Starbucks vs Dunkin - Schultz vs The Bean Counters | 3
Introducing the capital one walmart rewards card earn five percent back at Walmart online games for the kids headphones for data laptop. For Mom doesn't matter you get five percents back at Walmart Online. You'll also earn two percent at Walmart in store restaurants and travel and one percent everywhere else. When you want all that H- you need the capital. One Walmart rewards card. What's in your wallet? Terms and exclusions apply capital. One IN A it's October. Nineteen eighty-three starbucks headquarters. Seattle Howard. Schultz rings. His hands as he paces the office of Jerry Baldwin. The company's co-founder Schultz's pacing becomes more frenetic Baldwin size. He knows he can't put Schultz off his persistence. His Mind Boggling Jerry. Espresso bars are the future of starbucks. If you'd seen the ones in Milan you'd believe me but I didn't see them. Howard look most Americans have no idea what espresso is or how great it is. We could introduce them. Baldwin GETS UP FROM HIS DESK. He walks to the door and opens it signaling. The conversation is over but day after day. Schultz keeps after him. If he can just bring Baldwin around Jerry please reconsider all right. Howard you can test your precious Espresso bar. Thanks that's great. Now I'll need fifteen hundred square feet in one of our stores. I'm giving you three Hundred Square Feet. Max. There will be no room for chairs or tables. There's room for a counter okay. I'll make the best of it. Shields squeeze out a corner of an existing starbucks adds a gleaming chrome espresso machine in line shelves with tens of Espresso to Baristas are taught to make the specialty Italian drinks and on an unseasonably cool day in April nineteen eighty-four. His Espresso Bar Opens Schultz watches anxiously as customers drink from their porcelain cups. He sees genuine pleasure in their reactions by closing time the first day. They've served an amazing four hundred customers. He High Fives Baristas soon. The Espresso Bar is serving eight hundred customers daily every evening. Schultz rushes into Baldwin's office waving sheets of paper. Detailing the latest sales figures Jerry. Customers are standing in lines out the door. You've tested it. And Yes people like it. But it's just a distraction from our business which is selling coffee beans. I need you to close down. Don't you see the bar? Is Luring in more customers. This isn't the time for a new venture. We have an opportunity to buy peace coffee and we're putting our energies there. You'll have to live with that but Schultz can't live with it. He fought so hard to join starbucks. He knows in his gut that Baldwin is overlooking a huge opportunity. Now he's got to decide what he's most dedicated to the company or its coffee talk. Business Wars is sponsored by light box. Ever heard of lab grown diamonds lab grown diamonds or essentially chemically identical to natural ones just made in a lab at light box. They've hacked the process to grow gorgeous stones every time it starts with a tiny piece of LAB GROWN DIAMOND HEATED UP IN PLASMA reactor to temperatures nearly as hot as the sun after about two weeks. Those little seeds grow into full stones. Now here's where it gets really interesting. Light box lab. Grown diamonds aren't just made the same every time they're also price the same. Each carrot is eight hundred dollars. Mind blown. They've even cracked the science of color. So you can sparkling pink white and blue. Check THEM OUT AT light box. Jewelry DOT com slash. Vw and make sure to use code. B W for twenty five dollars off. That's light box L. I. G. H. T. B. O. X. DOT COM SLASH B. W Don't forget code. Vw for twenty five dollars off from country. I'm David Brown. And this is business wars In Our last episode Howard Schultz found his life's mission starbucks and the pursuit of great coffee. Meanwhile Dunkin donuts found its mascot in perfect salesman in Fred. The Baker by June nineteen eighty-four. Dunkin donuts has expanded to nearly fifteen hundred stores on the east coast on the West Coast. A depressed Howard. Schultz is tired of mourning his thwarted dream of transforming starbucks into an espresso bar business. He's got to do something about it. This is episode three Schultz versus the bean counters in August Schultz decides on a bold move. He called Baldwin at home. Hi Jerry I've thought it over and I need to explore espresso bars. The concept may not workout. But I have to try it. I get it but as I've said a thousand times now's not the right time for us to pursue this. I know I know. And that's why I've decided to set up my own company strike out on my own. I think that's a great move for you now. You know what to show you. We believe in you I leave and write you a check for one hundred fifty thousand dollars. Cow Well thanks Jerry. Your faith in me means a lot. It's April nine thousand. Nine hundred five opening Dave Schultz Zone. Seven Hundred Square foot store on the ground floor of a shiny new office tower. This shop is named heals. Your Nollie after Milan's daily newspaper with this long counter wooden floors and roundtables. It's a slice of Italy in downtown. Seattle shorts greets customers as they arrive. You might try a cafe latte. I've never heard of it. It's new to America. Delicious Espresso topped with steam milk. The perfect marriage sure. I'll give it a try. Schultz rolls up his sleeves and works alongside the Baristas. He four shots steams milk blends beverages. He can't stop smiling. He's dreaming of Espresso Bars and every American city. And he knows he won't stop until it them. Two years later Schultz is making Kapa Chino at LG or knowledge when Jerry Baldwin Calls Hi Howard. I have big news. We're going to sell starbucks. All six stores. Why we need to focus on running Pete's and that's why I'm calling. I'd like you to have starbucks. I'll give you a ninety day exclusive to raise the money. The prices three point eight million. That's a lot of money for scholes. But the prospect of owning starbucks sets his brain on. Fire Schultz convinces investors. The Espresso concept will take off two months later. He's raised two million dollars. He's confident he'll get the rest in time with the deadline looming Baldwin asks for a meeting at a downtown restaurant. I'm sorry Howard. But one of your yields investors has offered us four million cash Schultz stares at him. He feels as if the world just ended. Luckily Schultz has Seattle's most powerful and respected lawyer on his side Bill Gates senior father of the tech mogul. He's the colleague of a friend. Schultz Russia's to see him gates is a towering figure literally he 6'7 and known for rattling. The city's bigwigs gates listens then gets up and take shots to the investors office. They burst past his secretary in March up to his desk. Before the man can say anything gates explodes. You should be ashamed of yourself trying to steal this kid's dream you'll stand down this kid's buying this company. Remarkably that's all it takes. The investor withdraws his offer in August nineteen eighty seven Howard Schultz by starbucks for three point. Eight million dollars but almost immediately Schultz spaces a conundrum. The coffee market has been stagnant. Young people would rather drink soda. He has to figure out how to get them into starbucks and convinced them they want good coffee and Espresso for a frothy price. It's not going to be easy. But SCHOLTZ has total faith in his own abilities and it is coffee. He's sure he can persuade millions of people to love it. And he won't stop until they do. It's nineteen eighty-eight back East Dunkin donuts. Eeo Bob Rosenberg has big plans for something. He thinks. We'll take the company to the next level but it's not just up to him fifty year old. Bob May be CEO but his dad. Bill still weighs in on company decisions. And Bob's getting tired of it. Bob Calls his father into his office. Dad I want to invest in. Chile's you know the casual dining chain well. Chilies is a good company. But we don't know anything about the business. I won't do it. Bob Nods as though he agrees he's not GonNa get into one of their verbal tussles. Bill thinks that's the end of it. But Bob goes behind his father's back. And convinces the Dunkin donuts board to vote for the Chili's Investment Bill Rosenberg is enraged at home. His wife tries to calm him down. How could Bob do this? My own son. Bill Stop Pacing. You'll give yourself a heart attack. It's Bob who's giving me the art attack within a half a year. It's clear Bob is made a major misstep. The Chili's franchises are draining Dunkin. Donuts coffers and fast Bob's embarrassed and panicked but bill still licking his wounds. He hasn't forgotten his son's betrayal. Look at these sales figures Bob. This is a disaster. I don't like to say I told you so but I know you told me well. He's too late now. You went behind my back. You had no respect for me now. You've gotten us in a mess. I'm done I promise. You'll never see my face in the company's office again. The next day bill is at home still seething someone knocks on his front door. He answers it and sees a man holding a massive box. What's all this? I have a package for you. Bill takes the package inside as he opens. His wife enters the room. What's that I can't believe it? It's my portrait from the lobby of the corporate office. Why was it said here? I told Bob he'd never see my face there again. I guess he doesn't WanNa see it. Either in one thousand nine hundred eighty nine. There's more bad news with a company. Weakened and the Chili's franchises sold a corporate raider tries to takeover Bob Rosenberg fights to maintain control but the next year he agrees to sell Dunkin donuts to a British company allied. Leon they own the company but Bob remains at the helm. Bob Holds Breakfast meeting with the new owner. But it's not the friendly chat. He'd anticipated Bob. Our priority is to grow the company so we need to make changes within the stores. So we're getting rid of the counters. They take up. Eighty percents the space but account for only twenty percent of business but counters are important hostesses. No are counter customers by name and know exactly what they want they don't even have to order having counters means only having stores in suburbia where. There's enough space. We need smaller urban stores. That reminds me another thing. That's got to go having the kitchen inside the store. You don't get it. Our customers love looking through the window and seeing the donuts mate. Despite Bob's protests allied Leon create separate kitchens and then delivers donuts to the stores without a kitchen or a counter. The company is able to open smaller stores and kiosks and bus terminals train stations in department stores some measuring only sixty four square feet but the smaller stores do great business. One takes a million dollars in. Its first year. In the next four years Dunkin donuts moves from eighty new store openings. A year to more than three hundred by nineteen ninety. The company has a total of two thousand stores. June sixth nineteen ninety-two is the most joyful day of Schultz's career the day of starbucks IPO at six that morning as the opening bell sounds at the New York Stock Exchange Schultz in the starbucks leadership team gather around computer monitors in a brokerage house in Seattle Sin. Shorts bought the company. Five years ago. He's worked tirelessly fulfill his promise to initial investors to open one hundred twenty five stores in five years now with more than one hundred fifty stores starbucks is the nation's largest specialty coffee roaster and retailer with huge opportunities to expand. Schultz likes to think of himself as a visionary. He's got to admit the whole specialty. Coffee Phenomenon has grown quicker than even he ever imagined. Today starbucks becomes the first coffee retailer to offer stock to the public. Schultz leans over the back of a chair watching intently. The stocks target ranges fourteen to sixteen dollars a share. Look the stocks jumped immediately to twenty one dollars. The stock trades briskly through the day. We're the second most traded stock on Nasdaq and the closing bell. They've raised wapping twenty. Nine million dollars just five years after Schultz bought starbucks for three point eight mill its market capitalisation stands at two hundred seventy three million dollars by the close of Nineteen ninety-three starbucks has more than two hundred seventy stores in the Pacific northwest yet in the northeast. Dunkin donuts has more than ten times as many but Howard Schultz is focused on competitors in the rapidly expanding gourmet coffee arena places like barneys and the coffee beanery out for the same elite taste conscious Java drinker. He's had time to bask in the company's success since they're I B o a year ago but he knows he can't sit still. It's time to expand his coffee kingdom to the East Coast. It's a move. He's hesitated to make because of the higher land and Labour costs in April nineteen ninety four. The company opens the first starbucks in Boston to Dunkin donuts. This is the first caffeinated salvo. As far as they're concerned it's business and personal. At their headquarters furious executives hunker down trying to devise ways to respond but soon mother nature will trouble starbucks more than they ever could. It's June nineteen ninety-four Howard. Schultz is in the Hamptons with his wife son and daughter at his wife's urging. He's just begun. What will be his longest vacation in ten years the phone rings his VP. Orrin Smith is on the line. There's a severe frost in Brazil. Coffee prices are through the roof. We don't buy coffee from Brazil but Brazil provides more than a quarter of the world's coffee that means every bean seller ours included. We'll be jacking up their prices. And we have three hundred fifty stores to supply Schultz heads back to Seattle and summons his top. Aides they gather around the Big Table in his office. We have a ten month supply beans locked in still. We gotta make some decisions here. Do we hang tight or raise prices? I say raise them but price experts at a disadvantage against Dunkin donuts because even if they raise prices their coffee still sells for much less than ours. Let's wait when gasoline companies jacked up prices after oil prices rose? People were outraged remember. I don't want starbucks facing that kind of backlash two weeks later. Brazil has another frost. That's more damaging than the first one. The price of coffee beans jumps three hundred. Thirty percent. Schultz holds another emergency team meeting. There's no easy way around this. We've got to raise prices not a lot just five or ten cents a cup. Our customers are already complaining about our prices. I'm betting they'll pay more for the best coffee and they do now. Shorts is ready to turn his attention to his new stores in the northeast. And this will galvanize. Dunkin donuts and immersed them both in an all out heated rivalry by April. Nineteen ninety four starbucks has more than four hundred stores in an aggressive mood. They dispense with a potential competitor by acquiring twenty two store. Boston chain called the coffee connection. One of their products is a cold slushy. Drink made in soft serve machines they call it. Frappuccino shells love the name. But he doesn't like the drink but as VP Howard. Behar wants him to keep an open. Mind this kind of drink will be a big seller. But it's like a milkshake not something. A coffee lover would enjoy. I think we need to experiment with it. Well okay. I'm not enthused but let's try it weeks later. Starbucks marketing team present Schultz in Bihar with a prototype. Frappuccino Schultz tastes it. It's awful Chalky pasty. You may not like this one but customers are asking for blended drinks and because they can't get them from starbucks they're going to competitors like the coffee bean alright alright. I'll consult our beverage director at the end of Nineteen ninety-four the Beverage Director. Bring Scholtz version. He likes it no longer. Tastes like a milkshake by using low fat milk. This one is more icy than Creamy Schultz meets with his retail operation. Staff Frappuccino is unlike any product. We've offered it's a summer drink so we've got to launch it by April first. We got five months to do it. That's nearly impossible. You have to do it. It's the only way word of mouth spread by the summer. In April of Nineteen Ninety five the first Frappuccino in coffee and MOCHA flavors are blended in the first two weeks a whopping one million or sold that summer brought Pacino accounts for eleven percent of starbucks sales. It's especially popular in the Northeast as temperatures rise. Dunkin donuts can't ignore this. They need to respond and fast soon. The two brands will be locked in a race to unleash the next icy drink sensation and freeze out the competition. Finding the right. Freelancer can be time consuming. Frustrating and expensive. Where do you go to find the talent? How much will it cost? How can you be sure? 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Fred's the cornerstone of all their TV advertising. He is Dunkin donuts. The marketing department hastily gathers customers Adore Fred. It'll be so disappointed. We have to soften the blow for our base. How about an advertising campaign that gives spread and appropriate sendoff or a big retirement? Party our parade. Let's do all three as the parade moves through the Boston streets. It's Free Doughnut Day. In Fred's honor his fans. Gobble up six million donuts across thirty three hundred stores. Now the question is how to weaponize all that love against starbucks and the war is global in one thousand nine hundred ninety nine. Dunkin donuts celebrates the sale of their eight Billion Cup of coffee the next year they opened their five thousand th store outside the US. This one in Bali Indonesia starbucks is gaining on them though with more than two thousand stores in the US and eighteen other countries including England New Zealand and the United Arab Emirates by the end of the decade an era of caloric excess is taking off and teens are leading the way when starbucks introduces Caramel. Frappuccino in the summer of nineteen ninety nine it becomes the after school treat of choice and adults are in line with them but Dunkin donut shoots back with a dunk Achino. It's an ICED Cappuccino with thick swirls of chocolate and whipped cream and it's wildly popular. Thanks to some help from surprising spokesman law not anymore. It's Duck Dunkin Chino. Don't mind if I do. What's my name? Gina New K. Chino. You want creamy goodness. I'm your friend. Say hello to my chocolate Glenn. Adequate not he likes this. Whole trial is out of sight back in with Hazel Caramel. Swirl I know it was in two thousand. Three Dunkin. Donuts takes another strike at starbucks when they announced an espresso revolution. Once homey brand is going up scale with its new line of ESPRESSOS Latte and Cappuccinos. They don't need starbucks free WIFI inoffensive music or armchairs covered in purple crushed velvet. They're just fine with a less. Pricey alternative and orange FORMICA. Tables and chairs. Dunkin donuts is doing well. Maybe too well. As part of Dunkin brands which includes Baskin Robbins? In Togo's sandwich stores Dunkin donuts accounts for eighty percent of sales. Success makes it ripe for a private equity takeover in two thousand six three firms. Bain capital the Carlyle Group and Thomas h Lee partners by Dunkin brands for two point. Four billion dollars. Everyone knows this means that Dunkin donuts will eventually be going public weeks later. Dunkin donuts comes out swinging with a multimillion dollar ad campaign taking aim at their upscale competitor. They call it. America runs on Dunkin in one of the first ads. Baffled customers space a long menu of starbucks non English words like Lahti duo and Benji Sav. What's the lucious lots from Dunkin donuts? You order them in English. Not for Italian. America runs on Dunkin. Starbucks DOESN'T COUNTER THE AD. They never advertise. Schultz is convinced that the best advertising is word of mouth from satisfied customers then the trench warfare begins as Dunkin. Donuts opens new stores literally side by side with starbucks and poaching their customers coffee now accounts for sixty three percent of Dunkin donuts sales. They're the nation's largest per bay. Were brewed coffee through fast food outlets selling one billion cups a year in two thousand seven there are signs of an economic downturn. That's good for Dunkin. But it means some tough choices for starbucks. In the fall of two thousand seven SCHOLTZ walks into a team meeting quietly. He takes his seat in the back of the room recently. He stepped down as CEO. And his heading up. Global Strategy and marketing. So at this meeting all he's required to be just a fly on the wall as the team talks among themselves his mood goes from worried too alarmed after an hour he leaves and seeks out his trusted. Vp Howard Behar. I don't like what I heard in there. The staff is so indecisive. They're not coming up with creative ideas. I've noticed that too. It's like they're taking success for granted. They're so confident they become arrogant. It's been nearly eight years and short step down as the company. Ceo As head of Global Strategy. He's overseen the opening of stores in thirty two countries and secured starbucks reputation as the world's premier coffee brand destination quarter after quarter stock. Prices soared profits increased now at the end of two thousand seven. There flagging Wall Street is taking notice. Shorts has to find a way to stop the bleeding in our next episode. A showdown is brewing Howard. Schultz years up for an unexpected comeback and Dunkin donuts goes all out when they celebrate a taste test. Brum wondering this is business wars. We hope you enjoyed this episode. And we invite you to subscribe on Apple podcasts. Spotify Google podcast Stitcher iheartradio or wherever you get your guests. You'll find a link on the episode notes just tap or Swipe over the cover art. You'll also see some offers from our sponsors so we hope you'll support our show by supporting them. If you like what you've heard we would love it. If you give us a five star rating and tell your friends had subscribed another way to support us is to answer a short survey at wondering dot com slash survey and tell us what business war stories. You'd like to hear a quick note about the conversations. You've been listening to in this episode. We can't know exactly what was said at the time but this dialogue is based on our best research parts of this story. Were based on the book. Pour your heart into it by Howard Schultz. I'm your host David Brown Elizabeth K wrote this story Carolos. Our senior producer and editor edited and produced by. Emily Frost. Sound design by Kyle Randall. Our executive producers are Jenny Lower Beckmann and Marshal Louis created by or non Lopez four wondering shopping on Rodeo drive and flying on private planes that glamorous life of the rich and famous or at least. That's what they want you to think. Even the rich is a new podcast from wondering it gives you the real inside scoop on the drama that keeps famous families like the royals and the Kardashians in the spotlight. I'm Brooke and I'm Marisha. And where the house of even the rich our show is about a world where the stakes are high and the rules don't apply. Even the rich is out on March tenth on Apple podcasts. Spotify or wherever? You're listening right now.