Thank you. Thank you very much. Thank you. Good morning. And welcome to the Annual Meeting of our Shareholders, our 21st meeting as a public company. Well, you are not going to clap for everything, are you? We’ve had such a great year that I thought we’d start the meeting by asking all of the Starbucks partners who are here to stand up and be recognize and for our shareholders to give them a warm round of applause. Thank you. And there are thousands more watching the event on webcast and thank you all very much as well.
With us this morning as well are our partners from the Philippines, Lopez family. We have partner Marinopoulos from Greece, Plácido Arango from Spain, would you please stand and be recognize, and [Hyun Sun] from Japan, please standup.
Thank you. Thank you. Well, as we meet here this morning, in many ways Starbucks Coffee Company is healthier and stronger than perhaps any other time in the history of our company. There are over 18,000 stores in 62 countries serving about 70 million customers a week and there are about 200,000 Starbucks partners proudly wearing the green apron.
In addition to that outside of our stores, there is now over 100,000 points of distribution for Starbucks coffee in places that we never believe we could be and that business today is over a $1 billion in sales.
Our stock price depending on the day this week is nearing its all time high and the market cap of your company is $43 billion. We’ve experienced a 38% return for our shareholders this year, not bad. And but also I would say that as you all know, the mission, the guiding principles and the purpose of Starbucks has always been beyond just making a profit. To say it another way I think that what we’ve try to do especially over the last couple of years is build a performance-driven organization and manage the company through the lens of humanity.
And that probably has never been more true than this past year, maintaining healthcare for our partners at a cost of about $221 million this year, realize gains this year from Bean Stock, the stock option program over $200 million for managers and below and the work that we’ve done, domestically and internationally in the communities that we serve, constantly trying every step of the way to balance profitability with a social conscience.
Now, two years ago, I share with you this slide which depicted the original 1928 Dow 30. And if you hear two years ago, I said after 85 years, it’s almost stunning to think that only one company remains from the original Dow 30 and that is GE.
I also said at that time that our aspirations as a company, as an organization, as a culture within the company is to one day aspire to be in the class of a company like GE. So you might imagine that last month when Fortune magazine came out with their list of the 100 most admired companies in the world that we woke up and saw that Starbucks coffee company was the fifth most admired company in the world.
Now, the people that work with me know that my first response is who is the four before us. And I can tell you that one day we’ll stand here before you and we will be the most admired and respected coffee company or company in the world. That is our ambition.
Now, what’s behind being respected and admired is probably the most important attribute of any company especially one that is a consumer brand like Starbucks. And that is the reservoir of trust that you build with your people, your customers, the communities you serve, your shareholders and multiple constituencies. And that trust that Starbucks has been built in a very unique way, not through marketing, not through advertising but really quintessentially by the experience that happens everyday in our stores.
Now, I mentioned we have over 18,000 stores but there is one store above all else that has defined and built the Starbucks brand. In fact, it wasn’t for that store, we wouldn’t have 18,000. And that’s the Pike Place store opened in 1971 in the Pike Place market. Now, that store today is growing at levels that are hard to imagine.
One of the highest volume stores in all of Starbucks in a 1000 square feet. So last summer I was told that they were lined around the block at the Pike Place store and I said you’re kidding, why. It’s not as if there is not a coffee store by the name of Starbucks across the street.
So I took a video camera with me and we went to see the store. And this is what happened, right after Labor Day in the Pike Place market. Take a look. Now, here we are sunny day in Seattle, remember that. Now, look at this, why are this people waiting online to go into the Pike Place store. What is it? Why are they taking pictures?
And the answer is obviously the quality of the coffee, the relationship that people have with the store and our people but it’s more than that. The people online want a chance in a sense to touch history. They want to tell their friends, their family, they want to get a picture taken that they were in the original Starbucks Pike Place store where it all began.
And they want to be able to get a sense of a company that they relate to on an emotional level. Now, it’s one thing to do this in Seattle, a place that we are from, a store that’s been opened 42 years, that has that history, people around the block waiting to get in. It’s another thing to do it halfway around the world in a country that you’ve never been in.
So three months ago, we opened the store in Mumbai, India. Now, opening in India is very difficult, very complex and we were fortunate enough to get in business and form a joint venture with perhaps one of the most respected companies in the world and that is Tata.
And with them, we were able to coauthor a fantastic opening. But what took place in India and I was there to see it. It was something I had never experienced before in my life, the most successful strongest opening in history of Starbucks without a dollar of advertising, just the reputation of the company. Take a look.
So, 1971 in a Pike Place market, 2012 in India and then we started opening up stores as you know in China. So the experience we’ve had in China, which now has over 800 stores on the Mainland. If you combine that with Hong Kong and Taiwan over a 1,000 stores and now we are beginning to open up in secondary and tertiary cities in China. Here is a picture of the store in Taiyuan, population of about 5 million people. Most Americans have never heard of this city and yet we opened again, no advertising, no marketing and a line out the door.
And then just a few weeks ago, we opened our first store in Ho Chi Minh City in Vietnam and look what happens. So what is taking place is a prove point about the relevancy of the Starbucks experience beyond where we’ve been, beyond our boarders and the opportunities, the expectations, the aspirations are now bigger and brighter than ever because what we created is no longer American. It’s no longer western, the human connection, the sense of community, the third place. All of these things are as relevant in Amman, Jordan as they are in Seattle, Washington.
Now over the last 15 years, we have been very fortunate to be able to be in business with the Alshaya Company in the Middle East, Turkey and Russia. And over the last 15 years, we’ve opened about 400 stores. But it’s not the number of stores. It’s a relationship we have with those people, in those communities. It’s the partnership with the Alshaya Company. It’s the learning of best practices from a diverse background and sharing those best practices with one and other.
And so today, I’m honored to be able to invite Mohammed Alshaya to the annual meeting and have him talk about the success, the partnership and the opportunities that we have with him in the Middle East, Turkey and Russia. And first, we will see a short video of what’s happening with Starbucks in that part of the world.
Thank you. Good morning, everyone. I’m delighted to be here in Seattle. Our thank you and let me start for thanking you for your warm words. We have known each other for many years and I can say with great sincerity that you are one of our strongest supporters and partners. We are proud to be considered part of the Starbucks family. I’m proud of the trust that you have in us.
Ladies and gentlemen, as our video showed, today we have a business that is flourishing to the mutual benefit of Alshaya and Starbucks. But that journey in our operating market has been full of adventure and discovery for both of us.
To tell about the Starbucks story in our operating regions, let me give you some background context. For all it size today Alshaya is a family business, founded by my grandfather and great uncle back in the late 1890s. We began trading textiles and food between Kuwait and the rest of the Middle East and India.
Early on we learned valuable lessons which continue to shape our thinking and the way we do business today. We saw that different cultures could work together for mutual benefits.
In an era when logistics involved sailing ships to transport goods across borders, we learned we have to earn the respect of our fellow traders and our community by meeting our commitments.
In those early days when agreements were based on handshake, integrity, mutual trust and delivering on our promises, helped Alshaya prosper. As a old man having successfully obtained my MBA from Morton, the wise guidance of my father helped me to understand this legacy and I learned that everything I did needed to be rooted and hard work and respect for others.
When I first met Howard, we quickly recognized that we share the same mindset, in terms of our responsibility and values. Equally, we were both excited about the huge potential of bringing Starbucks to our operating regions, initially in the Middle East.
The discovery of oil in the region in the early part of the 20th century which helped fuel its dynamic growth has also been behind the creation of a young mobile and brand savy younger generation, 22 countries make up the Middle East and North Africa region. And of its total 370 million populations over 60% are age below 30.
Today, in our heart and often harsh climate moulds our destination of choice for leisure. It is not unusual for a Kuwaiti to visit a mall up to six times a week, not just to shop but to catch up with friends over a cup of coffee.
15 years ago in the Middle East, retail brands were not as sophisticated but the modern mall culture of today was developing and young, affluent and well traveled citizens were coming back home and looking for the international brands that they had discovered overseas. There was a clear opportunity to introduce Starbucks to the region.
At the time, pretty much every U.S. and European city already had a Starbucks, a third place where people could gather, relax and live their lives. In the Middle East however, there is a rich tradition of drinking coffee and whilst warm hospitality has always been core to our culture, the concept of an international chain of coffee shops was something new.
Howard and I recognized that to make Starbucks a success, we would have to invest first and then educate the market place, getting people try the coffee, experience the stores and enjoy the welcome they received. Over time, we were confident that the customers would come.
And as we hope, this new concept quickly became a part of the local culture and today it is a part of everyday life. Today, I’m pleased to say that you will find a Starbucks in every major city in the Middle East. And if you visit, one of our stores you will find the same Starbucks experience.
Ten years ago, we went on to repeat that journey in Turkey and then in Russia in 2007. Both markets were once again the Starbucks concept was not failure. As a result of our successful partnership, we have been advising, forcing, introducing the coffee culture into these markets.
And whilst there is now healthy competition, I’m pleased to tell you that customers continue to rank us as the number one brand. So from one store in Kuwait City in 1999, our partnership now includes over 560 stores today, operated to the same standards as you will find in the United States. However, as an international business, Starbucks and ourselves also recognized the need to be truly relevant to our customers.
So we localize our offer in small but important ways that resonate with local culture and connect with our communities. It’s all about thinking global and acting local. Of course, store design and product plays a key role in this localization.
From beautiful Pantry Murrells and Arabian Lanterns in Middle East, (inaudible) Murrells in Istanbul and branded Starbucks cards in Moscow. In each region, we introduced local elements to our stores. That makes our customers who want to come back for more.
Interestingly, the artist behind the boundaries that you saw, came from Seattle. We love that connection. And of course, we also localize our online presence. In the Middle East, for example, our website and recently launched Facebook pages are in both English and Arabic.
Fundamental in a region where online usage is accelerating rapidly, but Starbucks is an edible business, serving coffee, not a coffee business serving people. And it is the 5,250 Starbucks partners we employee, who help us build the connections with our neighbors and the communities we operate in. Working as a team, we are trying our best to contribute where it comes. Those efforts start with our commitment to creating employment and developing the skills and talent of our people.
With high youth and employment, I'm passionate about job creation for young people. Our future and we invest in many different programs that help us to create career and learning opportunities. Last year, Alshaya welcomed over 1,000 new Starbucks partners from many different nationalities into the business across our operating markets. We also helped many progress their careers through participating in training and developing programs.
We also seek to be actively engaged with our communities. In the last four years, over 500 individual projects have been supported through more than 15,000 hours of volunteer support from our store teams. Collectively, we support a diverse range of projects, from raising funds for the hearing impaired in Turkey to tree planting programs in Lebanon, and from providing more placements through [student internships] in Russia, to welcoming children with disabilities to special events in Kuwait.
Our partners are passionate supporters of local causes and their participation in the Starbucks Global Month of Service, this April, will be part of that ongoing commitment as well as encouraging Starbucks partners to connect with their local neighborhoods. We also recognized the power of centrally driven programs that can have a positive impact on the societies in which we operate.
Let me close by talking about one powerful example of how we are doing this. Corporately, Starbucks have had a long-standing relationship with the international youth foundation and we have been delighted to work with the corporate office here in Seattle to support an ambitious project, dedicated to the youth of the kingdom of Jordan.
The BADIR project, which means initiate in English, was designed to support Jordan’s young, inspired entrepreneurs who harbor the aspiration and possess the dedication needed to make a positive impact in their communities. Over three years, BADIR will provide support to 45 youth leadership projects with grants and technical support. As you can see, the success of the program speaks for itself in the video they have produced.
Inspiring messages, I’m sure you will agree, all agree. Once again, thank you, Howard, for inviting me to speak today and thank you, ladies and gentlemen. I hope my words have shown how Starbucks is successfully connecting with people in our regions one cup at a time.
Thank you, Mohammed. Let me go off script just for a moment and just on a personal level. Going to the Middle East for the first time and having some, perhaps a pre-disposition about what it might be like, what the people might be like. Over the years we as a company have learned so much from being in business with the Alshaya company and personally the friendship that I’ve developed with Mohammed has made me better person, and really I think much better understanding about the sensibilities and the challenges of that part of the world. So, Mohammed, thank you very much.
I want to turn now to the core business and just share with you our thoughts over the next few years with regard to accelerating the growth of the business. The next two, three years for Starbucks will probably be as dynamic and as exciting as any period in the history of our company, and that says a lot given the last few years.
The U.S. business right now is as healthy as it ever has been. And if I look at some of the research reports or some of the articles that were written in 2008, 2009, when people thought that perhaps Starbucks had lost its way and we were reaching saturation, and now you look at the situation today, nothing can be further from the truth.
The U.S. business and specifically the stores that we opened in calendar ’12 and fiscal ’13 to date are some of the best performing stores in the history of the company in terms of unit economics, profitability and the qualitative aspect of how we are dealing with our customers. And that has given us great confidence to accelerate the growth in our U.S. business.
We will open up over the next five years about 3,000 new stores in the Americas region and at least 1,500 of them will be in the U.S. alone. And that is a great, I think opportunity for us also to generate employment to really speak to the economy of the America and the confidence we have.
And at the same time, we are also building two new manufacturing facilities also in America, a new coffee plant in Georgia and a new juicery for evolution in Southern California, so that’s the U.S.
In China where we have experienced stunning success, it really gives us the opportunity today. I think to open up overtime what will be thousands of new stores. And as I said earlier, there is no doubt in our mind that China one day will be at least the second largest market after the U.S. and if possible that over many years potentially the largest market. By 2015, we’ll have 1,500 Starbucks stores in 70 cities on the Mainland.
And what I would say about the experience we’ve had in China is just the understanding that I could represent to all of you, the relevancy, the relationship we have with local Chinese people and the respect and trust they have and they experienced the brand in the third place.
And if I -- if I took you all today and put you in a store anywhere in China, you would have a exact same experience that you are having in your local Starbucks store in Seattle, that’s how good it is and that’s why we are so confident.
Now in addition to the acceleration of stores in the U.S. and in China, we have also made three strategic acquisitions this year. Let me speak to that and why we made those acquisitions and what it means for the future.
If we look at the Starbucks retail stores and we look at the CPG or channel development business that we have, we have an opportunity, an opportunity that I laid out for you two years ago and that is to introduce fantastic new products or categories inside our stores, their loyalty-built trust build those brands and then use the success that we have in our stores to bring them into the grocery channel.
And so that was the reason behind some of these acquisitions. Let’s begin with evolution. Evolution represents a significant opportunity for the company. First and foremost, we are looking at $50 billion category in terms of health and wellness.
We believe that Starbucks has a license and an opportunity to participate in that growing category. We certainly believe that we want to bring healthier food and beverages to our stores. And so we found this jewel of a company and for $30 million we bought this small business in Southern California that literally is producing the highest quality juice you have ever tasted with a new technology which is high-pressure pasteurization.
In the last few months, we have begun to roll out evolution juice not only in Starbucks stores but select grocery stores. And the response has been fantastic. We are significantly selling more juice but most importantly, we’re providing a higher quality product that’s healthier, has better nutrients and better for our customers.
In addition to that, we believe that evolution presents an opportunity for us to leverage the brand on another platform of package very healthy food. And you’ll see that in our stores before the end of the calendar year. So this is just a beginning of Starbucks getting healthier and leveraging the evolution brand.
Now, in addition to that, for the last couple of years candidly, we really begun to believe that we had a significant opportunity to up level and raise the quality of Starbucks food in our stores. One of the challenges we’ve always have is that we did not come from a food background. We don’t cook or prepare baked foods in our stores, what could we do.
So we began looking across the country for an opportunity to partner with or apply to our company that could significantly transform the food of Starbucks. And we met this unbelievable baker, an artisan baker in San Francisco named Pascal. He has a fantastic company and he agreed to sell his business to Starbucks.
And in the last few months, we’ve been gun testing his food in Northern California again with great results. And now, we’re beginning to leverage a supply chain system in his food and over the next 18 months or so, La Boulange branded very quality food that is significantly better than what we have right now candidly, will be in all the stores across the country. In the La Boulange brand, we think has potential not only in our stores but outside as well.
Then we get to the tea category. In 1971, if you went to Starbucks, you saw a sign that said Starbucks coffee, tea and spice. That was our original business. We’ve always been in the tea business but coffee has always dwarfed. Tea has represented roughly about 1% of our sales. But we’ve been looking at the category of tea for quite some time and we have a billion dollar business already with Tazo tea.
And we began to believe after much research and lots of thinking and strategic thoughts that we could do for tea what we’ve done for coffee. And then we found this company Teavana. Now, let me tell you a little about them.
It was founded in Atlanta by a husband and wife, Andy and Nancy Mack. They are as passionate and crazy and fanatical about tea as we are about coffee. They have 300 stores primarily in malls across the country. And the unit economics of profitability of Teavana is very, very strong. But one thing we noticed in visiting all their stores is it they had no beverage business.
There was no analog to the espresso bar in their stores. So once we came together and acquired the company, we started thinking about what we can do. We believe we have at least 1000 Teavana stores in North America, at least. Why do we believe that because the mall stores that they have can be complemented with Starbucks creating and leveraging our capability and competency by building high profile stores in urban street corners across the country.
But in addition to taking Teavana to urban locations, we also are going to create the analog of the espresso bars inside Teavana tea stores. And so, we will create the theater and romance around hot and cold tea beverages, and all the things that we can bring to their inside Teavana. What that will do is create more frequency, more loyalty, higher profitability. It will be a sampling device and in addition to that, over time, I think you will begin to see Teavana products and potential beverages inside Starbucks as well.
So this is a big-big opportunity and then not unlike Evolution and things we’ve done on the channel developments, CPG. Over time, we will bring Teavana to the grocery stores or high-end supermarkets across the country. So these three acquisitions are really threaded into the core strategic plan of the company.
We are not going out and buying companies for the sake of growing or doing anything that is indiscipline. We are working together with the senior management team and our Board to be very thoughtful, very discipline and really trying to answer the question in the affirmative.
If we were to acquire this company, can we add value to the company, to its customers and to the marketplace and does it fits strategically inside Starbucks? And so if these three acquisitions do, in overtime, potentially there might be more. But there will not be any kind of acquisition that is not within the guardrails of the core business and things that don't add value to you or shareholders.
Now, in addition to the core business of retail and growing and accelerating the growth of our U.S. business and international in China, we are sitting on an unbelievable opportunity with CPG or what we call, inside Starbucks Channel Development. You can see from the slide that the growth of this business has been quite significant, with over $1 billion in sales over the last 12 months and a 100,000 points of distribution.
We strongly believe that we can take this business to many, many heights and one day can rival the size, the scale and the profitability of the core U.S. retail business. We're already number one in the fast-growing premium ready-to-drink coffee business with Frappuccino that is a multi-billion dollar business in terms of its brand. We are number one in terms of premium coffee in America. And then we have the single-serve platform, which is an $8 billion category and growing by leaps and bounds, that we intend to be the leader in.
What we’ve done in the last two years is be able to complement our retail business with a CPG business. We are primarily the only core retail business in America that has multiple channels of distribution. It gives us great flexibility, other channels to grow and even opportunities to cross reference, cross-promote those businesses.
Now, threaded into our retail business in the channel development business, has been a unique capability that we have built and invested in over the last two years. Over the last two years, we have been witnessed to a seismic change in consumer behavior and that seismic change is in large part, due to the unbelievable tidal wave of technology, in terms of smartphones, social and digital media and everything that’s going on of how we are communicating with one another and how we are getting access to information.
As a result of that capability and insight, we’ve been able to do things that almost no other consumer brand or retail company have done before and we are just getting started. So, I’m going to bring Adam Brotman on, the Chief Digital Officer of the company who is going to share with you, not only our capability but what’s coming in the future. Adam Brotman.
Thanks, Howard. Good morning, shareholders, partners. I’m super excited to talk about what Starbucks is doing in digital. But before I talk about what we are doing in digital, I have to take a second and talk about what we are doing in the physical world.
For 42 years, Starbucks have been building relationships in our stores through engagement in connection, one couple in a moment at a time. And in the last five years, something amazing has happened. We've been able to harness and leverage, what’s been happening in our stores in the digital world and it now rivals the connections that we have with our customer in digital world is almost the same as we have in the physical role.
It’s amazing and it’s started about five years ago, almost to this exact day on the stage, when we launched mystarbucksideas.com. mystarbucksideas.com many of you are probably familiar with. It’s where our customers can put ideas upon a website, other customers can vote on them and comment on them and we listen.
In the five-year since we launched mystarbucksideas.com, we’ve launched 275 ideas. But in those same five years, we’ve done a lot more than that. We’ve actually a mass an unprecedented combination of digital assets across the Board.
And you can see all those up here. No other consumer brand retailer in the world has both the size, scale, combination and integration of what we are doing in digital. And I want to tell you little bit about how and why we got here.
It started with social media, after we launched mystarbucksideas about a year later, we found ourselves leaning into Twitter and Facebook, and we had about 1.5 million Facebook fans in the summer of 2009.
And we’ve got 1.5 million, so lot of Facebook fans. So we thought let’s do an offer. We did Free Pastry Day and many of you remember this. We offered it through Facebook and it works like a charm. We actually have over a million customers participate in this offer and we added 500,000 new fans within about two days to our Facebook fan group. So we were like, wow, we are really on to something.
We are now fast forward it today. We have 54 million global Facebook fans. Now 54 million is a big number, so lot of fans, but a bigger number is a billion. You take all the -- if you take all the friends of our fans, just have 1 degree of separation all the engagement occurs that number adds up to a billion people, 94% of everyone on Facebook, isn’t that 1 degree of separation from our friends and our friends of friends.
Same is true with Twitter, on Twitter we are one of the most followed brand on all of Twitter, 3.4 million, 3.5 followers. But more importantly, we are almost talked about brands on Twitter. Literally tenths of thousands times a day, people are talking about Starbucks. Meet me at Starbucks. I’m checking in at Starbucks. I need my Starbucks. I’m only happy when I get my Starbucks.
And the reason why it reflects the connection that we have with our customers in our stores everyday, because everything we do in digital rest on that ability to be the best barista online. In fact, what are the brands you know that can twit out a smily face and give this level of engagement? This is one of our most retreated twits and it just speaks to the power of social media and engagement. It’s true.
Okay. Now turning to our own websites and mobile apps. As I mentioned, about five years ago, we started this journey with mystarbucksideas and -- we had mystarbucksideas and we had a website.
But in this five-year journey we’ve done so much more. We’ve launched free Wi-Fi, the Starbucks digital network. We revamped our e-commerce site. We’ve launched two different mobile apps and mobile payment. And now the traffic to our site is amazing. Our own web and mobiles sites have approximately 35 million unique monthly visitors.
And to put that traffic and scale of traffic into perspective, if you take the Wall Street Journal and New York Times web traffic combined there are at 39 million monthly unique. So we have traffic and scale on our own websites that make us our own media company to build connect and engage and tell our stories with our customers, simply amazing.
So now I’m going to talk about the Starbucks Card, now I’m going to do little bit of audience participation. How many of you have a Starbucks Card? Please raise your hand. Okay, I just wanted to do that in this audience, because I knew the [deco stack] is my favorite.
You are actually not alone. We’ve launched the Starbucks Plastic Gift Card Program about 10 years ago. And up until 2009, it was an amazing and still is an amazing gift card program, one of the best in the world, one of the biggest in the world too. And then we brought it to life.
At the end of 2009 beginning of 2011, we actually attached the Starbucks Card Program to the Starbucks Rewards Loyalty Program, which I’m going to talk about, and we added into our mobile app.
And when we did those two things, not only with the gift card program but it became an incredible way to for us to connect and engage with our customers and it exploded. You flash forward it today. Our card business is now over $3 billion a year. It is -- if we were bank, we’ve been the top 20 banks in the country, that’s how big it is.
And there is another step that’s amazing. Over 30% of our in-store U.S. tender is paid for using a card, a prepaid card, think about that. What other retailer do you know that has almost a third of its business prepaid. It’s simply incredible.
Okay. Another interaction moment, how many you have a Gold Card, wow, nice, again, I knew that was kind of stack my favorite, but that’s amazing. You are not alone. The Card and Loyalty Programs, and particularly the Loyalty Program is only about three years old now. And in just three years our customers have gravitated towards it. We started this year with 4.5 million active, My Starbucks Rewards loyalty members. And we’re adding about 80,000 new members per week.
Now that is on average, many reasons more than that. That’s like adding a husky stadium full of new loyalty members every single week. And that’s why I’m so confident that we’re going to be able to double our loyalty program in terms of active use from the beginning of this fiscal year to the end of this fiscal year. In fact, we have over 6 million loyalty members right now.
And this is not just a U.S. phenomenon. This is happening around the globe, our card and loyalty system and for the same reasons, it’s a great platform for us. In Canada, for example, our percentage of card tenders are actually 32%, which is actually higher in the United States.
In Korea, it’s 27% of tender using card and 90% of that is actually registered. And in China, while they don’t have an actual stored value card, they do have a My Starbucks Rewards system and loyalty card. And in China, they’ve just passed a 2 million member for loyalty mark and 35% of tender is using My Starbucks Rewards. So this is not just a U.S. phenomenon, it’s a global phenomenon.
Okay. Last piece of interactivity. How many of you have a phone in your pocket. It’s almost, all of you. Who doesn’t this day, right? Mobile has completely infiltrated our lives and it is our primary computing device that I want to show you a picture that was taken last week.
This is a real picture. This was taken at the Vatican, in the St. Peter Square with the inauguration in the first speech of Pope Francis. And look at that, every body has got their phone out. And it’s a reason why because I don’t know but for me and our customers, they love the interactivity and all the functionality comes to the phone because the plastic gift card as successful and as important today.
And by the way, one out of 10 U.S. adults received a gift card, a Starbucks gift card for the holiday, last holiday. So this is a huge program. When they pulled out my gift card and I try and get the balance and I tried and reload it or check my loyalty status, it doesn’t do that but our mobile app does. And our customers are absolutely loving it.
Our mobile app now on both iPhone and Android combined have 10 million active users of our mobile app. And we’re adding again another football stadium with a downloads every single week, adding about the 100,000 app downloads per week.
And in terms of mobile payment, we are a leader and it’s accelerating. We’re at $3 million mobile payment transactions per week now. And at this rate, we’re going to hit about 10% of all tender and U.S. stores will be using mobile payment by the end of this year. That’s my prediction.
And we didn’t stop there. As a leader in mobile payment, we decided to leverage this position and partners with the leading mobile app company in Silicon Valley, doing mobile payments. That’s a company called square, founded by Jack Dorsey, the founder of Twitter.
Square is literally getting any small business or individual, use their phone or tablet to process credit card. And they are doing this to a tune of over $10,000 billion worth of credit card and debit card processing per year. And we partnered with them. We integrated our payment system with them, made an investment and now they are processing our U.S. credit and debit card payment saving significant money as well.
In all these digital activities and platform is much as they are exciting about building relationships with our customers. They are also exciting because they are helping us build our business. I mentioned earlier that our loyalty card and our Starbucks freeman card are tied together. It’s one and the same.
And that allows us to get incredibly good data and insights to build a customized relevant communications, not only on our email system and our mobile inbox but also we’ve taken that data and segmentation and insights and customization. And we’ve integrated it into the social media and even with our digital advertising from a targeting perspective.
And we’re not just stopping there. We’re actually integrating our card and loyalty system across our new channels and our new brands. For example, Teavana, next month in April, you will use your Starbucks card, earn stars, including mobile payment at all the Teavana stores.
That’s a great example of looking for growth coming the way. There is another one. In May, in grocery, we’re first time ever, a major consumer brand retailer with a loyalty program will combine the ability to earn loyalty points down the grocery isle just like you can in our stores.
So when you buy package coffee starting in May in grocery, you’ll be able to get a code, enter that code and get a star. So bringing in all together.
So in closing, we will leave you with this. Every thing I’ve discussed in digital is extremely exciting. But it is never going to replace the connections and the emotional engagement that we do in our stores everyday between our releases, our store partners and our customers. In fact, it’s quite the opposite. Everything we’re doing in digital is about enhancing and strengthening those connections. And only the way, that digital can and only the way that Starbucks can. Thank you very much.
Can we put the lights up for this session, so I can see you all? Thank you. I guess the question is what is the responsibility of a, for-profit public company and what’s our responsibility to shareholders and private citizens to address and participate and what's going on in America.
It’s a very important question. And it’s a difficult question to answer, especially one that involves a public-for-profit company. We are here in many ways to celebrate the success of Starbucks and our year that we just had. It’s also been a year that Starbucks has taken on the responsibility to do somewhat unprecedented unorthodox things. To put ourselves in a position where we are trying to do things that are respectful, that are civil, that also bring attention to problems, that I think we all recognize we have, whether you are republican, democrat, independent.
I think I can speak for all of us in saying that we have a sense that we are not exactly going in the right direction, that there is something wrong. That there something wrong with a level of trust and confidence in many institutions and government, and that there are so many people being left behind.
Now I have the advantage of traveling, not only around the country, but around the world. And I find myself in discussions and in meeting with very interesting and sometimes Heads of States.
And they are asking me questions about America, our role, our responsibility. And one of things that I’ve begun to take away, especially as we look at so many hotspots in the world, that the world needs America to lead and perhaps, never in our generation as the world needed it more.
So I won’t be able to share with you that what we’ve been doing as a company is not true a land’s of marketing or trying to sale more coffee or trying to make more money, in fact it’s the opposite.
What we’ve been trying to do as the company demonstrate our view of leadership, of not being by standard of creating a level of conversation and discussion with very serious issues.
I would also say that our success as a company and your participation as a shareholder is linked to whether or not America succeeds. We cannot succeed in which a middle-class doesn’t have hold for aspirations or once again believe in the American dream.
We can’t succeed with almost $17 trillion in debt on the balance sheet of America. We can’t succeed with 14 million people unemployed. We can’t succeed with 42 out of 50 states facing a budget deficit and cutting social services at levels that are just unbelievable and somewhat unprecedented.
So we are going to continue as a responsible company to hopefully making proud to continue raising awareness and trying to establish a leadership position as a public company and do everything we can at the same time to drive shareholder value to exceed the expectations of both our customers and our people, and do what's right as a public company, because I believe that’s a rules of engagement, in terms of the responsibility of the company today has changed.
I mentioned the word leadership, since 1994, Starbucks had a very interesting relationship with a professor at the Harvard Business School. Her name is Nancy Koehn. She has written multiple cases on Starbucks. She is an historian and she has as much information insight and understanding of Lincoln as perhaps anyone in America, and I’ve invited her here today to talk to us not only about leadership but the presidency of Abraham Lincoln. Nancy Koehn?
Thank you. Thank you. Thank you. It’s a great privilege to be here and a great pleasure. As Howard said, I’m a historian at the Harvard Business School that means a couple of things. First, it means, I get paid to read other peoples mail. It also means, I teach a big, big course, call the history of leadership, power and glory in turbulent times, the history of leadership from Henry V to Mark Zuckerberg.
Howard actually came and talked toward the very end of the course last year, he will come again, it was one of the most extraordinary sections I’ve been privileged to be part of. But second thing, being a historian means, at the place like the Harvard Business School, I don’t have very many guest for the first three quarters of the semester because they are all dead.
So, as Howard said, I’ve been studying the arc, it’s really an arc, of the story of Starbucks since 1994. I remember coming back after having my first lot pay back to the Harvard Business School. I was very, very -- I overconfident by the nature, I was very, very excited.
I remember going to my tenure committee and say, I want to write about this company. And no one in the East Coast had really heard of Starbucks. And I remember one of my senior advisor saying, really you need to write about jet airplanes or turbines, real industry, Nancy, and once in a while, I think about that and the extra journey of Starbucks. And it really is true that he who laughs last, laughs best.
But I’m not here to talk about Starbucks per se although it’s very, very fitting, altogether fitting and proper as Lincoln would say that I’m here at the Starbucks convocation. To talk about what we can learn in this very, very turbulent as Howard said as that video makes very poignantly clear, a very high stakes moment for our communities, for our sense of our families, for our neighborhoods and our states and our nation and this global village we are all so much are part of now.
I can’t think of very, very moment in the sweep of industrial history that all is high stakes, has fraught the possibility and is fraught with peril as this moment is. And if we think about all the turbulence that is all around, I want to ask you as I’m going to talk to you about Lincoln now. I want to ask you consider if you will, these kinds of parameters, this kind of props on the scene.
And the most important one is what if all the turbulence around us is really the new normal. What if the old equilibrium, we’re kind of look for economic indicators and we look for these kinds of touchstones, we wait for that to happen. And then when we see the little evidence that we could breath a sigh of relief and say we’re back to normal, what if that’s gone.
What if a permanent kind of volatility and disruption is the world we now live in and the stage we must act on to lead our world into a better future? If that’s the case, there are three implications for us for every single person in this room, at least three but let me talk about, we’re first going to have to get much better, expecting the unexpected and literally saying bring it on and not the full thing to feel.
Remember we see the way that West Wing used to always end with Martin Chin be like, what’s next, what’s next. We need to literally, physically, emotionally, spiritually, practically, intellectually be in that mode as opposed to hunkering down and defaulting the fear.
Second implication, we’re going to knew lot more than information. As important this information is, we’re going to need -- we have too much actually. We’re going to need the translation of information into knowledge, knowledge into understanding and understanding into wisdom. And leaders whether they lead with a small L or a big L, everything in between are going to have to get very good at those translations because the world needs wisdom.
And the third implication is that leadership, the client that Howard and Starbucks and all that the 200,000 partners who everyday get up to lead, do all the time. Effective leadership is going to be all. So what does effective leadership mean? There is lots of definition. This is one of those words that it’s way overused.
But how about this one, from David Foster Wallace, the American novelist, who wrote non-fiction essay long ago when he was riding on the first, John McCain presidential campaign, long ago in a different moment. He said effective leaders are individuals who help us overcome the limitations of our own weaknesses and selfishness and fears. And get us to do harder, better, more important things than we can get ourselves to do on our own.
So today, I want to tell you the story of someone who was an effective leader by those parameters. Abraham Lincoln, I need to start off by telling you that Abraham Lincoln was not cut from marble. Lincoln was made as much as he was born probably much more. So leaders are not born in some kind of lovely, shaken, baked kind of way or cut from the rib of Zeus. They are made and they allow themselves to be made and they participate in their own making as much as they participate in the making of the moment. Lincoln was made.
And as you know, I’m going to tell you from the highlight of couple of key junctures in hiss own making as a leader and what we learnt from those. You all know that kind of big outlines. He is born to nothing, no cash, no connections, fraught, tenth, angry, very friction-ridden electric relationship with his farmer father Thomas Lincoln. His mother dies when he is nine and his step mother, Sarah Bush Johnston, becomes his cheerleader.
She supports him, she believes in him and that is unquestionably important. But the key thing about Lincoln’s upbringing is that he owned it himself. So, Lincoln was a complete audio direct. He had less than one year of schooling in his life. All that he learned, emotionally, strategically, politically, he taught himself in a very conscious way and that was enormously important right now.
This idea that you like and the path you walk is actually the best classroom you will ever find. And the experience, right, gives us to father the grist, the clay, the whole information and then into knowledge and into understand and into wisdom for ourselves. So that’s the first, very important lesson about Lincoln and we see it early on.
And we are going to see it more, as he moves through his journey. I’ll say that in more in about a minute. Second really interesting lesson here, is Lincoln made a whole lot of mistakes. So we don’t kind of read about that in our school books. We think of him, just like the great President and lovable or guy with the logs. But he made a lot of mistakes and he certainly enjoyed more than his fair share of setbacks, failures, disappointments, Exhibit A in regard to that.
Lincoln becomes a lawyer, climbs through outside of his father houses as soon as we became 21. Spend sometime in a little town in Illinois called New Salem, besides after trying on many different careers like me trying on close or boots or purses. He tries on surveying retailing, being a postmaster and settles in his late 20s, in his early 30s on being a lawyer, teaches himself a law, sits for the board, no law school classes, no 1L, no paper chase and becomes a lawyer in a burgeoning town in Southern Illinois called Springfield, where he immediately hitches it’s star to a series to leading lawyers.
And Lincoln starts off like, lots of us, eager, ambitious, greyhound out of the swift, very, very, very excited about being a lawyer in his own, in a pragmatic way. Lincoln was a little more caffeinated than Daniel Day-Lewis in the movie and a lot raunchier. Lincoln had a very good raunchy sense of humor. That’s important to know, right and a very, very lousy singing voice but a lot of those hallway kind of long trots that you see in the movie, he is singing raunchy Scottish Ballets.
And anyway, as a lawyer, he steps into the courtroom if you will or onto the floor of the court with a lot of sarcasm, with a lot of criticism and a lot of bite and wild and kind of seeing almost ventriloquist opponents and he learns very quickly. Again, back to how do we allow ourselves to be engage? He learns from these mistakes. He learns to kind of temper his position to listen more carefully to his opponent, to really gauge the situation and to use mistakes and you hear this all the time.
It’s interesting to hear this about, the iconic American President, Abraham Lincoln to use his mistakes as again, a kind of classroom or a kind of therapy session away to move himself forward, upward and onward and he does that, very, very seriously as a lawyer as a young men.
In the next few years, this is actually my favorite portrait of Lincoln. It was taken right before he got married in 1842 and that is not a GQ hairstyle, right. That was just his own kind of haphazard dressing and haphazard hair. I mean, you can see that he was at times genuinely handsome. He never thought of himself that way but he was.
In 1842, now, in his second practice before he establishes his own, which will be his third and final law practice, he marries a woman name Mary Todd, dynamic, vivacious, underrated by lots and lots of historians through the years, critical to Lincoln’s career. Because remember no one does it alone. No leader, no silver baccarat gets to the top of the jungle without some serious support and she was that for him in lots and lots of ways.
And until the war and the death of their second son, they would have four children. Two of them would die before the age of 13 in tragic death before the war and Willie’s death in 1862 break them apart. She is his closest ally. He makes not a move politically and in many other ways without her. And here is Lincoln with his fourth son, Tad, that’s the second in the White House.
So, Lincoln’s late 30s and 40s like for many of us are building years. He is building a political career. His law partner -- his third law partner whom he took on, the man named William Herndon once said, Lincoln’s ambition was a little engine that knew no rest. So these are 1845, 1850, 1852, trying right with, again, great emotional awareness and the detachment, Lincoln was really good at lesson number three which is, the ability to walk around himself and his moment this is critical in the presidency.
So literally step out and walk around and look at himself and look at the problem or look at the conversation or look at the encounter, were the military situation and take an objective non-reactive point of view and perspective on it. That is so important in our very reactive, very smartphone driven age.
So Lincoln through all these moments of building his career also has great setbacks. He runs office and losses. He runs office and losses, right. He suffers from great depression, right. He feels like he spinning his wheels.
And then, beginning in the mid 1850s, a cauldron, a simmering, a slow burn cauldron of hypocrisy that lies at the heart, lay at the heart of the American experiment boils over and Lincoln through late 1850s an another loss the Stephen Douglas from U.S. becomes President, amazing four way race. Here is a picture of him, getting the nomination from young republic and party in his home in 1860 in Springfield.
And then four way race, four to six months later, he becomes President, the 16th President of United States. And remember that old adage, when god wants to punish you he answers your prayers.
And now he is President and wholly molly, the nation is splitting apart over the issue of slavery and the election of real public and President, and Lincoln knows, knows the states, he cease the states. He doesn’t yet know, what to do, there is -- most of the time till the war he will not know exactly what to do.
He has he said in 1864, I plainly confess, I had no grand plan other then to save the union. I navigated the means of that point to point. As one much do in great turbulence. So here he is 18th -- March of 1861, he has taken the inaugural office. He is committed to one thing, saving the union.
Spielberg's movie examines how in the extraordinary crucible, extraordinary bloodshed of the civil war saving the union becomes something different and bigger and better than what it started out this.
But at the beginning of the war he can’t see that, all he knows is inturbulence and suddenly very turbulent. He has to commit lesson number four to a big worthy mission. And then they give out subtly, black subtly, desks with deafness, how to achieve that mission.
And the fifth lesson he learns, all important for our moment are high six-moment is, I’m on stage. This is a big deal. I have the kind of authority that Howard talked about Starbucks having and with it as Howard says, goes great responsibility. I have to own that agency.
Now the back story to all this folks is not in the movie, because is about 1865 is that the three months, Lincoln actually doesn’t really know what to do. He doesn’t really know what to do and then the beginnings of the war at Fort Sumter kind of galvanize him to action.
So this is not the story of Rocky running up the Philadelphia Art Museum staff after drinking eggs and going like this in Rocky I. This is a story of all of us. Two steps forward, stop, back, two steps forward. So the beginnings of the war and I’m just going to talk about two other instances that are terrible, let me just give you a sense of it.
First of all, right, this is the first inaugural, inauguration like the capitalism finished, great metaphor for the country, right. Capitalism has only -- has no dome. But most important, to the first two years of the war and we don’t know this most of us. White House in Washington is in great danger of being taken over and this isn’t about Lincoln life per say, he’s always in danger of being assassinated.
But he is in physical danger, that’s how precarious this thing is. And so its terrible beginnings, the general doesn’t have -- he have general he can trust, he hasn’t built up that reservoir of trust. He doesn’t know, right, exactly what he has in terms of an army. He doesn’t know how strong the confederate will be to fight, it’s a mess. It’s a mess for year. It’s a mess for 18 months.
It’s a mess until Lincoln find in the middle of 1862 in midst of great depth, a great depth of depression and great moments of private doubt which we never see publically. He is very careful about that and you can know understand what. Until he find some kind of leadership backbone.
This is his office from which he led all of the war effort, including as he gets to realize. He doesn’t have generals he can trust until he finds Grant and Sherman. Literally mapping out the strategy of the war and remember, there are couple of he gets lesson number six.
Lincoln understood that the more turbulent the situation the more you are going to need a wide variety of people to advise you, to inform you, to translate for you and so think of Doris Kearns Goodwin's book team of rivals, he assembles the group of people and this is throughout the war. Politically, militarily and in terms of his administration that is literally a team of rivals.
And Lincoln has the emotional forbearance, and I will come back to that one second, to take in that differing information and not react immediately and not find the hair on his emotional neck up so high as he gets into needless drama.
And now, I’d like to think what would happen if Lincoln had Facebook, right. The history might have turned up -- he's very good at monitoring, again using his emotional tool box to do that. He is also very good at lesson number eight. Listen thoughtfully, gather input from lots of sources.
Now, I want to show you a few pictures of what the shock and awe of the civil war was. These are all taken in 1862 and 1863, first war to be photographed so close on. Just to give you one shocking statistic in September of 1862 at the battle of -- in September of 1862 at the battle of Antietam, 23,000 Union and Confederate men are killed or wounded in one day.
Again, this is bloody. This is the kind of carnage that we in America have no other President. But late 1863 and one of the many, many new symmetries build to house the dead, Lincoln gives the Gettysburg Address. It’s less than 300 words long but it brings us to leadership lesson number nine. And that is -- and by the way, this is Lincoln’s head at number two.
He is actually coming down from making a speech. The photographer was so busy setting up the tripod and the speech was so short. But this is all we have of Lincoln actually giving the Gettysburg address but think about the Gettysburg Address for a second. It starts off four score and seven years ago, our fathers bought forth on this continent. A new nation conceived in liberty and dedicated to the proposition that all men are created equal.
So it takes us to back to our past, it tells us here we are in the present, now we are engaged in the greats of war testing whether that any nation or any nation so conceived and so delicate to long endure. So here we’re, this is what it’s stake. Here is why we’re here, dedicated field. Here is what happened on those field beyond the dead. Here is why those people died and here is why that price as terrible as awesome as it is, is worth paying.
So the Gettysburg Address gives us another interesting set of leadership lessons and that is something again that we all must learn that we hunger as Howard just said for our public leaders to offer us and that is leadership lesson number 10, frame the stakes of the moment for the people that look to you.
Frame the stakes, connected to the past and anchor in the present, focus on the future and then explain what are the trade-offs that we as constituents that we as members, right, citizens will face and why those trade-offs are worth making.
Leadership lesson number 10. Lincoln understood and this is really important right now, especially when one so easily get distracted playing with our iPhones or Android that we can’t give up. We must not give up as Peter Gomes of Minister Harvard once said you must never give in, given out, or give up. We would refer his mission to succeed. He could not sync through the poor boards of doubt and despair.
Leadership lesson number 11 is that Lincoln like in that case would address. Like in all those photographs of him with the generals understood that in order to lead effectively. He couldn’t do it behind his phone so to speak and he couldn’t do it from the White House office that we just saw. He had to be out in the field listening, talking, absorbing, observing.
Okay. Let’s take a look at what Lincoln was deal it. So just here are the numbers of people killed and murdered, these numbers are recently been revised. We don’t have upwards. So we don’t have those numbers quite yet. But at a low bound, 1.1 million Americans were killed or wounded in a civil war.
Now, remember the population of America in 1860 was 32 million and change. That’s roughly 3%, ratchet that up to a population close to 300 million, we’re talking about 8 million people today. So this is turbulence and this is high stakes. This is the kind of bloodshed we can’t even relate to. And let’s take a look at Lincoln, the man. Here he is right before. He was elected President in 1860. Here he is at the time of Gettysburg Address at the end of 1863 and here he is right before he was assassinated.
So you can see right here, he wasn't necessarily drinking Evolution Fresh. I don't think he was feeding and watering himself as well as he might have. But he was strong physically and his courage muscles, the muscles of moral courage got stronger and stronger and stronger as he learned and grew into the President that we so admire.
I want to close by saying four things here. So, I’ve given you a number of different lessons that I think are really important. First, this is a story about someone who was made as much as the moment that he did so much to impact. So are you willing to be made better and stronger and bigger in heart?
Second, this is a story of developing the muscles of moral courage of core straight, right. If you are going to like, bring it on, we got to the strong. Third, this is a message of never giving up and why do you wan to give up. He tried to kill himself a couple of times. He talked about -- Oh! My god, I could die now I'm so tired but we never saw that. And if we had, the world would've been different. History would've been different because leaders have to show up in service to the mission.
And last, it’s a story of great forbearance. Lincoln really wasn't -- he learned not to be so reactive. One tiny example -- at Gettysburg, he was really angry with the union Commanding General, Gordon George Meade for not kind of squelching retreat across the Potomac and he was victorious (inaudible). And he sealed it up I'm not and addressed it and never mailed it. It was found in his desk after he died.
So, again, if Lincoln had e-mail and hit send, at the moment when he couldn't afford to alienate his generals, the course of world history might have been different. The time is so right. We have so little time to nobly save or meanly lose the last best hope on earth as Lincoln said in 1862.
Robert Kennedy 1966 quoted Archimedes, the great Greek philosopher, mathematician, give me a place to stand and I will move the world. Or Margaret Mead, never doubt the ability of a small group of concerned citizens to change the world. Indeed, nothing else ever has onward, upward.
What an amazing day. My first thought is, how humbled I’m and honored I’m to be here with you at my first annual shareholders meeting. My second thought is, how hard an act to follow, Nancy Koehn and Abraham Lincoln act.
But I’m incredibly excited today about building upon the great things that this company has done, about taking our business to the next level in the communities that we serve around the world.
As Howard mentioned earlier, we’ve not been bystanders over the last 12 months. While I’ve only been here for a short portion of that time, I've seen the significance of the work that we've done and it cannot be overstated.
For instance, take our Create Jobs Program that we talk with you about last year. The results $105 million has been raised over 5000 jobs created over 50 -- across 50 states. That's just incredible.
Then there is our Community Store Program which many of you know about. Now this is one, it’s very near and dear to my heart. It came from asking ourselves a tough question. How can we do more? So we got creative, by donating a half of the stores of the profits from select stores and urban markets to a local non-profit in those communities. So they can put that money back to work in the communities themselves.
12 months later we’ve opened three of these community stores in Houston, one in Los Angeles and one in Harlem. That's just the beginning. Because by 2018 we expect to have 50 of these community stores across the globe and nobody contributing to non-profits and NGOs making communities better.
But our work at Starbucks isn’t just about philanthropy and programs. It’s also about supporting the development of products that will impact our world and our environment. Take our reasonable cup for example.
Here is an incredibly high-quality, low-cost option to get our customers truly engaged around environmental responsibility, more than 1 million of these cups have been sold so far. Hopefully you were able to get one of those outside this morning. But if you haven’t got one, hopefully you’ll pick one up.
Now I can go on and on and on about the things that we are doing, rather then having me stand up here and tell you about the community work we’ve done. I prefer to show you how the work at Starbucks is done, directly influences the lives of people across the world, each and every day.
So here is a video which we call a tale of two youths. It’s about two young people from very different parts of the world. Each impacted directly and personally by Starbucks efforts. Take a look.
Two lives deeply impacted, totally different parts of the world. Ladies and gentlemen, we’re so fortunate today to have these two outstanding young people with us. Please join me in giving a rousing Starbucks welcoming applause for [Margaret] and [Lena], the students who were mentioned in the video. Bring them aboard.
I want to thank the two of you because your stories are inspirational to all of us. The journey that you are on is our journey. And as we talk about this morning, you are ambassadors of the future. And so we want to thank you and I will tell you these two young people are going places and Starbucks is going with you. So thank you very much.
So these two young people are reflection, a direct reflection of the many different ways that Starbucks is touching people’s lives all across the world. Investments that we’re making in young people but imagine the possibilities, imagine if we were able to take that impact and really bring it to scale.
How do we develop hundreds if not thousands of Lena’s and Margaret’s. Sure, we made some solid efforts and we supported some incredible programs. But how do we know amplify those efforts and those programs all across the world. From our environmental innovations to our used leadership efforts, to our service, to our community development, how we bring that all to the next level.
The answer, well it’s really about leveraging our tremendous scale for good. You’ve heard this before but remember now. We have 18,000 stores in 62 countries across the world. We have 200,000 Starbucks partners. We do nearly 70 million transactions per week in our stores.
As Adam told us this morning, we have more than 6 million active My Starbucks Rewards members. And we now do business with more than 15,000 suppliers. If we turn all of that power loops as a force for good. I'm convinced we can create the ultimate triple play, a three-way win that will allow us to build and strengthen our brand, strength underserved communities across the globe and thoughtfully engage our partners and our customers.
Let me give you a quick example or two of what that actually looks like. And I want to start with our global month of service. Many of you may know about our global month of service and this year will be our third year coming up in April. Last year, we donated more than 600,000 hours of community service last year. But so far, it's pretty much been Starbucks and our partners and some of our customers joining us on that journey.
What if it was more, what if Starbucks and our supply chain and myriad other corporations from all across the globe combined with us and combined our collective power to perform valuable community service projects in the month of April. Well as you might have guessed, we’re well on our way to doing just that.
This year, right here in our hometown, Alaska Airlines will be partnering Starbucks on a significant week long volunteer event during the month of April. The power of these two iconic brands will certainly be a force for good right here in Seattle.
But we’re not going to stop there because Alaska Airlines will not be the only one that joins us. On April 1st, you will hear and you will see a solid list of corporate partners who will be joining us all across the nation, coming together in a magnificent act of corporate citizenship.
Let me give you just one more example. It’s an exciting and innovative example of using our scale for good because we believe that Starbucks, that building a better tomorrow is our corporate responsibility. And that’s why we are building our product to be more intentional about local sourcing and about supporting manufacturing here in the U.S. through companies like American Mug & Stein and American Pioneer.
Now, bringing jobs back to the U.S. means very little, if we don’t have the leaders of tomorrow to fill those jobs. So just like the story you just heard of Lina, who was up on the stage with me a moment ago and who benefited from our youth build leadership program. We need to be able to provide more resources to build more leaders. We need to help young people to gain access to the leadership, to the job skills, to the training and tools that can set them on their journey for success.
And one way for us to do that is to tap into the enormous amount of human, intellectual and monetary capital as a part of our multi-billion dollar supply chain. Our supply chain is a unique array of more than 15,000 companies. They have vast reach. They have significant local engagement and they have a vast diversity of work streams.
Maybe most importantly of all, they share the Starbucks values without giving back. And so over the last several months, we’ve been working hard with several leaders in our supply chain to craft a totally innovative approach to business leadership and youth development.
Today, I'm thrilled to announce to you, the creation of a new non-profit corporation, that’s consisting of the members of our supply chain. It will be run with our supply chain and it will utilize funds donated from our suppliers and from Starbucks. And its mission will be to directly address job skills and leadership development for young people. Now, many of the architects of this model have been working so hard on it over the last few months are right here with us today.
For the members of the supply chain for good initiative, if you're in the audience, could you just stand and be acknowledged first. Are you here? Thank you. But I want to say this is step further, because today and we announced even to the supplier partners who have been working so hard to create this magnificent opportunity. I want to announce a $1 million Starbucks initial investment into that fund.
To be clear, our goal with this wonderful project is to develop a fund that has $10 million in its first year, with the potential of building a $100 million a year fund over the next five years. Imagine the impact. Now that’s using our skill for good. So with that, I want to ask you all to get engaged and to stay engaged, push us and challenge us as a company, as your company to do all that we can.
But also remember, the message of today that we cannot be bystanders. So we are asking you call to come with us on this journey because we can, as you know and as we know. This isn't just about Starbucks. It’s about the power of the collective, coming together to make real change. Thank you.
Ladies and gentlemen, please welcome, Troy Alstead.
Good morning. I’m pleased to be joining you today to take you through our fiscal 2012 results as well as give you some insight into our longer-term financial picture.
Just a few months ago, we hosted more than 300 stock analysts and portfolio managers at our Biennial Investor Conference in New York. I started the discussion that day, just as I will start a discussion today by bulling down 2012 into one word.
For all of the innovation investment and growth that the past few years have represented, including product launches, acquisitions, business realignment and the continuation of accelerated expansion in our core business. We have remained relentlessly focused on delivering against our plans and our commitments. That's why in a year with a great deal of innovation investment and growth, the word that best describes 2012 is execution.
Starting with the powerful launch of K-cups early in the year to the acquisitions of Evolution Fresh and then La Boulange we continue to execute and deliver. It is that unrelenting focus on execution that gives me confidence that we built a foundation needed to deliver on our commitments and meet our ambitions going forward, and it is that focus and execution that produce record results again in 2012.
Now from an overall financial market standpoint, last year was a very good year. Since the start of our fiscal ‘12 up to today, the NASDAQ has grown 34% and the S&P 500 is up 37%. Those 34% and 37% growth rates are really very good results.
But during that same period of time, Starbucks increased 52%, reflecting the tremendous execution and focus of our 200,000 partners around the world, and representing the fourth year in a row of outperforming both the NASDAQ and the S&P by 10 percentage points.
Total shareholder return of 38% in fiscal ‘12, reflecting appreciation in our share price and dividends paid continued the strong trend over the past several years. And going forward we remain intensely focused on continue to drive strong consistent returns to you, our shareholders.
Now let's drill a bit deeper into the financials for fiscal ’12. We saw tremendous contributions from across the business in driving revenue higher by 14%. Americas segment grew by 10%, EMEA by 9%, China and Asia-Pacific grew by 31%, and channel development by an astounding 50%, it all total to a record year and our highest revenue growth since 2007.
A key driver of that strong growth continues to be the strength of our stores around the globe. We have now grown same store sales by greater than 5% for the last 12 quarters, despite a still challenging and uncertain global environment. That is a remarkable record of strength and consistency, and reflects the efforts that our store partners make each and every day in more than 60 countries around the globe to deliver the unmatched Starbucks experience.
The strong revenue growth coupled with discipline cost focus drove record earnings in 2012. Earnings per share grew 18% over the previous year, despite more than $200 million in pressure due to higher coffee costs. Excluding those commodity cost pressures earnings would have grown 30%. Flow through on our strong revenue has been solid and we expect that to continue this year as we are once again targeting 15% to 20% earnings growth in fiscal ‘13.
Our Americas business remains the engine of Starbucks performance, with nearly 13,000 stores spread across 13 countries. It makes up about three quarters of our revenue and profit. And as large and mature as this region is today, we are still aggressively pursuing growth all across the geography.
America region is led by Cliff Burrows, an 11-year Starbucks partner, who steered the U.S. to its transformation over the past several years. Just since 2010 Americas team has grown revenues by a total 17% and profit by 32%.
This team is intensely focused on improving the speed at which they prepare beverages, the cleaning and comfortable store environment and the quality and interaction with each customer, that intense focus on the things that are very visible to customers in our stores is matched by equal focus on things less visible but also critically important, the discipline management of inventory, efficient scheduling of labor and the cost-effective maintenance of store equipment.
This focus has driven the outstanding growth in the Americas business, including operating margin to over 20%. With all that impressive growth of the past few years, the opportunities that lie ahead in the Americas remain significant.
We have opportunity to expand store sales across all day parts. Currently, half of our U.S. business comes before 11 a.m. leaving our stores underutilized for most of the afternoon and evening.
New beverages like Refreshers, enhanced food offerings and expanded evening choices are all contributing to sales growth during those off-peak times. Our store productivity continues to grow as well. In fact our Americas team set a record for productivity last quarter, which is contributing to continued sales growth during even busiest times of the day.
We have an opportunity to innovate with new products, including new beverages, such as Hazelnut Macchiato and Refreshers, and also with elevated food as you heard Howard speak about excitement for La Boulange earlier this morning.
We also have an opportunity to grow and enhance our store base. We’ll add another 600 stores in the Americas region this year and remodel another 1,600 stores. Our newest stores are performing very well, in fact those open last year are projected to be the highest grossing each class of new stores we’ve ever opened.
This is testament to the quality and expertise of our real estate, design and construction teams and the skill of our operators who are driving great results in these new stores. Our Americas team is experienced, it is deep and it is focused on continue to deliver outstanding customer experiences and outstanding financial results.
Now in Middle East, Europe and Africa or EMEA we operate in more countries than we do in the Americas and the China Asia-Pacific regions combined. Michelle Gass, a Starbucks partner for 16 years leaves the team responsible for nearly 1900 stores, 20,000 partners and eight different license partnerships.
Licensing in this region is extremely valuable to us. As you heard from Mohammed Alshaya earlier, the strength of those partnerships has never been greater. Profitability in EMEA region continues to be very challenging. We’ve grown revenue by 20% since fiscal ‘10 yet profitability has been inconsistent.
Our disappointing results in fiscal ‘12 with the result of a desperate economy combined with the investments we're making to repair and transform the business across Europe. The actions we’re taking are important foundational blocks on our path to sustain operability in this region.
The EMEA team has architected a strategy that we are confident will ultimately delivering midteens operating margin in Europe. That strategy is based on three primary focus areas. The first is to improve relevancy in differentiation of our brand in Europe that includes ensuring that we offer unmatched customer experience in our stores that our partners make perfect beverages while creating personal connections with our customers.
It also includes enhancing our store environments, which we began in a significant way in the second half of last year. And it includes providing value in innovative ways including expansion of the My Starbucks Rewards program across the region.
The second focus area for EMEA is unlocking the profitability of our company-operated portfolio, driving stronger sales, enhancing our supply chain and bringing discipline, focus and management to costs on our store P&L are critical for this effort. And third, we’re accelerating growth in licensed channels. Licensed stores in Europe provide the unique combination of strong sales volumes, low capital requirements, and a commitment by our business partners to maintain and enhance the Starbucks brand.
Despite the macroeconomic and business pressures in Europe, we’re confident in the long-term future of our business in that region. On the other side of the world, we are in the early stages of a significant highly profitable growth opportunity. The China and Asia-Pacific or CAP Region expands 12 countries, more than 3400 stores and is supported by 50,000 partners.
The team there led by John Culver, an 11-year partner added 448 stores in CAP in 2012 and will add another 600 in 2013, making this our fastest growing region. Our blend of profitable company operated markets, including China, Singapore and Thailand, coupled with strong partnerships, including those in Japan, South Korea, Taiwan, the Philippines and recently India have led to outstanding economics in the region.
The growth in new stores in CAP coupled with same-store sales growth of 15% in fiscal ‘12 and 22% in fiscal ’11 has led the revenue growth to 77% over the past two years. Profit growth has been even more dramatic doubling over the past two years. Operating margin of 35% in CAP is the strongest of any of our operating segments.
Howard spoke about exciting recent openings of the Indian Vietnam markets. On the other end of the age spectrum is Japan which, when we opened our first store there 16 years ago was our first market outside of North America. Just two months from now, we will celebrate our 1000th store in Japan.
With around 800 stores in Mainland China today, we are well on our way to our goal of 1500 stores in 2015 and are excited about the pipeline of new stores in cities that will extend the Starbucks experience to more and more Chinese customers. With extremely strong new store economics, high-return on capital, world-class partners and partnerships and a growing loyal customer base, the CAP region is well-positioned for continued long-term success.
While we were once satisfied to bring the world's best coffee in outstanding experiences to customers around the world through just our Starbucks stores, our aspirations now are much higher. When Jeff Hansberry, President of Channel Development joined the company nearly three years ago, we had big ambitions for this business.
We thought this could be a significant contributor to the company in the long-term. We thought we could create a link to our retail stores to provide customer value unlike anyone else. And we thought we could drive innovation in this space right for it that would change the way consumers view at home coffee.
In less than three years, just three years the channel development team has delivered in a way that exceeded even our high expectations. And it's easy to see why we're so pleased. Revenue has nearly doubled in the past two years. Our K-Cup business is off to a tremendous start reaching $230 million of Starbucks K-Cups sold in just their first year.
Starbucks VIA grew at a double-digit pace last year. Our more mature package coffee business continues to gain market share and new products like Verismo and Refreshers will be the next drivers of growth for many years to come.
The consistent success of our businesses around the world, results in extremely strong cash flow. The $1.8 million of operating cash flow last year was a record for Starbucks. Return on invested capital also reached a record level in fiscal ‘12 at 22.4%, and I expect we will elevate ROIC to another record level in 2013.
We're producing more cash than ever before, and we are investing it at higher returns than ever before. The generation of such healthy cash flow creates the opportunity to invest back into the business, while also increasing cash return to shareholders. We are committed to investing in the development of new stores around the world and the renovation of existing stores as well as making appropriate investments into our infrastructure.
As you heard from Howard this morning, we are committed to enhancing our business and growth trajectory through strategic acquisitions, and we are committed to driving shareholder value and returning cash to shareholders, evidenced by the $1.1 billion returned in the form of dividends and share repurchases in 2012 alone.
Let me be clear. Our growth aspirations have never been higher than they are today. We are focused on continuing to grow revenues at a double-digit pace, driven by sales growth across all geographies, all channels and all product categories. We are focused on expanding operating margin by leveraging that revenue growth and even faster earnings growth. And we are focused on elevating returning on capital to a world-class level.
2012 was a year of innovation and growth. It was a year of deepening the core business while investing in new business. It was a year of strong financial results. It was a year once again of executing and delivering on our commitments.
So with that, I’d like to thank you for your time today and your commitment to this great and enduring company and I'll now invite, Howard back to the stage. Thank you.
Everyone doing okay. This next moment is rather bittersweet for all of us at Starbucks, especially for me. In 1986, I had this idea to open up an Italian coffee bar. It was 710 square feet and we opened it up at the Columbia Center entrance. I couldn't do it alone and we would not be standing here today, if it wasn't for the person whose shoulder I tapped to try and help me do that.
In 1975, he literally open the first coffee bar in Seattle called Café Allegro in the U-District. And then after that became my partner, where I remember in ’85, designing the store for Giornale in ’86. We didn’t have any office chairs, so we literally sat on the floor everyday and designed the first store.
As store opened, we did pretty well. Dave Olsen became the coffee buyer for Starbucks for 20 years. But more than that, I have referred to him for two decades as the conscience of Starbucks, not only the quality of the coffee, his sense of humanity and the vara of the culture.
Dave also and unfortunately has decided to retire from Starbucks and so that's why it's so bittersweet. I look back on these last 20 years. I have looked at photos and we were lot younger than. We had so many dreams and aspirations and many of them have come true. And as Nancy Koehn said earlier, we can do it alone. We would not be standing here today in front of you, if Dave Olsen was not one of the great leaders of Starbucks coffee company.
Please welcome, Dave Olsen.
I got to tell you, retiring is not for the fainted heart. This is a lot harder than working, standing up here. I have stood on the stage and answered hard questions from people over the years and it’s been an amazing opportunity and challenge.
But today I'm completely filled up with all the affection and you all know who you are, my wife [Anita] and my daughter Jenny’s close friend sitting down in front, all the people I get to interact with coming in the door this morning. It’s just amazing gift that I’ve been given and cheers to the last 27 and the next 50 I hope.
I had a brother who mentioned that a billion is a pretty big number. I remember a day when 75 was a big number and here is the story behind that. In 1986 we are trying to raise money. We are trying to get stores open. We asked the young man to do something with these new things called spreadsheets on a computer. And Howard said, build some model for 75 stores to be opened over the course of the next five years and let's run those numbers and see what it looks like.
Days go by, it took that long to crack spreadsheets back then and the guy comes back and we look at the bottom line, at the number, at the run rate after five years were 75 stores and Howard says to the guy, no one will believe that go back and do with 50.
So what we learn in that time was what we became capable of doing, not just opening stores, but building a company, a company grounded in values, and it’s been my privilege to help develop and maintain those values in the 27 years that I've been here.
Last anecdotal I’ll share is about accountability to you to all the partners of Starbucks, shareholders and employees who -- to whom we have taken a serious accountability toward in everything we've done.
The first shareholder meeting I can remember pre-dated the initial public offering and there were probably 15 people in a little windowless hotel room Downtown and Howard and I stood up in front of those earnest people who had committed money to our trust and we reported back to them that feeling of accountability for the shareholders that make this possible runs as deep as all the other values.
So thank you again for your warm applause. Thank you, Howard. It's been an amazing journey and when you’ve been in Starbucks it never leaves you and you never leave it. So this is a shift not a departure. Thank you.
Thank you. Don’t leave. Just stay here one second.
I have something for you. What -- what can we possible give Dave Olsen. He doesn’t already have. I know for a fact. He does not have a [clover] at home. Here it is.
Okay. Thank you.
Okay. Thanks Dave.
This is a time how I started. Oh! I have to go that way. Okay. Okay then.
How many people didn’t know? That was going to be done. Okay. I’m glad to hear that. We are going to move to the formal part of the meeting now and Lucy Helm, our General Counsel is going to come out and take us through that.
We’ve shared a lot with you this morning. Real comprehensive portrayal of what the company is doing, all our business units, the globe, our ambitions, our aspirations and hopefully, more than anything else, you’re able to feel a deep sense of commitment to try and build the kind of company that not only endeavors but endeavors for the right reasons.
We’ve been through a lot over the last few years. We’ve learned a lot of lessons and I say this very openly and honestly that I’ve never been more excited about the future opportunities for Starbucks, and we will do everything we possible can to make you proud. Thank you very much. Lucy?
Good afternoon, ladies and gentlemen. I’m here today to conduct the formal part of the meeting. I realized this is the serious part of the meeting but before I being I must admit that is rather daunting to follow an exciting musical talent like John Legend with business agenda items and voting instructions. I hope you want to be disappointed but I will be conducting the formal part of the meeting with out musical accompanying that.
So let’s begin, before we consider the proposals detailed in the proxy statement. I will first introduce the nominees to the Starbucks Board of Directors, if the board member could please stand.
Mr. Howard Schultz, our Chairman, President and CEO; Senator William W. Bradley, Managing Director, Allen & Company, Secretary; Robert M. Gates, Formal United States Secretary of Defense; Ms. Mellody Hobson, President, Ariel Investments; Mr. Kevin R. Johnson, Chief Executive Officer, Juniper Networks; Mr. Olden Lee, Retired Executive, PepsiCo; Mr. Joshua Cooper Ramo, Vice Chairman, Kissinger Associates; Mr. James G. Shennan Jr., General Partner, Emeritus Trinity Ventures; Mr. Clara Shih, Chief Executive Officer, Hearsay Social; Mr. Javier G. Teruel, Retired Vice Chairman, Colgate-Palmolive Company; Mr. Myron E. Ullman, III, Retired U.S. and International Retail Chief Executive Officer; and Mr. Craig E. Weatherup, Retired Chief Executive Officer, Pepsi-Cola Company.
I would also like to introduce to you, Andrew Wilcox, representing Broadridge Financial Solutions. Mr. Wilcox has been appointed the Inspector of Elections to tabulate the votes here today. Thank you.
We have received an affidavit signed by Broadridge Financial Solutions that notice of this meeting along with related proxy and annual report materials was mailed or made available on or about January 25, 2013 to each Starbucks shareholder of record as of the close of business on the record date of January 10, 2013.
Based on that affidavit, this meeting is duly called with timely and proper notice. In addition, based upon information provided by Mr. Wilcox, a quorum is present today to conduct our meeting. Please note that the list of shareholders as of the record date is available for inspection to all shareholders at the investor relation table in the grand lobby behind this auditorium.
The polls for the matters to be voted on today are now open. The polls were immediately closed after I present the matters to be voted on at this meeting. If you are a shareholder of record as of January 10, 2013, meaning your shares are registered in your name and you don’t owe them to a broker and you have not previously voted or you wish to change your vote, you can deliver your ballot now to the Investor Relations table in the grand lobby.
And so we will now proceed with the five proposals detailed in the proxy statement for this annual meeting. Because no notices were submitted within the advancement notice period in our bylaws, no nominations or proposals other than those in the proxy will be presented at his meeting.
Following the formal portion of the meting, Howard and Troy Alstead will join me for a question-and-answer period for all questions from the audience. The first order of business is the election of the director nominees as nominated by the Board that I just introduced and who are described in our proxy statement. The Board recommends a vote for each of the nominees for Director.
The second item of business is the approval of an advisory regulation on -- resolution on executive compensation. This proposal is discussed in the company’s proxy statement and the board recommends our vote for the resolution.
The third item of business is the approval of an amendment and restatement of the long-term equity incentive plan, including an increase in the number of authorize shares under the plan. This proposal is discussed in the company’s proxy statement and the Board recommends about four this proposal.
The fourth item of business is the ratification of the selection of Deloitte into LLP as the company’s independent, registered public accounting firm for the current fiscal year and ending September 29, 20013. This proposal is discussed in the company’s proxy statement and the Board recommends the vote for this proposal.
And the last item of business is the shareholder proposal submitted by Mr. John Harrington to prohibit political spending. The shareholder proposal and supporting statement are set forth in the company’s proxy statement. I would now like to recognize Jim Packer, a representative of Mr. Harrington for a period of three minutes. Mr. Packer, would you please come to the microphone.
Good morning. My name is Jim Packer and I’m a local business owner in this Seattle area as well as the board member of corporate accountability international, non-profit organization that protects human right, public health and environment and corporate creed, if you used around the world.
I’m here to present resolution on behalf of John Harrington and Harrington Investments who have voted their 25,000 shares in favor of this resolution. Today, we are requesting that the Board of Directors adopt the policy prohibiting the use of corporate funds for any political election or campaign, including direct or indirect contributions or the candidates and corporate expenditures for election during communications as well as prohibiting the establishment of the Starbucks, political action committee.
We believe this policy should also include any direct or indirect contributions that are intended to influence the outcome of an election or referendum. It should also prohibit the use of trade associations or non-profit corporations from channeling our company’s contributions or membership dues to influence the outcome of any election or referendum.
As investors, we applaud Starbuck’s commitment to transparency, its political spending and further commend our company’s CEO for organizing other CEOs to standup against the partisan stalemate in Washington.
As social responsible investors, we are committed to working through reduce or eliminate all corporate money from being used to buy politicians and control the American process and democratic government. We ask Starbucks to take the lead on this important issue and officially renounce shareholder funds being spent as an ordinary business practice.
And I would just like to add that as sitting through this presentation today that leadership was a common theme of what Starbucks represents and this is a perfect opportunity for Starbucks to take a leadership position. And I challenge the Board to reconsider their opinion about this resolution, as they said potentially putting us at market disadvantage relative to our competitors who are able to participate in a political process to further their interest when we could not.
I challenge that assumption as thinking about today and leadership and what that means make us all proud as Starbucks shareholders. Let’s be the people that take the leadership position and send a message that our elected officials should not be in the grip of political contributions by large corporations. That is something that Starbucks should stand for and is a leadership position that Starbucks should take. Thank you.
Thank you, Mr. Baker. We appreciate you being here with us today. The Board recommends a vote against this proposal for the reasons set forth in the company's proxy statement. That concludes the matters to be voted on, as outlined in the notice of annual meeting because no other proposals were submitted within the advanced notice period set forth in the bylaws. No other business matters are in order.
In accordance with our bylaws then, at this time I hereby declare the polls for voting at our 2013 Annual Meeting closed. I have received the preliminary tabulation from Mr. Wilcox. And based upon that tabulation, all the director nominees were elected. Each of the management proposals was approved and the shareholder proposal to prohibit political spending was not approved. The final results will be reported on a Form 8-K within four business days of this meeting and that concludes the formal part of the meeting, and I now declare the formal meeting adjourned.
I’m going to turn the meeting back to Howard and Troy for the Q&A session. Any shareholder who does not have an opportunity to ask a question today may submit their question by going to the Investor Relations table in the grand lobby and completing a comment card. Thank you.
Excellent job, Lucy. Okay. Okay.
Yeah. This is for Howard. I travel around the country a lot. Any my wife is a manager in one of your stores and I’ve got a significant concern around potentially significant amounts of mixed revenue, based on inconsistency in executing the Starbucks standards in the stores around the country.
It seems the further I get from Seattle, the less the standards are enforced. The stores get dirtier. The recipes don't get followed. It just doesn’t make in it from border-to-border, coast-to-coast and I'm wondering if there's anything you could do to get standardization across the country.
I would say respectfully, I just don’t agree with your assessment. Stores across the country are being monitored by our own people. We have an exit survey by customers. We have an outside resource that helps as well. I think customers are voting every day, there is ferocious competition and lots of choices out there. We have more customers today than any other time in our U.S. business.
I think there is always an opportunity to improve, we're trying every day to be better. I think inconsistency sometimes because the stores are very busy, but we are probably better today than we ever have been. I don’t know what store you have visited but I’d welcome an opportunity to get a personal understanding of what stores you've been in and we can check those.
We travel the country consistently ourselves and see exactly what’s going on and I would say our field team and our store people are doing a fantastic job. Apologies for, that’s okay. I apologies for that any consistency that you had and I can only tell you we are trying our best. Thank you.
Ted Ingles - Analyst
My name is [Ted Ingles], and I’m a Starbucks holder. And first of all, over the years since we’ve been Starbucks holders -- stockholders, my wife and I, Starbucks has exceeded our expectations. However, there is one little disappointed that maybe you might address. Recently we bought the one cup machine, Verismo.
Ted Ingles - Analyst
And we founded very limited for us. We happen to live in ocean shores and then the stores carried pots, the nearest Starbucks, say, 60 miles round trip. We also like our decaffeinated at night and there is a limited supply of that. We have now gone to the correct machine and we found that, we didn’t get our favorite Starbucks coffee for that machine at Costco?
I think you just gave us a solution. But having said that, we introduced Verismo this holiday season, we’ve done also a very good start. We did have, I wouldn’t say limited but a narrow assortments at the beginning.
There are more varietals and blends coming for Verismo that I think will make happy. After the meeting if you give me your address and everything we will send you more pause and you know what to do with.
Tom Stauber - Analyst
My name is [Tom Stauber]. I’m in the investment business and also long time shareholder. In the paraphrase Mr. Lincoln that was two scores and two years ago our company has founded. Until January a year ago we existed without making gay marriage a core value of our company. Hence we did quite well.
On last year’s annual meeting I asked you it was prudent to risk the economic interest of all the shareholders, costly jobs of our partners for something that would benefit the private lives, the small number of our employees.
You responded a couple things, one, indicating that the sales and earnings, the stock price then was near record highs, seems you have indicate that decision. And then two, various specular people opinion on this subject, I appreciate that.
Unfortunately, after last year’s annual meeting, the National Organization for Marriage called for boycott our company. It’s my understanding something like tenths of thousands of peoples signed on this particular boycott. And then the first four quarter after this boycott was announced, our sales and our earnings, sure we say politely, were bit disappointing.
That was all due to this boycott, probably not, was some due to this boycott, probably so. Our stock value in a couple days dropped about $6 billion or $7 billion and about $13 billion from its high. And then we did well on the calendar year basis in 2012. If you look back 12 months from this date year ago, our stocks up about 6%, the S&P 500 is up about 11% or 12%?
What is your question?
Tom Stauber - Analyst
My question is this and this is a really specific one. You always say, you mentioned civility and you’ve written about civility.
I want the question, sir?
Tom Stauber - Analyst
My question is this, the human rights campaign which calls everybody a hater and a bigger, but they disagree on marriage, which is very hurtful and its design to silence people. When will you stop funding, Starbucks does, $10,000 a year and the organization uses a most uncivil language in a most direct way.
And I welcome that question as I did last year because not every decision is an economic decision. Despite the fact that you recite statistics that are narrow in time, we did provide a 38% shareholder return over the last year. I don’t know how many things you invest in but I would suspect not many things, companies, products, investments have returned 38% over the last 12 months.
Having said that, it is not an economic decision to me. The lens in which we are making that decision is through the lens of our people. We happily employ over 200,000 people in this company and we want to embrace diversity of all kinds.
If you feel respectfully that you can get a higher return in the 38% you got last year, it’s a free country. You could sell your shares at Starbucks and buy shares in other companies. Thank you very much. Yeah, sir.
Michael Shaffer - Analyst
Howard, my name is [Michael Shaffer]. I’m originally from San Diego but I live in Las Vegas and came up last night. So do you -- I have 500 chairs, I bought for my lady friend Mary, lady became a barista for Starbucks and it’s been a good investment. I have a question.
I drop by a bank in Glendale the other day. I wasn’t sure the bank was a big building and I look closely and there were two big signs on the wall, Bank of America and Starbucks. That sort of surprised me because the banks that I go in to, I haven’t really seen Starbucks. Have we come into the lobby for some banks and of course the Starbucks wouldn’t be on the side of the wall if we were inside there?
Over the years, we’ve been able to partner with a number of companies that have very, very good real estate that we can get access to. So in this case, Bank of America has a great side in Glendale. We’re partner with them or able to put a license store or key asking there that obviously gross traffic is profitable and very good for the brand.
We appreciate that answer.
Also, we’re all here today on company business. I have been going to the shareholders meeting since the 50s when I worked for Lewis Gilbert who founded the shareholders movement out in the New York city back in the ‘50s. It was his brother, John. I have never before paid for parking to go to our meeting. And we have the great power to negotiate good prices on buildings. I’d like to see you negotiate 500 spaces and the buildings across the state.
We will take that under advisement for next year. Thank you.
Doug Kilgore - Worker Owner Council, Northwest
Thank you, Mr. Chairman. My name is Doug Kilgore. I’m the Executive Director of the Worker Owner Council of the Northwest. We’re a Building Trades Council. And I oversee and work on behalf of the pension funds which in North America, our collective investment is about 3 million shares of Starbucks.
We’re long-term committed owners. And by and large, we’re very happy with the work you’ve done to rebuild the value of our investments since the crisis of 2008. So my question concerns the work that the company has done related to -- and the action that you’ve taken related to the political gridlocked in Congress.
You’ve taken some very public stances, critical of the inability of Democrats Republicans to work together for the benefit of our nation and resolve issues of revenue and budget and so forth. One of the fallout of this gridlock has been the failure to approve appointments to National Labor Relations board by our current minority in this senate.
This led to President Obama making three recess appointments to the labor board, which have been challenged. So I was somewhat disappointed and surprised on Saturday when I read the Wall Street Journal that Starbucks has joined companies, who call the ability of the labor board to make decisions in this case involving the company invalid that they have no authority to rule.
And it appears to us that you’re opposed to gridlock when it could result in the shutdown of the government but maybe in favor of it, when it could result in the shutdown in the labor board. We’d ask your support in asking President Obama to resubmit those nominees and then encouraging a swift approval and ratification that were by the senate of those appointments and thank you very much?
Thank you. Lucy
Thank you for your question. We are involved in an appeal of decision that we won before the NLRB last year. And as a part of that appeal we did note that the appointments during the time when the Congress was adjourned were really a question of constitutionality. So we’re certainly supportive of President Obama marking sure that the NLRB is fully stocked, but we did emphasize that he should do it under the constitutional powers of company.
Doug Kilgore - Worker Owner Council, Northwest
Thank you, Sir.
Lonnie Lusardo - The Diversity Collaborative
Thank you. My name is Lonnie Lusardo with The Diversity Collaborative in Seattle. Howard, I want to recognize you and commend you for your management through the lens of humanity, for both your personal and your business stands around political issues. I encourage you to be bold. I encourage you to be political, especially around issues like marriage equality. I also have an encouragement for you. Stand up for other corporate leaders and you take the position to encourage them to be as bold as you are, to be to maintain that leadership around inclusion and equity and fairness. Thank you for what you did?
Thank you. Thank you. So, maybe last question. Last question sir.
Toman Hamilton - Analyst
Yeah. I’m Toman Hamilton. I’m a minority, very small shareholder. But I want to first thank you for the experience and opportunity that you gave our youngest daughter as a partner in Starbucks. That has enabled her in great part to now became an environmental consultant and aid other companies in making sure that they respond to public input in their decision making process. So I really appreciate the Starbucks experience.
Secondly, my question is, Starbucks is totally dependent on let’s face, the bottom of your supplier chain coffee grower and I’d like to know what steps the company is currently taking in these turbulent times to improve the quality and stabilize and do so and say, socially responsible manner, the coffee grower input to your whole program?
Thank you. Troy?
I will tell you some for years and years and perhaps seeing Dave Olsen up here earlier would underscore how long we’ve been committed to our growing regions. We’ve made significant investments over time in agronomy officers that work all round the world in growing regions that work with our farming communities to help them around sustainability, around café practices, around transparency, invested in educational programs and schools in this growing regions, we’ve been very, very active for many years for decades in this space and we remain so.
We’ve also made the what at the time was an unprecedented action years ago when coffee prices were so low that farmers cannot survive, farming communities could not live at where coffee prices were back in the 90s at one point in time. And we declared at that point in time that we would never pay below a certain threshold, despite the fact that we had excess to coffee at much cheaper prices.
And we didn’t, we officially held up the prices high that we paid purely to help those growing communities to keep them in business to maintain those long relationships we’ve had overtime and that is something that we will always use critical and for that we are. Thank you for your question.
Thank you all very much for setting through the meeting. We thank you for your support and we’ll see you next year. Thank you very much. Thank you. Thank you.
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