Ready, Fire, Aim! - Mihail's Public Blog

Monday, September 2, 2002

Planet Starbucks

The story of how Howard Schultz transformed a common drink into an upscale consumer product is Business Week's cover story.

Raised in a Brooklyn public-housing project, [Schultz] found his way to Starbucks, a tiny chain of Seattle coffee shops, as a marketing executive in the early '80s. The name came about when the original owners looked to Seattle history for inspiration and chose the moniker of an old mining camp: Starbo. Further refinement led to Starbucks, after the first mate in Moby Dick, which they felt evoked the seafaring romance of the early coffee traders (hence the mermaid logo). Schultz got the idea for the modern Starbucks format while visiting a Milan coffee bar. He bought out his bosses in 1987 and began expanding....

Starbucks has grown from 17 coffee shops in Seattle 15 years ago to 5,689 outlets in 28 countries. Sales have climbed an average of 20% annually since the company went public 10 years ago, to $2.6 billion in 2001, while profits bounded ahead an average of 30% per year, hitting $181.2 million last year. And the momentum continues. In the first three quarters of this fiscal year, sales climbed 24%, year to year, to $2.4 billion, while profits, excluding onetime charges and capital gains, rose 25%, to $159.5 million.

Amazingly, with 4,247 stores scattered across the U.S. and Canada, there are still eight states in the U.S. with no Starbucks stores. Frappuccino-free cities include Butte, Mont., and Fargo, N.D. But big cities, affluent suburbs, and shopping malls are full to the brim. In coffee-crazed Seattle, there is a Starbucks outlet for every 9,400 people, and the company considers that the upper limit of coffee-shop saturation. In Manhattan's 24 square miles, Starbucks has 124 cafes, with four more on the way this year. That's one for every 12,000 people--meaning that there could be room for even more stores.... [T]he company admits that while its practice of blanketing an area with stores helps achieve market dominance, it can cut sales at existing outlets. "We probably self-cannibalize our stores at a rate of 30% a year," Schultz says.

[However, Starbucks] is large enough to absorb losses at existing stores as new ones open up, and soon overall sales grow beyond what they would have with just one store. Meanwhile, it's cheaper to deliver to and manage stores located close together. And by clustering, Starbucks can quickly dominate a local market.

To be sure, Starbucks has a lot going for it as it confronts the challenge of maintaining its growth. Nearly free of debt, it fuels expansion with internal cash flow. And Starbucks can maintain a tight grip on its image because stores are company-owned: There are no franchisees to get sloppy about running things. By relying on mystique and word-of-mouth, whether here or overseas, the company saves a bundle on marketing costs. Starbucks spends just $30 million annually on advertising, or roughly 1% of revenues, usually just for new flavors of coffee drinks in the summer and product launches, such as its new in-store Web service. Most consumer companies its size shell out upwards of $300 million per year. Moreover, unlike a McDonald's (MCD ) or a Gap Inc. (GPS ), two other retailers that rapidly grew in the U.S., Starbucks has no nationwide competitor.

The company is still capable of designing and opening a store in 16 weeks or less and recouping the initial investment in three years. The stores may be oases of tranquility, but management's expansion tactics are something else. Take what critics call its "predatory real estate" strategy--paying more than market-rate rents to keep competitors out of a location...Schultz makes no apologies for the hardball tactics. "The real estate business in America is a very, very tough game," he says. "It's not for the faint of heart."

Anna Quindlen on Sep 11

Anna Quindlen reflecting back on September 11 one year later:

Why do they hate us, some asked afterward, and many Americans were outraged at the question, confusing the search for motivation with mitigation. But quietly, as routine returned, a new routine based on a new bedrock of loss of innocence and loss of life, a new question crept almost undetected into the national psyche: did we like ourselves? Had we become a people who confused prosperity with probity, whose culture had become personified by oversize sneakers and KFC? Our own individual transformations made each of us wonder what our legacy would be if we left the world on a sunny September day with a “to do” list floating down 80 stories to the street below.

Cycle of creativity

...a growing body of research suggests that the presence of artists and bohemians may be linked to economic productivity and the growth of jobs—ironically, the very factors that lead to gentrification [and the pushing out of the people behind the initial creative impetus]. Richard Florida, a professor of economic development at Carnegie Mellon University, argues in his new book, “The Rise of the Creative Class,” that with the decline of the manufacturing base, what he calls a “creative class” now dominates many Westernized societies.

His theory is simple: creative people want to be around other creative people. Thus a city with artists, a nightlife, diversity, will also draw entrepreneurs, academics, tech geeks—those able to drive economic growth in the new age. “Now because so many of us are called upon to contribute to society with creative thinking instead of physical labor, more and more cities take on the characteristics long associated with creative centers known for the arts,” Florida says. To prove his theory, Florida compiled what he calls a “creativity index.” In the United States, Austin ranked second, behind San Francisco, and had the sixth largest high-tech sector in the nation. Florida argues that the cities that fail to meet the needs of the new creative class will lose out to those that do.

"Our product is like software pasties"

It was only a matter of time that this was going to happen. I'd heard that Walmart (although not Blockbuster even though I've heard several times rumors to the contrary) has been compelling producers of music and films to create "family friendly" versions of their work if they want them stocked on their stores' shelves. Now, according to Wired News, several companies are seeking the constitutional right to alter/censor films:

A Colorado company Thursday sued 16 Hollywood directors, including Steven Spielberg and Sydney Pollack, seeking the right to edit "objectionable" material such as sex and violence from movies.

Clean Flicks of Colorado and Robert Huntsman, who has a patent pending for a new way to edit movies, filed the lawsuit in federal court, seeking a judgment that would declare it constitutional to provide edited movies to the public for private home viewing.

Their argument is this!

"Everyone knows what is going on when moaning and groaning is happening, but some people don't want to see it. That's the Movie Shield customer," said Richard Schmer, Family Shield Technologies spokesperson. "It's like when burlesque was big, and everyone wore pasties; our product is like software pasties. I wonder how much Michelangelo bitched when they put fig leaves on his statue -- we all know what's under the fig leaf."

"It has to do with family values," said CleanFlicks President John Dixon. "We don't think consumers should have to go through an experience where you see an adultery scene at the end of the movie, and everything turns out OK. If we're going to glorify drugs and prostitution in our media, there are consequences."

Fastest Internet launch

SMS.ac Inc., based in San Diego, signed up nearly 6 million users in its first six months -- making it the fastest product launch in Internet history. The marketing budget? Zero. The service enables mobile phones to send and receive text messages. It took eBay more than two years to reach the 1-million-user mark.

Some numbers to ponder

Some great numbers from the latest Fast Company:

Flying High
The market value ( $2 billion ) of JetBlue Airways, with a total of 3,100 employees, exceeds the combined market value of Northwest Airlines, UAL, and U.S. Airways Group, with a total of 175,000 employees.

The Real Scandal?
$60,000,000,000 = Destruction of shareholder wealth in the Enron scandal
$175,000,000,000 = Destruction of shareholder wealth in the WorldCom scandal
$450,000,000,000 = Destruction of shareholder wealth in the scandal-free decline of Cisco Systems

Ghetto Fabulous

“It takes rappers to make things cool,” says Marvet Britto, a publicist for rapper Eve and other top urban stars. Called “ghetto fabulous,” the phenomenon would seem to benefit everyone. An artist deems a product cool, sales jump, the rapper looks like a tastemaker and brands that were once the exclusive domain of bluebloods enjoy blinding exposure to a youthful crowd of new customers.

But no marriage is perfect. One source of strain: artists like Busta Rhymes are keenly aware of their marketing power, yet they often aren’t cashing in, choosing to rap the praises of their favorite brands for free. So now some hip-hop celebrities are launching luxury brands, including jewelry, spirits and even cigars.

They Weren't Meant to Be Games

When a game is done well, the motion picture industry can't compete. Last year, people spent $14 billion worldwide on films, but Americans alone spent $8 billion on games for their homes and another $7 billion in arcade playing.

Sunday, September 1, 2002

Trying to show they care

In a year when a raft of scandals has further lowered the public's estimation of the ethics of Corporate America, some companies are trying to show they care. How? In addition to annual or semiannual reports, they're putting out so-called corporate responsibility reports chronicling data that show they're sensitive to social or environmental concerns. In 2001, 45% of the 250 largest global companies published such reports, up from 35% three years ago, according to a triennial study by KPMG. Says Eric Israel, a partner at the firm, which tracks such reporting: "It's a trend that's here to stay."

That's the good news. The bad news is that no common standards govern the statistics or assertions in these reports, leading to what some fear is a mishmash of incomplete and possibly misleading information. "Quality is a mixed bag," says Arvind Ganesan, director of business and human rights at Human Rights Watch, an activist group.

...Beginning this year, French companies that want to be listed on their country's stock exchanges must provide information on their social and environmental performance. In 1999, just 4 of France's 100 largest outfits put out such reports. Last year, that number had risen to 21, and the new rules are expected to see almost every major company comply by yearend. In contrast, no such requirements or guidelines exist in the U.S., and only 36 of the 100 biggest U.S. companies provide corporate responsibility reports.

You've got spam -- 36% of all email

In July, according to Brightmail's latest interception figures, unsolicited bulk e-mail made up a whopping 36 percent of all e-mail traveling over the Internet, up from 8 percent about a year ago.

It's back

Sorry Bill...now you have to change it again! :-)

Japanese publishing, fixed prices

...the major buyers of the Harry Potter series in Japan continue to be women in their 20's, 30's and 40's. They have also been credited with the latest surge in [Who Moved My] Cheese sales, as well as the success of other foreign titles in Japan.

Statistically, the Japanese book market is doing poorly. It is still a $7.1 billion industry, but sales have declined in each of the last five years. The long national recession and competition from other media are blamed, of course. Publishers can been commended for continuing to publish actively. There were 70,000 new titles in 2001, on a par with the U.S. So, at least they are trying hard to find what readers will buy.

But a major problem with the book industry in Japan remains fixed prices for book. Protecting the whole chain of supply, from publisher to distributor to wholesaler to retailer, book price controls are meant to keep the industry stable. In effect, however, prices for books remain high while smaller retailers and even some distributors go out of business.

US needs 711,000 more teachers in next 8 years

According to Publishers Weekly, Time.com reports that,

as America's 76 million boomers begin to retire (although possibly not quite as soon as they had once hoped), only 46 million Gen-Xers are waiting to replace them.

In the next eight years, the U.S. will need 711,000 more teachers, 151,000 more auto mechanics, and 181,000 additional auditors and accountants (plus or minus those doing time in federal prisons). On the downside, we'll need 328,000 fewer farmers and ranchers, 51,000 fewer sewing-machine operators, and the ranks of movie projectionists will be diminished by 3,000.

Saturday, August 31, 2002

Your input is requested

Mr Quick says phooey in response to my name change. So I need your input.

Friday, August 30, 2002

Buffaloes and billions - Ted Turner update

Ted Turner, apparently, is not a happy camper. Or a jolly rancher. That is because it has been a bad year to own stock in AOL Time Warner and livestock in the form of bison. And Turner, the vice chairman of AOL Time Warner, owns a lot of both. His huge stake in AOL Time Warner - he is the company's largest individual shareholder - was worth $7.2 billion when the merger of America Online and Time Warner closed in January 2001. It is now valued at $1.76 billion.

Then there is the bear market in buffaloes. Turner, who is the largest U.S. landowner, with 1.8 million acres (730,000 hectares) in ranches in Montana and four other states, is also the largest breeder of buffaloes. He owns about 30,000 head, or 10 percent of the total in the United States.

Two years ago, the going price for buffalo was $2,000 a head, but is now only about $300, according to David Carter, executive director of the National Bison Association. That is a plunge of 85 percent - even more than the 77.9 percent decline in AOL Time Warner shares in the same period.

...Yet Turner's personal holdings are not solely a private matter. Few American billionaires have been as generous with charitable commitments as Turner...So far, Turner has given the United Nations Foundation $373 million. But that leaves $627 million due on the pledge. When he set up the foundation, Turner said he would donate $100 million a year, with the pledge to be paid off by 2007. Now, though, while he still plans to give the full $1 billion eventually, the payment schedule has been extended beyond the original 10 years, a foundation spokesman said.

...As for the price of buffalo meat, it has stabilized, according to Carter of the bison trade group. That is partly the doing of Turner, who recently started a restaurant chain, Ted's Montana Grills, to promote buffalo meat. "It is still a pretty small market," Carter said, "and the restaurants help promote it."

PC prices drop to $199

One of the nonprofits I'm engaged with is working on setting up e-learning classrooms in places like Pakistan and Afghanistan. One of the costliest aspects of such an initiative used to be the hardware. Not any more according to News.com:

Wal-Mart early this year began offering low-priced PCs assembled by Microtel Computer Systems through its e-commerce site. The cheapest previous offering was a $299 model outfitted with an 850MHz Duron processor from Advanced Micro Devices and with Lindows, a version of the Linux operating system intended to be compatible with some Windows applications. A Microtel PC with a 900MHz Duron but no operating system also sells for $299.

The new $199 PC, available now at Wal-Mart's shopping site, will use Lindows and an 800MHz version of Via's C3 processor. It does not come with a monitor.

Status of dirty laundry? On the Web

College campuses have long since wired their dorms and libraries. Now some are going even further: Cyberlaundry. 9,000 of them across 40 college campuses to be exact according to the Wall Street Journal.

International Business Machines Corp. hopes a new system of smart, wired washers and dryers will instill a little efficiency in the college dormitory laundry room, letting students keep tabs on their laundry from anywhere they can access the Internet -- their dorm rooms, the library, or even a cell phone.

..."This just seemed like an obvious opportunity to leverage our technological investment for our students," Cedarville spokesman Roger Overturf said.

Name change

I got inspired by emilyd's blog name modification to change my blog's name, too. Completely, utterly change it. Well, actually, I'd started two blogs when we first began beta testing the Blogging Network: Not For Profit and Ready, Fire, Aim?

But then I realized that doing two blogs was too much for someone who's not a professional writer like some of the incredible folks already writing on the Blogging Network -- Bill Quick with his Daily Pundit Premium or the Joanne Jacobs Special or Margot Lester with Naughty Bits or Tim Shell's Village Idiot or Julie Landry with her Big Ideas. In fact, one blog may be too much! We'll see. :)

So Not For Profit it is.

The tale of the bald man

This beautiful site by Ggreg Taylor was brought to my notice this morning by a friend. Ggreg's not a blogger per se but he's updating his site so often that he may as well be!

Ah, the internet.  Vast electronic wasteland, super efficient pornography search engine or futuristic communication tool?  As you may have gathered if you've puttered around Ggreg.com a tad, this domain is not about the mainstream.

Still pretending

Love this choice post from Nick Denton's blog yesterday:

We've all heard the euphemisms for post-bubble unemployment. I'm doing an MBA. Working as a consultant. Evaluating some startup ideas. Here's the best line I've heard recently. Question: so what are you up to nowadays? Answer: "Oh, I'm still pretending to put together a venture capital fund."

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