lead our people. And so we are in a battle for the hearts and minds of our people.

25:38Let's take a little coffee break here to mull over what's going on at this moment in 2022 with Starbucks and Schultz. You know, there's something in business called the founder's curse. And while Howard Schultz didn't technically found Starbucks, he did build the foundation of the company, taking it from a tiny coffee bean cellar into a giant beverage chain. And Schultz had a hard time letting go of his company. He returned not once, but twice to save the company. And on each of those returns, Schultz has struggled to adapt to a changing landscape, particularly when it comes to workers' rights.

26:13The final round saw him make strategic missteps like dismissing union concerns with an if-you-don't-like-it-leave attitude, which only fueled the opposition. Here's the thing. Founders often see their companies as their personal legacies, but that attachment can cloud decision-making. There's a time to step away and let new leadership take over. Trusting fresh perspectives can be the key to long-term success. But what does it take to let go? Well, in the case of Howard Schultz, we are about to find out.