The Los Angeles Times from Los Angeles, California • Page 59

LOS ANGELES TIMES THURSDAY, SEPTEMBER 25, 1997 D5 Advertising Marketing Starbucks' Schultz: Making His Macchiato A look at creative people making a difference Advertising and Marketing Briejs SmithKline Gets in Fast Lane to Smokers SmithKline Beecham must figure that the best way to advertise a smoking-cessation product is by getting in smokers' faces. The Philadel -phia-based company that makes the NicoDerm patch and Nicorette gum is sponsoring a car in this weekend's Marlboro 500 race at California Speedway in Fontana. The car will be emblazoned with the NicoDerm and Nicorette logos, a first in the auto-racing world, which draws heavily from tobacco brands like Marlboro and Winston. The sponsorship in -eludes an off-track challenge for competitors: SmithKline promises to Auto Racing Teams who quits smoking. As for car driver Dennis stopped smoking the day he took up racing.

Greg Johnson) News Corp. Puts Marketing Units in 1 Basket 1 News Corp. has created a division to house its U.S. marketing operations. News America Marketing, will house News America FSI, which produces more than 60 million Sunday newspaper inserts, and Actmedia which provides in -store promotions for about 40,000 supermarkets.

The new division will also absorb Dimac Marketing a direct-marketing company, and News America New Media, a telephone-based marketing business. News media stable includes the New York Post, TV Guide, FoxTV, Fox Sports and the Fox News Channel. (Bloomberg News) Mercedes Parks Truck-Bashing Ad for Tuneup KIRK McCOY Los Angeles Times Chairman and CEO Howard Schultz says Starbucks is not going to be a traditional advertiser with 30- and 60-second commercials. Mercedes-Benz, which delayed the start of its new advertising campaign after Princess Diana died in an automobile crash, subsequently pulled an ad for its new sport-utility vehicle after fielding complaints from a sister company. Freightliner Corp.

was put off by a reference to "mean old truckers" in the ad, which shows a sport-utility safely passing a truck. The ad features an infant in the back seat who appears to be singing in a baritone voice about "some mean old truckers out hogging the street" A Freightliner spokesman said Mercedes-Benz On the Bcsn Starbucks Coffee Co. is growing even though U.S. coffee consumption has remained flat and Starbucks doesn't sell beans in grocery stores, which generate 80 of all coffee sales. Growth in Starbucks revenue and stores since its initial public offering in 1992: 1,400 In millions 1,200 1,000 800 1,300 iia 1 $1,000 800 600 400 200 0 .600 tu 400 As for being big? And I can't help it when people say Starbucks is big.

Because it is big. Acomediannowjokesthaf'theyjustopened a new Starbucks in my living room." How big will your company get? We've just about entered most of the major markets. Our new market this year has been Florida. Now we're going to markets that are less sophisticated, the secondary and tertiary markets. But we're seeing similar responses to when we started expanding to big markets.

There's a huge country out there. Most Americans drink two cups of coffee each day, and most of it is stale product. Remember, we have minuscule market share of the supermarket coffee business, despite Starbucks' success. Starbucks hired Goodby, Silverstein Partners, the "Got Milk" people, in 1995. Did they "get coffee" for you? Well, first we recruited marketing executive Scott Bedbury, who'd earlier been with Nike.

And we had the Goodby connection for the last 2 or three years. They're great people, a fantastic agency. But for whatever reason, we have not found the creative voice for the company. We just changed to BBDO West, which, ironically, is part of the same company, Omnicon, that owns Goodby. I've known the guy David Lubars over at BBDO West for years, and I think he can, with his organization, find the Starbucks creative voice.

But we might conclude that we don't have to advertise at all. I definitely don't want to go down the same road as everyone else. Let's find a more noble purpose, than traditional 30- to 60-second soundbites. I get the feeling that in addition to not knowing exactly what to say, you're not even sure how tosayit I don't know yet what we want to say. I do know one thing, and I know it instinctively: Starbucks is not going to be a traditional advertiser of 30- and 60-second commercials.

We're going to go a different way. We've tested TV in the past, but as for how Starbucks will be communicating the brand through media, we don't know yet Let's talk about the weather. El Nino can cause drought, frost flooding. In 1995, a frost in Brazil sent coffee prices skyrocketing. I imagine you pay close attention to weather reports.

I went to bed one night in 1995 and when I woke up the next morning the price of coffee was up 300. So now we have to worry about frost in Brazil and this new thing called El Nino. To date, it's much ado about nothing. But speculators are using it to manipulate the coffee market for their own self-interest. El Nino does have the strong possibility of causing drought in Colombia and Indonesia.

If that were to happen and we really won't know until October or November the cost of coffee could be affected. But the crop won't be affected until late 1998 or 1999. El Nino shows that we have a challenge. We're completely vulnera-; ble at all times as is the whole coffee market to strange weather patterns. Your company offers relatively high wages and health-care packages to part-time employees.

But some employees in Canada are now repre-. sentedbyaunion. The important thing about Starbucks is that we've brought our people along with us as we've grown. We offer our people stock options, along with health care for our part-time people. Some great companies are unionized and some bad companies are not.

So the question is not whether a company is unionized. We have 97 stores in western Canada, and nine of those stores elected to be represented by a union. The agreement we have with the union is almost a mirror image of the agreement we have with our people in the other stores, so it's not a big deal. This is a democracy, and our people have a right to make a choice. You describe your board members as trusted advisors more than supervisors.

That's a contrast to most companies, where board members seem intent on playing more of an activist role these days. It wasn't always that way. This is a group of directors of people who have been together for about 10 years now. We've raised this child together. I've been the leader, the visionary, but I've had incredible help and guidance from a group of people I respect and love.

We still have lots of creative conflict in the boardroom. We don't always see eye-to-eye, but we come out with consensus. You say the average American drinks two cups of coffee a day. How much do you drink? Four or five cups decaffeinated at night. $860.8 million TT1TT hn 200 0 92 '93 '94 '95 '96 '97 In 1987, Howard Schultz, a former housewares industry executive, acquired an obscure Seattle coffee roaster named Starbucks Coffee Co.

Under his direction, Starbucks has grown from 17 stores into a chain with nearly $1 billion a year in sales the McDonald's of coffee. Intent on expansion, Schultz continues to open outlets in new territories and has guided Starbucks into other business lines. Its ice cream is sold in supermarkets, as is a bottled drink, Frappuccino. Its coffee is served on United Airlines flights. It is testing the sale of coffee in supermarkets pitting itself against deep-pocketed giants such as Procter Gamble.

Schultz, the 43-year-old son of a truck driver, grew up in the projects in Brooklyn, N.Y., and is now among the nation's most successful entrepreneurs. He earned $493,654 in salary in 1996; his stock holdings are worth $194.3 million. Starbucks, no longer a small upstart, faces challenges. It is struggling with keeping a small, personal feeling even though it is a huge chain. Prototype stores have colorful murals, leather couches and even fireplaces homey touches that contrast with the chrome and wood now found in most Starbucks outlets.

Starbucks recently switched advertising agencies, selecting BBDO West in Los Angeles, saying if had trouble finding its creative voice. And employees in Canada recently joined a union, a blow to Starbucks' highly touted commitment to its workers. Times staff writer Greg Johnson talked to Schultz last week in Westwood, where Schultz was promoting his just-published autobiography, "Pour Your Heart Into It." What follows is an edited transcript. You have compared Starbucks to Nike. Why? Who would have thought 20 years ago, when we were all wearing Chuck Taylor Converse sneakers, that a company would start making high-performance tennis shoes that people would spend lots of money on? Nike has built a brand in a commodity business, and Starbucks has done it as well.

But while they've done it through marketing and mass distribution, we've done it with no advertising. Over the last 10 years, the company has spent more money on training than on advertising. And Starbucks is now beginning to leverage its brand. We've introduced Starbucks ice cream, which is now the No. 1 coffee ice cream in America.

We have bottled Frappuccino and we're now testing Starbucks coffee on grocery store shelves in Illinois after a successful test in Oregon. Won't selling coffee beans through grocery stores cannibalize your existing business? I believe it will be complementary, that it will not dilute the integrity of our company or cannibalize retail store sales. Right now, 87 of what we sell goes through our own retail stores. But over the next five years, that percentage could slip to as low as 60. I think that will be very healthy, because it will help relieve the burden on our retail operation.

Eighty percent of all coffee in America is sold through the supermarket aisles. We're in the position of possibly creating a significant business on supermarket aisles. You fought against serving nonfat milk products and misjudged the appeal of iced coffee drinks. I've been wrong a number of times. But it speaks well of the processes in our company that people have the confidence to disagree with me.

I didn't think nonfat milk was right for us. I didn't think iced Frappuccino would be a big item. I was wrong both times. Management teams today have to leave their egos at the door. They have to be willing to recognize we're in business for one reason: to satisfy our customers, and if we don't have the right idea, we have to acquiesce to those who do.

But there is a line you won't cross, right? There's a point at which you're no longer selling quality. It's a fragile balance, but a company has to stand for something. An example: artificial coffee, which is something we don't sell. And we never will sell it because it's the bastardization of coffee. Are there product deals that you won't consider? An idea we've said no to so far is alcohol.

We did a joint venture with Red Hook Ale, but we've 92 '93 '94 '95 '96 '97 Through Aug. 24 Source: Starbucks Coffee Co. Los Angeles Times jk jf agreed to "stop running it as is and revise it so that it would not offend anyone." (Associated Press) Travel Agents Fighting Commission Cuts The American Society of Travel Agents is urging consumers to complain about United Airlines' decision to cut travel agent commissions back to 8 from 10. Delta Air Lines, American Airlines, US Airways Group Northwest Airlines Corp. and KLM Royal Dutch Airlines followed suit with their own cuts, sparking a war of words between major airlines and travel agents.

Airline executives say the cuts are needed to give travelers cheaper fares and to sate Wall Street demand for continued earnings growth. But travel agents complain that the air -lines are trying to push them out of business. Associated Press) Patrolling the Advertising-Editorial Border The Magazine Publishers of America and the American Society of Magazine Editors are urging the publishing industry to reject advertisers' demands for pre-publication review of text, pictures and subject matter. The two groups issued a joint statement calling for an industrywide policy that would ensure editorial integrity and credibility. The statement was prompted by reports that some advertisers are demanding to be alerted before publication about potentially controversial stories.

The profession -al groups are worried that granting the right to review upcoming subject matter could create "the appearance of censorship and ultimately could undermine editorial independence." (Reuters) Pizza Hut, KFC, Taco Bell Sign With NCAA Pizza Hut, KFC and Taco Bell are now the official fast-food outlets for the National Collegiate Athletic Assn. in 22 major sports, including bas -ketball and football. The chains, owned by Louisville, Tricon Global Restaurants Inc. signed a multiple-year agreement for the sponsorship deal. Tricon, which will be spun off next month by PepsiCo did not disclose financial terms of the deal.

(Associated Press) Dr Pepper to Prescribe Itself Abroad Dr Pepper, which has been expanding into Australia, Puerto Rico, Mexico, Russia and Britain, is planning its first foreign advertising campaign. The push will initially use a two-minute commercial created by Young Rublcam, its lead agency. Outside of the U.S., the Dallas-based soft drink's advertising theme will be "Dr Pepper: To try it is to love it" The company is inviting consumers to try a soft drink with "an unusual name and an unknown taste." (Bloomberg News) Adidas, Nike Work on World Cup Strategy Two major sports equipment and apparel companies hope to score their own points during the 1998 World Cup soccer tournament in France. Nike and Adidas which generate a combined $12 billion in revenue are rushing to sign up national teams to wear their logos during the upcoming soccer games. Nike, already official sponsor of the U.S.

national team, has signed deals to put its "swoosh" logo on uniforms worn by current world champion Brazil, three-time winner Italy, the Netherlands, Russia and Nigeria. Adidas' all-star lineup includes 1990 World Cup winner Germany; 1978 winner Argentina; and teams from France, Sweden and Spain. Adidas also has been named by FIFA, the world soccer body, as of -ficial sponsor of the World Cup. Adidas America executive John Fread, who quipped that the company name stands for "All Day I Dream About Soccer," says Adidas wants to make "big strides" into the U.S. market during the tournament' (Reuters) -J LOR1 SHEPLER Los Angeles Times This prototype Starbucks store on Olympic Boulevard in West Los Angeles sports a new "reduced-chrome" look.

said no to hard alcohol. I just didn't think it was right for us at the time. A lot, though, has to do with the maturation of the company and the brand, of what it's available to absorb. You write that big companies are almost universally hated by consumers. How do you keep Starbucks from getting tarred and feathered with the charge of being big? Most, companies that have gotten big in America haven't stayed great or good.

The challenge for Starbucks is to maintain intimacy with our people and customers. Success at any level is not an entitlement it has to be earned. And. if I ever thought that growth was diluting the guiding principles of our company, I guarantee you I would stop growing. You've got to manage for what's most important the customers and our people.

If you do tiat, everything else will take care of itself. Commercial Break Los Angeles is bustling with commercial production, ADVERTISING: Cigarette Makers Pack Clubs which is up this year through August over last year. Some agencies have said they are doing more work in Los Angeles, with its available pool of talent Top Brands U.S. market share of the 10 biggest cigarette brands, based on sales though June: I -A August: 1 552 days 900 800 700 600 500 400 300 200 Brand Martwthaf Marlboro 34.0 Newport 6.2 Dora! 6.1 GPC 6.8 Winston 4.8 Camel 5.0 Basic 4.9 Kool 3.4 Salem 3.4 Virginia Slims 2.4 FMAMJ JASONDJFMAMJ JA I 1996 1 I 1997 1 Source: Entertainment Industry Development Corp. Continued from Dl carton of Camels each week though a chunk is probably smoked by employees.

"Some people are social smokers; they want one cigarette," said Hubp. "We keep the cigarettes behind the bar and supply them as a courtesy." The value of the programs to clubs varies, according to managers. Where trend-setting clubs with exclusive deals reap large sums, several lower-profile bars said their deals were worth between $5,000 and $15,000. Individual programs use different gimmicks. Philip Morris Cos.

brings the Marlboro "Get the Gear" program into bars with games and giveaways. At the Safari Club last summer, patrons played a computer version of a shell game to find "gear" hidden in backpacks displayed on the computer screen. Philip Morris used the event to bolster its extensive mailing list, contestants were asked to supply their names and addresses and answer questions about their smoking habits. Not everyone answered honestly. Destiny Tafoya, 24, admitted she lied to play the game; she won a cap with "Marlboro" emblazoned on it "I said, 'Yeah, I smoke four packs a she confessed.

Safari Lounge general manager Tina Ludwig said the promotions enhance the atmosphere at the club. "It's a draw," she said. "Even people who don't smoke collect gear." While Marlboro tends to favor neighborhood watering holes and bars with Western themes, Camel and rival Lucky Strike in keeping with their hipper-than-thou advertising images compete for trendy nightclubs. Working through its promotional agency, Chicago-based KBA, Camel over the last two years has locked up many of the better-known clubs and convinced Dragonfly to hang a Red Kamel sign outside its building. Inside Dragonfly one Sunday evening, the air was as thick as, well, smoke.

"I know it's not healthy," said Kristen Morris, 27, puffing on a Red Kamel grubbed from a passerby. "I smoke in social environments. It's part of the scene." The nightclub programs are a response to advertising restrictions tobacco firms are likely to face. To settle multibiliion-dollar liability suits against it, the industry in June agreed to end outdoor advertising and to restrict print ads to publications read by adults. Under the agreement, print ads would be dena hasn't noticed a change in the smoking habits of regular customers.

"We have Lucky Strike available, but we don't sell much of it," said manager Chisel Roach, as he surveyed the nightclub last Saturday night. "Everyone smokes Marlboro." Muse, in fact, continues to sell Marlboro from the bar. That observation was borne out by three friends seated at a table in Muse where they shared a pack of Marlboro Lights. "Lucky Strike? Never tried it" said Jun Paguio, a student studying computer repair. But there are signs that advertising in nightclubs is having an impact Derrick Duran, buyer for Core-Mark Distributors in Los Angeles, a wholesaler that supplies cigarettes and other sundries to Long's Drugs, Thrifty Drugs and other chains, said sales of Red Kamel grew 50 during the first six months of 1997 significant because Red Kamel is promoted almost entirely through nightclubs and bars.

Total sales amount to less than 1 of the Camel brand, however. "These companies are jockeying for position for the long run," said consultant Harris. "People will switch brands if there is nothing else to smoke. Five years from now, we'll be able to tell" what impact the dels J. Los Angeles Times Other 24.0 Source: Maxwell Consumer Report Let us know what you think about these pages.

E-mail, call or write to Advertising Marketing, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053. Please include your name, hometown and phone number. To advertise in these pages, contact Nancy Riley at (213) 237-2210. Editor: Denise Gellene Reporter: Greg Johnson Researcher: Jennifer Oldham Graphics Carrie Barber and design: Mark Sims PatRathbun E-mail: adblzeiatlmes.com Fax: (213) 473-2480 Voice messages: (213) 237-3341 Los Angela Times text only. While President Clinton has called the parts of the settlement inadequate, it is believed that advertising restrictions will at some point be imposed on tobacco firms.

Opinions about the effectiveness of nightclub programs are mixed. After three months in the "Lucky Nites" program, the general manager of Muse in Old Town Pasa.