I have had my problem with Starbucks (SBUX) CEO Howard "Schultzie" Schultz in the past, but his latest little stunt has really ticked me off.
First things first, I will enjoy the occasional cup of Starbucks coffee, but the price has put a venti mocha-frappa-latte-chino out of my budget so I have started making my own at home. The company's product is good, but its competitors -- namely McDonald's (MCD) and Dunkin' Donuts -- offer a comparable product at a fraction of the price. I have long thought that Starbucks' saturation business model has been its biggest fault, with Schultzie's leadership running a close second.
Back in August, Starbucks warned that it would raise its prices on a nationwide basis in a "slow and deliberate" fashion. Most of these price increases were in the 10-to-15 cent range. Here is the rub, this news was piggybacked on news that the coffee king was going to lower some of its prices -- on smaller-sized drinks. So your small (or whatever baristas call it) black coffee costs 15 cents less, but the guy buying the large behind you is making that up and more by buying some candy-flavored concoction. Yes, I understand business and I know why Starbucks does this, but it has many coffee drinkers upset and the latest Schultzie stunt may push them over the top.
Want to know where the extra 15 cents on your drink is going? How about right into Schultzie's pocket. Back in January, Schultzie was lauded by analysts (including me, I believe) when he cut his base pay to the minimum required to maintain his benefits in the face of slumping first-quarter sales and the economic crunch. Well, that $10,000 must have made it hard to make ends meet, as Schultzie has decided to reward three solid quarters with a raise to $1.3 million.
My question is, will he lower his salary again once lower sales crop back up and hit the firm's bottom line? Let's see if he is as quick to lower his salary (again) if need be. Now, I understand business practices, but I am not sure that a major pay raise at this time is the best move.
Nevertheless, should Starbucks continue to turn in solid quarterly performances then Schultzie's move was good.
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Reader Comments (Page 1 of 1)
11-20-2009 @ 10:52PM
Zack Rules said...
Starbucks has a market cap of 15b plus. He gives himself 1.3m, a mere drop in the bucket compared to many other executives.
11-20-2009 @ 11:26PM
Greg Sherwin said...
When you pay for retail coffee, you are paying primarily for labor costs. But given they serve about 2 billion cups of coffee a year, I don't know if you'd notice that much in the price.
11-24-2009 @ 5:17PM
ashdog763 said...
Wow, 1.3 is nothing for a huge corporation like starbucks, and what you didn't know is that Starbucks shares it's profit with its employees. So your purchase makes more then the ceo happy, and before you belch over 1.3 million, maybe you should do some comparable research for other ceo's.