The strongest brands in the world all share the ability to conjure up demand for products that consumers hadn't known they wanted yet. Many of the most profitable companies in the world know how to successfully identify opportunities that are hidden in plain sight. As the late Steve Jobs famously put it, "It is not the customer's job to know what they want." In the end, the businesses that matter most to consumers are the ones that satisfy shareholders.
To find those businesses, I'm starting a three-part series focusing on innovation. Today, let's turn to coffee giant Starbucks (NAS: SBUX) .
Transforming an industry
Consider the retail coffee industry before Starbucks. Local coffee shops weren't a new concept. But Howard Schultz, president and CEO of Starbucks, created an international coffee brand that is now the face of a multibillion-dollar industry. As the head of marketing for Starbucks in 1982, Schultz was captivated by the cafe culture he encountered on a business trip in Italy. At that time, the Seattle-based start-up was strictly a coffee roaster that sold premium coffee beans and coffee equipment. Schultz brought the cafe idea to Starbucks' owner at the time, Jerry Baldwin, who shot it down. Five years later, with the help of local investors, Schultz bought Starbucks from Baldwin and his partners for $3.7 million.
Innovating on what customers want
Today, Starbucks is a global brand with a market cap of more than $36 billion. It's hard to walk several blocks in any major U.S. city without passing a Starbucks cafe. The coffeehouse chain currently owns and operates more than 17,000 stores in 55 countries. In the company's annual report for fiscal 2011, Schultz says, "I have always believed that effective innovation is about responding to, predicting and creating customers' needs while staying true to our core values. And Starbucks has done just that.
In a bold move to tap the multibillion-dollar single-serve category, the company made a deal with Green Mountain Coffee Roasters (NAS: GMCR) . Starbucks shipped more than 103 million branded K-Cups by the end of December.
A latte profits
Moreover, under the management of Schultz, the company continues to add valuable businesses to its portfolio of brands. The acquisition of Evolution Fresh near the end of 2011 plunged Starbucks into the $1.6 billion super-premium juice market.
Last year, Starbucks streamlined its consumer packaged goods business by bringing it in-house -- giving the company more control of its relationship with Costco and other sellers of its products. This meant ending an agreement with Kraft Foods (NYS: KFT) . Before moving these businesses in-house, Kraft managed the distribution, marketing, and promotion of these products. I think this is a long-term solution that moves Starbucks closer to the consumer -- another reason why I'm giving Starbucks an outperform rating on my CAPS portfolio in Motley Fool CAPS.
Get your fix
While Starbucks may not have a crystal ball, it does have a clear understanding of its customers' wants. Its ongoing success lies in the company's ability to take advantage of the brand's emotional connection to consumers. The most profitable companies in the world know that the customer is buying an experience. As long as Starbucks continues to craft memorable experiences for coffee drinkers everywhere, its value will soar. As an added bonus, I invite you to check out "3 American Companies Set to Dominate the World," a special free report from The Motley Fool's leading analysts. The free report is yours if you click here now.
At the time this article was published
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