Shareholders weren't laughing. Between Schultz's departure as CEO in 2000 and his return in 2008, Starbucks revenue grew nearly fivefold to $10 billion but profits lagged, only growing roughly 75% to $315 million, indicating falling margins reflected in a 50% share slump. During that time, stores also grew faster than profits, roughly doubling to nearly 16,700 by 2008 from less than 8,600 as of 2004.
Black's humor contained the wisdom that Starbucks was testing the limits of a store-driven growth initiative, while diluting its brand. The timing couldn't have been worse; it came amid a wave of competition from lower-end competitors including McDonalds (MCD - Get Report) and Dunkin Brands (DNKN), and high-priced local boutique roasters.
"Starbucks was being squeezed to the middle, and that is an undesirable place for us to be," Schultz conceded in a 2010 Harvard Business Review interview that covered his return to the company he founded and named after a character from Herman Melville's Moby Dick.
Since his second stint as Starbucks CEO began in 2008, Schultz has pointed to a recommitment to employee training and a focus on intangibles like "culture" and "values" as a key to Starbucks recovery -- likely important moves. The company also halted its store growth, shuttered some locations, and has only added 323 stores in the past four years as net income has grown to $1.25 billion from $315 million, and revenue has risen over 12%.Starbucks also is increasingly diverse in its in-store wares, serving up new foods and drinks, and as Starbucks halted store growth, its consumer products business of frappuccino bottles, packaged coffee and Tazo Tea bags doubled sales. Those brands and recent launches like Via instant coffee, K-Cup packs and Starbuck's own K-Cup style home brewing system will be a staple of Starbucks stores and distribution agreements with supermarkets and foods giants like Kraft (KFT). Starbucks La Boulange bakery is just the latest example of Schultz's comment from November, "
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