Starbucks Corporation (SBUX) Earnings Call Transcript & Summary

Hey, first up, we have a really great friend and a longtime supporter of HMG Strategy, Gerri Martin-Flickinger. Gerri, welcome to the program, My Journey to Leading Starbucks Technology. Gerri, great to see you.

Great to see you again, Hunter. I wish I was there with you, but this is close.

I wouldn't know what I'd do any given morning if I didn't wake up to my Starbucks coffee. And that's true -- really a true story, Gerri. What an amazing innovative company that you find yourself at. Can you take us through your career and share us with your passion for technology and how you ended up at Starbucks?

Oh, you got it. So many of you may know that I spent many years in the Silicon Valley, was -- had a wonderful career in a lot of great companies like McAfee, Network Associates, VeriSign and Adobe. And one day, I got a call from Kevin Johnson at Starbucks, and they were looking to really accelerate their digital strategy. And he and I got to talking, and I thought, wow, Starbucks, what a different kind of company for me to work in, and yet in so many ways, so much like many of the great tech companies I'd worked in. Starbucks, like your love of coffee, is all about that human connection over coffee. The coffee shop culture, and it's been nice to take technology and find ways for technology to just enhance that human connection. So it's been fun. It's been a completely different adventure for me and something that I've thoroughly enjoyed.

You've been in leadership positions through many different businesses and an amazing career. What are the common threads in your leadership style?

Yes. That's a great question because I would say no 2 companies are alike. And I think that's maybe one of the most important things to learn as a leader, is that every time you walk into a new team, into a new culture, you've got to take a few minutes to just absorb it and listen to it and understand what makes it tick. And so I think there are a few things about leadership that sew and permeate all of those experiences. One is really putting people at the center and spending time understanding the challenges. And sometimes those challenges are cultural. Sometimes they're economic. But whatever the challenge is that the organization is facing, trying to immerse yourself in the middle of it. I do think as leaders, we all seek that next leadership challenge. And oftentimes when you move from one company to another or one position to another, what you're really seeking is a new fresh experience. And I find myself, every time I've taken on a new role, having to learn something very new or taking a skill that maybe I had started to develop and really going further. Maybe it's the skill of bringing teams together. Maybe it's learning business acumen. Maybe it's developing a multiyear vision strategy. But whatever it is, make sure that every time you step into a new role, you step into it with great curiosity, that you recognize you're probably there to learn something new and that you're not walking in with all the answers. And I think that's what keeps it fresh every single time.

Hey, Gerri, how important is storytelling as you move into this position and work with boards?

Well, I kind of think of storytelling and communication of -- as one of sort of the 3 secret powers you have to have in these kind of jobs. I was just, a couple of hours ago, on a call with a person who recently got their first CIO job, and we were talking. And I reminded him of the power of the elevator pitch. And for me, the elevator pitch, saying it all in 1 to 3 minutes is the most powerful storytelling any of you can learn or any of our teams can learn. So every time I get a new leadership team or a new person in a leadership position, we do the sort of fun activity of, let's go around the room and do our elevator pitch. And we literally set a timer, and you've got 60 seconds, and you have to talk about something that you're really excited about. And if you can conquer that, you will find the ability to storytell and bring people along with you will be enhanced. So I think it's hugely important.

And talk to us a little bit about the future of STEM and students. What are you thinking about?

Oh, education to me is kind of where it all starts. And through the years and most especially in the last few years, I've really had a chance to spend some time with the newer students coming out of schools. One of the programs we have at Starbucks that is so special and dear to my heart is what we call an SCAP program, a Starbucks college achievement program. And we've done it in association with Arizona State University. If you are a Starbucks partner, which is what we call our employees, you can have an education free at ASU. And we put baristas -- if you think about the number of baristas there are at Starbucks, we have like over 300,000 baristas. Every one of those baristas that works more than 20 hours a week can have a college education. So we have baristas who, for one reason or another, maybe never went to college, maybe they couldn't afford to do it, maybe they were just taking a pause in their life, who suddenly find themselves at a time in their life where they want to get that degree. And then they do. And we have been lucky enough to bring some of those baristas into intern programs into the technology organization. And they have successfully gotten positions inside technology. And so to see young people take a journey in life that maybe takes them away from education for a while and brings them back in and then gives them a chance for a new level of career opportunity is so exciting. And just seeing those kinds of stories are incredibly powerful to me. So I think education is everything. And of course, it starts in secondary education and grade school education. But it will be the defining factor that will bring people together.

Gerri, hey, great to see you. And again, thanks so much for being part of the special program today.

Looking forward to the day.

Great. Thanks now -- bye now.

Bye-bye. [Break]

Hey. Welcome back, everyone. A lot of fun. Great session. Both breakouts were excellent. Thank you so much. Really appreciate Lesley Ma and your panelists as well as, Urs, you did a great job on the boardroom-ready panel. Always, always deliver. Thank you so much, everyone. I flag this one. Here you go, like that. Hey, next up, we have our final panel session, Driving Cultural Change into 2021 and Beyond. I'd like to invite our panelists, Jennifer Hartsock; VP and CIO, Baker Hughes; Gerri Martin-Flickinger; Janet Sherlock, CIO of Ralph Lauren; and Angela Yochem, the EVP and CDO and Technical Officer at Novant Health.

Good to you see, Jen.

How's it going, Hunter?

Jen, it's going great. How are you?

Fantastic.

Thank you for making it and being here. Really truly appreciate it. When this topic comes to mind, you want to set a little context on Baker Hughes for folks who might not know the scale that you operate on, Jen, and your kind of opening thoughts regarding the topic here.

Yes, absolutely. So Baker Hughes is an energy technology company. So we provide equipment and services into energy, and a lot of that is into oil and gas. Over the last 3-plus years of our existence, we have created out of a pretty significant merger of like-minded equals, which was a large segment of what was the General Electric portfolio and then what was Baker Hughes. So last year, we had $24 billion of revenue, 67,000 employees, operating in 120 countries. So it's been -- it's a pretty large organization to try and influence with a lot of different constituents and needs.

So the scale that you're working on is massive, right, across all of those countries. When you think about culture and the changing workforce and having an inclusive diverse culture, what comes to mind?

Well, I think again, the 120 countries is absolutely really key in that conversation. But it's not the only contributing factor to how you think about diversity, equity, inclusion. How do you really use our role as technology leaders to influence that? It's you have to understand certainly the cultural differences of the different organizations around the world, different countries you work in. You have to understand the different cultural needs of the different types of work that we perform across the company. And it is really important, of course, looking at United States, we have our own set of diversity understandings that have to be considered as well. And of course, as we look at the last several months and looking into 2021 and beyond, it has changed. And like our roles as technology leaders are probably even more critical now than they were 1 year or 5 years ago. And I think that most of us would agree that just deploying technology is not what makes our lives interesting. It's the adoption and the outcome that, that technology is intended to provide. And for that, we have to be change leaders. We have to be talking about the cultural factors. We have to help our colleagues across the executive team think about how our changes are going to be received into each and every one of those demographics for all of the constituents, employees, communities that we serve, our shareholders, our customers. And that means that we have to think absolutely as business leaders that happen to have responsibility for technology.

Excellent. Great. Thanks, Jen. We'll circle back to you in a minute. Hey, Janet, I know you have a broader message regarding the impact of diversity and inclusion in our tech industry. A little context of those for folks who don't know how big Ralph Lauren is and how you're pivoting digitally.

Well, I do have a large message, but the pivot digitally has been largely -- well, we've all been in digital transformations, I think, not just in the retail industry but across the board. But particularly with COVID, we've had to shift a lot of things, whether it's in our retail stores -- I'm looking at Gerri who can't sell a virtual cup of coffee. But in retail, we've had virtual appointments and lots of digital contact with the end consumers and a lot of different omnichannel kind of capabilities. But beyond that, Hunter, even things like going to the showrooms -- the way wholesale partners buy from lines like Ralph Lauren or other lines is they go to a showroom and they touch and they feel the product, and they make their purchases from that experience. So we've had to create virtual showrooms. At a company like Ralph Lauren as well as other companies, we've been doing 3D product development for a while, but we would still bring in physical samples for our design teams and merchants to approve. They would look at them and touch them and feel them. And we now do product approvals through 3D virtual samples. So I believe that the changes that we have incurred in 2020 will continue through '21 and beyond. And what I just hope is that culturally, this culture of ingenuity of shifting paradigms and not doing everything the way we've been doing it will continue to progress for all of our organizations and our businesses and our industries. And I'm just so thrilled to be in the technology space getting to drive that change.

Excellent. And you have a broader mission or idea now regarding this -- a new initiative that you're taking part of?

I do. So thank you. I'll take the moment to bring up that initiative. And thanks, Jen, for bringing up diversity and inclusion. I've been working since the -- [ we've heard ] of George Floyd. And we've all been focused on diversity and inclusion, I believe, but there's just been such a spotlight since this summer. So I've been working with about a dozen technology executives and leaders, some from Novant Health, where Angela is from, as well as from Estée Lauder and Deloitte and Boeing. And so we got together, and we said, "We really do need to make a difference in the technology space." We all, all of our organizations, I'm sure, are working on how we can increase diversity and inclusion. But if you ever look at the statistics of a technology organization, they're different than what you will see in the rest of the organization. We still lag further behind in representation for women in the -- in just the managerial and individual contributor roles and especially in the executive roles. We also lag behind Latinx and Black and African-American further than a lot of our other peer professions. So we've created a group called the TechPACT, which, if anybody is interested in agreeing, it's going to be a pledge, a personal pledge that you'll take to support diversity and inclusion. And the vision of the TechPACT is to create a world where everyone with a passion for technology has the ability to succeed. So there's going to be lots of programs, lots of partnerships with groups like NPower and Year Up and other groups that support diversity and inclusion. We believe this is going to spread like wildfire throughout the technology community. I would love it -- always seeking for everyone to be agreeing to the Tech Pact pledge. And if you want the information on it, we're going to launch on October 29. In the meantime, please reach out to me, [email protected], and I will make certain to make sure that you get the information about the TechPACT, which we're launching. And I'm so excited about it. And thank you for allowing me to speak about it.

Excellent. Great. Thanks, Janet. Angela, good to see you. It's been a while.

Hey. Great to see you.

Yes. You've been through quite a bit with the digital pivot and had quite a bit of success in really kind of racing into that digital space. Any updates in terms of what you're working on next? What's next?

Well, okay. So just a little bit of background for people who may not know what Novant Health is. We are a superregional integrated health care system based in the Southeastern United States. So we have about 30,000 team members in 700 locations, and we directly provide health care to people. So we have hospitals, we have clinics, physician centers, outpatient centers, that sort of thing. So health care itself as an industry is under quite a bit of change and has been for a while. It's a highly fragmented industry. It's rapidly evolving due to changes in the regulatory landscape, changes in the payer community. Certainly, consumer appetite has affected, of course, all of our industries. And my company recognized this a few years back and hired me and gave me the remit to do a pretty significant transformation of the underlying digital capability to bring us into where we think the -- where we think health care is going. And so when you think about some of the things that have been discussed thus far, and I'm so glad we're having this conversation about culture and cultural change, it's particularly impactful and important inside of health care organizations because not only do we have -- have we historically had so much to do at least at Novant Health to bring our technology capability up to where it can make a significant difference in patient access to care and quality of care, but also, the industry itself is shifting around us. So you have to very intentionally manage your culture. So that's -- it's just been a thrilling activity. And throughout COVID, we, of course, did what everyone else did. We already had a strong digital health capability. So we had up to 10,000, 15,000 -- I think we had -- one of our days, we may have had over 20,000 virtual visits in one day. So we have tens of thousands of visits on a daily basis throughout the course of the crisis, the shutdown. I think we're averaging about 2,000 a day today. So that's about 1,900 more than we would typically average a day before the COVID crisis. So it's nice to see people being willing to access care through unconventional means. And of course, we enhanced this through devices that have advanced sensor capabilities that allow us to give very detailed exam remotely, which has been very helpful as well in adoption. And we do things like, let's see -- well, you know what, I could go for much longer than anyone who cared to listen, but things like a significant AI investment that are doing some truly remarkable work in stroke care, in heart failure, in breast cancer and all the rest of it. So if and when you have a panel about those sorts of advanced tech things, I would love to tell you a little bit more. And drug, don't forget the drug.

Drug, wow. So a little bit more, though, Angela, on the responsibility regarding culture, learning and research as part of your senior C-suite duties?

Well, so you know Misti Fragen. She's our VP of Culture, Learning and Research. And she and her team have been extraordinarily helpful not just in helping us, as I mentioned before, be very intentional about the way we manage the change and keeping everyone engaged and invested in shifting and making more contemporary the ways in which we operate our digital products and services organization but also, in the longer term, preparing for that shift that we talked about a minute ago. It is inevitable, and the change and the cultural change required is going to span many, many years, not just the next few months of continued transformation. So it's a good foundational capability, I believe, to have in place if you are in an industry that is rapidly changing.

So it's actually a part of your role, though, right, in this new expanded responsibility?

This has been part of my role for years. So yes. I've been with the company just under 3 years. And so I hired Misti to run this part probably 6 months in, wasn't it, I think? Yes.

Love it. Excellent. Thanks, Angela. Hey, Gerri, back over to you. You were early on one of -- a conference call with me back in March and you said, "Hey, Hunter, realize what we're going through here on a global level, this is not a sprint. It's more like a marathon." I might even say it's more like an IRONMAN, getting more and more extended, right?

Yes.

How long this is going to play out. When you think of leading massive cultural change in a global pandemic in a global organization, what's that like for you?

Yes. Well, it's funny. Janet said, you can't have coffee virtually, but we can get you almost your coffee pretty virtually. So I'm betting everyone's doing that now. You're ordering your coffee through the app. You're doing curbside. You're doing delivery. So without a doubt, I mean from a business perspective, our channel's saturation around digitally enabled orders is huge. It's happened very quickly in a growth, and I can't really say more than that. But I think we're all experiencing that. We're experiencing that in all parts of our life. I want to shift, though, for a second and talk a little bit about the culture at Starbucks and what this pandemic has felt like inside. I think most people know that Starbucks is grounded in the sense of community coffee health culture. You come to a Starbucks. It's always been the place to sit and visit with people, to grab your coffee and be there on a weekend or have a meeting, whatever. And the same is true of the culture in the corporate headquarters, which is in Seattle in a really old historic building. In fact, it was probably one of the most shocking things to me when I joined Starbucks 5 years ago because really, when they say there's a corporate building, there is a corporate building. And that's where most people who are in any kind of corporate functions sit, in Seattle in this historic building. The idea of having videoconference meetings 5 years ago was pretty novel and, I would say, was not a cultural trend that the actual corporate way of work made easy. It's the kind of culture where people really mean meeting at the coffee machine. You actually meet at coffee tables. Inside the corporate building, you have coffee tastings to start nearly every meaningful meeting that you have. So I would have coffee all day long, probably a case being at least 4, 5 or 6 times a day. Talking about the coffee is much like talking about wine. You talk about the taste and smell. And so you can only imagine when all of a sudden, one day, literally, we walk into an all-hands meeting, and we say, "We want everyone to go work from home now, starting now, like not a month from now, not a week from now, now, right now." And we did that earlier than most other businesses. As you know, Washington state was very early on the entire U.S. pandemic experience. And so we really did overnight go home. And the number of phone calls I got from executives throughout the company really, really worried was quite insightful. People were really, really worried. Like how is this going to work? How can we possibly function? And as we all know, as technologists, of course, we could function. We had a Teams license. We were totally ready to have everyone on Teams. And people didn't really believe it. And then lo and behold, the next day, we just start working remote. And as we went through those first few weeks, people were truly amazed at how quickly the culture shifted. It wasn't slow and tedious. It was literally overnight. So much so that when we did our first pulse survey shortly after we all started working from home, most of our partners, which is what our employees are called, immediately responded with, they really like working remote, and they could see doing that for a very long period of time. We recently announced that we will not be going back into our Seattle headquarters until next October, so an entire year from now. And we're not worried about getting work done. We want to make sure we refit the building so that it's prepared for a new way of working when we get back because now that everyone is loving this new digital mode of connecting -- we even have coffee tastings. We still have coffee tastings. We just do them a little differently now. But I don't know. So I always thought culture took a long, long time to shift. And I think I've been excited that we've watched this pandemic, a silver lining is that a culture that believes they really couldn't maintain community and connection virtually has just discovered they can. So I probably talked too long about that. But boy, it's been really amazing to feel it.

Hey, Gerri, perhaps one of the more innovative companies in the past few decades, Starbucks. When you think about accelerators in innovation and inhibitors, where do you fall out on that topic at Starbucks?

Well, we've done a lot of pretty innovative technology and continue to. And I think one of the things that has helped us is we spent several years really rebuilding our architectural foundation so that when we got to the point of needing to accelerate like we've done in the last 9 months or so, we were able to do things like unlock new channels, delivery, curbside without rebuilding anything. We literally put a little bit of icing on a cake and leveraged all of the foundational infrastructure and technology we've built. So I mean I think everyone on this call, we're all technologists and we're all in leadership of technology. We know how important good architecture is and architecting for the future, not to respond to your needs today. And it does feel like it's been a bit of a case study for when we did that, and we took our time to do that the right way. We have been able to go faster.

Excellent. Thank you. Jen, over to you. When you think about this whole pandemic that we're in and working from home and so forth, it puts a lot of challenges on diversity and inclusion, but there are also some opportunities. What's the upside and the downside?

Yes. And I think that -- and I appreciate really all the comments of the fellow panelists because I think we're all nodding for a reason because there's so much commonality even across all these different industries that we represent, the different geographies that we work in. And Hunter, I think that you're right, there's both an opportunity to level the playing field with remote work. There's also an opportunity for us to potentially leave some folks behind. So I think from a diversity, equity and inclusion perspective, we have to be every bit as intentional as we are right now. And Gerri, I really appreciate you sharing the Starbucks story about really taking another year to refit the work environment. And one of the things that I felt like was a big enabler to diversity, equity and inclusion this year is that we put everybody remotely. Now I have a globally diverse team. We're all over the world. So there was a bit of a headquarters-versus perspective in our culture, where if you aren't near the center of gravity, sometimes maybe your voice didn't get heard quite as clearly as if you were. So with everyone moving remotely, we kind of took away the advantage factor of face time, hallway time, et cetera. So we had to be a little bit more intentional. Now if you were outside of that center of gravity, this felt like a fantastic opportunity to step up and be seen differently. So I hope we don't lose that. That's one of the things that we're trying to retain, is that how do we make sure we have a really intentional inclusion. The other part that I would say that we've had to be a little bit more thoughtful of is as a global team, we're heavily reliant on global travel to bring people together for ideation and innovation. Now it's episodic. So we bring people together. They work for a little bit, and then they go back to their corners of the world. But when you're trying to do that across 16 time zones and you're trying to make sure that people who are in an apartment with 2 or 3 generations of family and it's the middle of their night, really thinking through how do we make sure that we don't create undue burden on those with different life circumstances or different geographies, it's also been a part of our journey. So we've had to find some creative ways. And candidly, we don't have it all figured out yet. But we'll change shifts. Like sometimes we make it really convenient for those that are in the U.S. Sometimes it's really convenient for those in India or Malaysia. And we've tried to do that in a way that, that way we're accommodating people working from home in different scenarios. We've also found that in some cases, we're willing to open up an office for people a little sooner because it really was more effective and more productive for them to be in a physical office and maybe away from some of the chaos that some of our home lives looks like right now. So we've had to work through a lot of different scenarios. And I think that just like non-COVID times, it really is a function of being incredibly intentional about making sure that you're creating the right opportunity and then giving people the right opportunity to show up and be successful. So for us, we've actually seen some really great progress. And one of the things that I think that we're trying to really grasp a hold of is, how do we not lose this ground on creating this level playing field for people to more equitably compete for really great work and great opportunities for promotion and advancement?

Thanks, Jen. Great job. Hey, Janet, over to you. When you think about the technology and driving cultural change and how we'll work today and into the future, what comes to mind?

I think it's a lot of the things that we've spoken about, which has -- oops, my stream is doing something strange there. Which -- Jen brought up a really good point. There's some really positive outcomes from the COVID situation for organizations. The -- and this is not just at Ralph Lauren or Baker Hughes or -- it's been in every company, which is there's the corporate phenomenon and you're -- when you're not at corporate, and there's the corporate phenomenon. This has made it so that, that really minimizes that. So I love that there's a few things that are going to support recruiting. If you don't need to actually be in the office any longer, does that open up where you recruit people from? This whole equalization of the corporate centers of gravity, as Jen put it. I think that culturally, we're all going to be more nimble than we were before. I think that -- I think we're -- the paradigms of we had to do things this way have been broken this year. And the other thing as well that's been interesting is that I think our partners have just realized, we all had a snap to it. When COVID hit in technology -- like I had a very similar situation as Gerri. Fortunately for me, I had architecture in place that I was poised for curbside. We hadn't delivered it yet. It wasn't high on our priority list, but I had the architecture ready for that. So I guess what we showed our partners was -- is when the pressure is on, we can really deliver. So I think that there may be an expectation that we're going to be a little bit more nimble and be able to deliver a little bit more quickly than maybe in the past. So I think that there's a lot of changes for our business partners as well as expectations for us in technology that we're going to see continue into 2021 and beyond.

Love it. Thanks, Janet. We have about 1 minute to wrap up here. Just a quick comment, exciting time to be in technologists (sic) [ technology ] and probably one of the most interesting times, right? I would say it's the best time, but it always seems like the next day is the best day. But very challenging. But do you love what you're doing? Any comment? Gerri? Jen? Gerri?

Oh, my gosh, it's an amazing time, I think, the -- in addition to everything else we're dealing with, this time when diversity and inclusion is forefront for all of us and all of our companies is going to make the future a very different place in a very, very good way.

Awesome. Jen?

I want to add, yes, like for us, we have this nice phrase that we say, which is who is our how. We're entirely dependent on really great intellectual capability, diverse perspectives around the world. And what better time to take the who of technology and bring it to really incredibly impactful how. So yes, never -- I'm with you, Hunter. Today is a great day to be in tech.

Love it. Janet?

I've been inspired all day today. Have you noticed how many people spoke just from the heart about -- and being very transparent about confidence and feeling like you belonged? I think that there is an exposure to our true selves and an openness that, I think, today as women we bring to the table. But I believe this time, this year, 2020 has just opened up this environment that really helps us to be empathetic, more patient and more kind to each other. So I thank you for this forum for us to speak as women. And I believe that, that is going to help carry us through to all being better corporate citizens and better partners in our work environments.

Hey, thank you, Janet, and well said. Brilliant. Angela, final word?

I think 2020 has really separated the wheat from the chaff. The folks that you've heard on this panel, on all of the prior panels have described how the diversity of thought and the inclusive culture that they've cultivated and the good forward-thinking technology decisions and investments that they've made up to this point allowed them to thrive during very difficult times, un-anticipatable times that we've encountered in 2020. So I think this sort of event has been extraordinary for all of us to share stories and to celebrate the good work done here so far.

Yes. Thanks, Angela. Thanks, Gerri and Jen and Janet, for all of your engagement and support over the years and sharing your experience, right? You guys are all really world-class rock stars. It is the most challenging time ever, right, in our careers. But you're right, Angela, I think, and Janet and Jen and Gerri, the folks that we had show up today on the agenda and the attendees, they were all really leaning in and living that kind of a champion moment, right? We're, what, 8, 9 months into this. Could be another year or 2 if it plays out the long tail. And that kind of vision and leadership, encouraging authenticity and leading authentically with humility and a balance of a servant leadership, it's all part of a kind of a style, leadership style that you've all developed over the years, decades, you've been in this. But in the last 9 months, it really pushed you to the edge, right? So great thanks to you all.