Starbucks CEO on New Coffee, Future

" Starbucks in an instant the coffee giant officially launching its instant coffee across the country now in grocery stories and Starbucks stores. Joining us right now is the chairman and CEO Howard Schultz good to see Howard why the country wide launch now what have you learned. What's the appetite for."

" Well first off let me -- the opportunity this is a twenty billion dollar category that has not had any innovation to speak up for over fifty years. So there lies a huge prize for Starbucks the test stores Seattle Chicago and London all exceeded expectations. And here we are today launching a nationwide. In our stores and in specialty retail stores. We're not going to grocery until the second half of 2010. But all systems are go for us at Starbucks we believe we've cracked the code on quality. We feel source is so good about the fact that most customers can't taste the difference. They're actually having eight taste challenge this weekend in our stores encouraging our customers to come in. -- Starbucks coffee against Starbucks via. Get a free cup of Starbucks brewed coffee and we've seen the fact that thousands of people. Who have tasted Starbucks via over the last few months cannot taste the difference in all the marketing and all the PR in the world is great. But the fact is that coffee must prove itself in the cup and Starbucks -- does."

" When UN I last spoke in February. The stock was at a very different place it's now up over 100%. Year to date some say it's gone too far too fast to make -- best."

" No I think if you look at the progression of the stock price I think it's in keeping with the fact that we've we've had sequential improvement in our business. Q3 surprise the street we also told that we had. Sequential improvement -- comp store sales will announce a year and results in November so we're still in the quiet period. But you know I'm I'm cautiously optimistic about the economy the fall holiday season. And Starbucks best days are ahead of us I've been saying that all year long and I think the market is responding."

" This is Howard -- everybody attributes her success to the cost cutting measures that you put in place to store closures things of that nature. The bottom line as opposed to the top line in terms of growth. How do you grow the top line."

" But you're exactly right Starbucks has to demonstrate growth and development. I just came back from China where we have less than 700 stores. We have less than 6000 internationally will start growing the company again in the US business. But if you look at the comps. In terms of how people are measuring the success of our existing US stores. We've seen sequential improvement which -- posted on in Q3. I think demonstrating to the marketplace and our customers are coming back. They're satisfied with the internal research we've done -- qualitative scores quality. Case the experience. Price for their money I mean we've we're really I think demonstrating once again the relevancy. Of Starbucks coffee company. We have been a growth company and we're going to be a growth company again."

" One of the issues is commodity prices and fat dairy prices if you look at them -- back to the lows of 2004. What leased real how things like that are helping the company right now gasoline energy prices it Sadr."

" as we as we head into fiscal 2010. And ironically this is the second day of our fiscal year. Commodity prices have stabilized in terms of dairy coffee gasoline as you said and so we are in a good position as we head into the year. But I think as he suggested we have to demonstrate and we will. The growth of the company in existing stores in terms of new -- new traffic average ticket and new stores one of the things I think we're most proud of is despite the fact that we did close stores this year the stores that we did open. Exceeded or met the very difficult. IR hurdle that we have internally for our company which I think. Speaks volumes that for the fact that we are in a position. Where customers across the country are still embracing the Starbucks experience. And I think as we move forward it's very important that we continue to innovate. And Starbucks via I think is exactly that this is this'll be incremental to our business we've seen in a test stores. This is not going to cannibalize existing stores -- news new use occasions for our customers and we just getting started."

" What are the consumers showing you what -- evidence telling you mean you came back. About a year and a half ago and I know you measure the number of tracked transactions and the dollar value of those transactions. How is the US consumer doing and how does that compare to consumers overseas."

" Well I think you know as we discuss when we last met certainly we saw a downturn in consumer confidence. A year ago I think since the stimulus package in their recovery plan that the president's outlined. It has acted as a catalyst. Not so much for Consumer Spending but specifically for consumer confidence and you've seen that in the University of Michigan. Study and I think as a result of that people are feeling a little bit better people are spending more money. And as a result of that when we announced earnings in Q3 we did see a sequential improvement. In traffic and in comps and I think would that speaks to the fact that people are coming back. Overseas. We were quite concerned a year ago about Western Europe that has stabilized as well so you know we are cautiously optimistic. About the domestic economy and our ability to navigate through the storm. International."

" You're raising some prices on some specific products on other products you're lowering prices. Does the US consumer -- appetite for those rising prices particularly now."

" A well look let me clarify that Alexis you've really done your homework vicinity -- retired. Yeah they. Let me clarify what we've done is we've lowered prices. On the most common beverages in our stores specifically. The most common espresso based beverages and we raise some prices. On the more complex beverages but overall. Consumers are responding for the fact that we have tried to put our own feet and issues of our customers. Live life the way debut in demonstrated deep level of sensibility. That people have less money than -- had in the past and we want to be more value driven and our own research demonstrates. That Starbucks has really succeeded in this area over the years in demonstrating to our customers that Starbucks is good value for the money."

" Value driven I'm so glad you brought that up because you and I both know competition is fierce particularly from McDonald's and Dunkin' Donuts. It got the biggest thorn in your side right now because you and I both now. It it's about price parameter it's about equality but Ritalin after you overseas in some very specific countries over there. They're trying to take market share wait for him."

" Well you know there's a lot of talk about this vote let let's go back to the route to the reality of the situation and how the consumers respond. Starbucks serves fifty million customers a week in our stores we're still the most frequent and retailer in America in terms of how often people come back. The more money that our competition spends on creating awareness and trial. And we saw that in spades this year the better off Starbucks is going to be we have less than 10% share. Of the US coffee market less than 1% share of the international market we have zero share of the largest prize which is the instant market. So these -- the early days for the growth and development of the company and the more money and more awareness that the media and -- competition stands on creating. Trial and awareness for coffee to better off we're going to be because people can taste the difference and most importantly. The quality of the experience the service. And how Starbucks exceeds expectations compared to how fast food retailers. A trying to sell copies of very different experience and we are winning and we're going to continue to win."

" Cutting stores and jobs a lot of talk about how the company operated stores. The margin there is not nearly as good as the licensed stores. Will look to sell more company operated stores to licensees. To get a better take in that margin."

" While they the unit economics of Starbucks company owned stores. Have her. Fifteen consecutive years as a public company in almost best of class in terms of sales to investment ratio. However when we licensed stores. We use other people's capital and as a result of that the return on investment. It's clearly better because we are not building the stores -- our money having said that. What we're looking for here is a balance of company owned stores and licensed stores both around the country and around the world. We're going to be extremely opportunistic. To create moral license opportunities. But we have a significant competitive advantage. Of -- opening company owned stores and creating the kind of experience. That speaks to the customers. Understanding. Of value. Of quality and most importantly exceeding their expectations in terms of customer service."

" You recently exercised. A fair amount of stock options -- to put it lightly. There was a lot of rumbling in the marketplace about why you chose to do this you did not sell that common stock. What does that say. About your future at Starbucks and -- have you thought about how long you're willing to stay to turn this ship around."

" While the I think what you're talking about as I I had a choice. Of exercising or selling exercising and selling or exercising and holding a million shares of Starbucks options. I took the long view an exercise in hell and paid for the stock and did not sell. I think what people read into that was my strong conviction. Of the -- a belief in the future of our company and what I've told our borders I'm here to stay. To and commit myself to our shareholders. And Starbucks partners to see this true. And I think we've had a great opportunity to demonstrate not that -- that not there were declaring victory. But we're making significant progress and I'm happy to report that the market is responding. In terms of power shareholders have increased their participation in the stock and many people have made money with the stock this year."

" 22% growth as some analysts forecast for next year that's achievable."

" You know I'm not going to comment on what what the growth rate will be what I will say is that. I'm I'm really optimistic about the growth and development. The discipline that we put in place that cost take out that will be mostly permanent the level of innovation and most importantly our customers are responding. And you know I think the pro football this'll be in our numbers. Next quarter and in 2000 intent. And I feel very confident that we're in a position where we will demonstrate once again. The winning strategy at Starbucks coffee company both to the marketplace and most importantly to our customers."