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WHEN: Today, Friday, December 14, 2018
WHERE: CNBC's "Squawk on the Street " – from Starbucks' new Reserve Roastery in NYC
The following is the unofficial transcript of a CNBC EXCLUSIVE interview with Starbucks CEO Kevin Johnson, Uber CEO Dara Khosrowshahi and CNBC's Jim Cramer on CNBC's "Squawk on the Street" (M-F 9AM – 11AM) today, Friday, December 14th. The following is a link to video from the interview with just Kevin Johnson: https://www.cnbc.com/video/2018/12/14/starbucks-ceo-on-the-companys-future-outlookand-china-expansion.html. The following is a link to video of the interview with both Kevin Johnson and Dara Khosrowshahi: https://www.cnbc.com/video/2018/12/14/starbucks-and-uber-ceo-discuss-their-new-delivery-partnership.html. Additional footage of the interview will air in CNBC's "Mad Money w/ Jim Cramer" today Friday, December 14th at 6:00pm ET.
All references must be sourced to CNBC.
JIM CRAMER: Okay. Here we go. Welcome back to "Squawk on the Street." I have got a special guest, we've got Kevin Johnson. We're coming from the brand new Roastery. If you "The Wall Street Journal" today, there's a fantastic ad, including a crossword puzzle. Kevin, great to see you.
KEVIN JOHNSON: Jim, thanks for being here. Welcome.
JIM CRAMER: Alright, let's get right to it. You had a full meeting yesterday. And a lot of the takeaway, actually almost all of the takeaway, was that you took down long-term guidance. So let's deal with that upfront before we get to this fabulous store.
KEVIN JOHNSON: Yeah, so let me frame the context of yesterday's conversation. We outlined for investors a growth at scales strategy and agenda that is driving results. In terms of the performance, if you look at last fiscal year -- fiscal year '18, we delivered 10% revenue growth and 17% growth in earnings per share. We reaffirmed FY-19 guidance, we indicated that FY-20 and 21 would be greater than 13% growth EPS. And after that, we tempered the EPS growth rate to a 10% growth rate for long-term shareholder value creation. So that's what we framed for our investors yesterday.
JIM CRAMER: Okay. In the same context, I mean here you are – I know you were an aggressive buyer of your stock. You've got so many drivers, I question the need to be able to do something like that. It is almost like what Jay Powell did for the Federal Reserve where he just said, "Listen. We're going to be flying high for the next couple of years." Why bother to put a gun to your head like that?
KEVIN JOHNSON: Well first of all, we continue to buy back our stocks aggressively today.
JIM CRAMER: Today.
KEVIN JOHNSON: In fact, because we believe in the long-term growth agenda that we outlined for investors yesterday. Now, over the last four months or so I met with 60 plus of our large, long-term shareholders. And to, you know, every one of them indicated that what they look for was a prudent reasonable guidance that allowed us long-term to continue to reinvest in the brand, invest in partner wage and do the things we need to do to deliver a predictable, sustainable growth agenda for those investors.
JIM CRAMER: Okay, here's -- let me give you the counter.
KEVIN JOHNSON: Ok.
JIM CRAMER: Alright. You are 3600 short in China, it's only in 156 cities. I mean, you could go city number 200, but that would still be bigger than some cities you have maybe you have 50 Starbucks in. You are now doing delivery. You're getting 2 to 3 times sales when you do delivery. You've got to tell me that. I do not understand why you are so downbeat in terms of what you could be doing in the out years. It is unfathomable to me, Kevin.
KEVIN JOHNSON: Well look, we put together the growth at scale agenda acknowledging three things. Number one, you know, we are building off a base of approaching 30,000 stores around the world. You know we are currently opening a new store somewhere in the world every four hours. So we are bullish on the long-term growth of that store count. Now we are dealing with a very large number. I mean last fiscal year we posted, what, $24.7 billion in revenue. We are growing off of that base, at a significant rate with the guidance we provided. Second, we acknowledge that we are adapting rapidly to shifts in consumer behavior, whether it's the embrace of the digital lifestyle, whether it's more amplifying the need state of convenience or the desire for more personalized premium experiences, we're adapting to meet our customers where they are. And then third is the acknowledgment that the competitive landscape is changing, with the large and growing addressable market of coffee. Coffee is one of the fastest growing beverage categories in the world. And so many people see that beverage category growing so there is new competitors. In the U.S we see a lot of consolidations of those competitors and in China, we are seeing more startups.
JIM CRAMER: Okay, I want to talk about China. I always thought of China as MSD, which for the people at home is mid-single digit. I look at these numbers now, I know you have this Alibaba partnership, what the heck happened? It was three quarters that you went from MSD to LSD, which is how I feel.
KEVIN JOHNSON: Well here's how you should feel: we are growing in China in the mid-teens. And we outlined that China right now is in a different stage market development than the U.S. China is all about store expansion and new unit growth so we can create a first mover advantage and establish the Starbucks brand in more points of presence in the cities that we are in, and in more cities that we are not in in. So in China, for example, we accelerated our new store build per year to 600. So we are now opening a new Starbucks store somewhere in China on average every 15 hours. Over roughly 80% of the growth in China will continue to come from new store unit verses same store comparable. Both are important but right now China is all about establishing the brand through more points of presence in more cities.
JIM CRAMER: I want to use the Roastery as a metaphor of what's going on in China. I believe that the issues in China have to do with the PRC government, not with people. When you opened a Roastery in Shanghai, how many people have gone through it?
KEVIN JOHNSON: Well you recall opened Roastery much like this in Shanghai a year ago. In that first year, we've had more than 1 million occasions in that Roastery. In fact, we opened the Milan Roastery less than three months ago. And just this weekend, we took a video and there was still a line around the building completely of customers waiting to get in and see the beautiful Roastery that we built in Milan.
JIM CRAMER: Many of us feel that Milan is the capital of the country that likes coffee more than anyone. Not Rome by the way, it's really Milan. When you go, you are an ambassador for the United States, what is the view, you've got Italy -- regarding as not as good of a friend of the U.S. You've got China and obviously trade war. What is the feeling and you a business ambassador going around the globe, our country, how do they look at this?
KEVIN JOHNSON: Well first, let's talk about the fact that we just enter the market in Italy. And we waited 47 years since Starbucks was founded to enter the market in Italy. Because we wanted to do it in a way that shows respect for the Italian coffee culture. We entered that market with humility and with thoughtfulness in terms of bringing that romance of coffee to life in a way that honored and respected the Italian coffee culture. Now we do business with 78 countries – 78 markets around the world. Certainly the Starbucks mission and values are grounded in humanity. It is much about the work that we do to take care of our partners in every part of our world, that we work in service of our customers and the communities that we are a part of. So, you know, as an ambassador of Starbucks, you know, my role is to make sure we continue to sort of romance and stay true to those things that built this great brand. And it is about humanity.
JIM CRAMER: When I hear things about things like this – when I hear about humanity, when I hear about respect for people, when I hear about the notion of globalism, I think "Wow, whoever came up with that culture could make a great president." Now, someone's got 30 million shares. That man is Howard Schultz. You don't see him here. All those things you just said are an alternative, not to say -- I am not saying better or worse to our current president. Would he make a great president?
KEVIN JOHNSON: Well first of all, you know, Howard, his legacy and the heritage of what he created here at Starbucks and his love of Starbucks is woven into the fabric of who we are and what we do and carry forward. Now we are excited for Howard as he ventures on this next chapter in his life journey.
JIM CRAMER: Is he running for president?
KEVIN JOHNSON: Well look, as part of --
JIM CRAMER: I think it is kind of a yes or no thing, Kevin.
KEVIN JOHNSON: Well look, I have great respect for Howard. And you know Howard has been one of those people that I think has done something very special in this world of what he's created with Starbucks. And I think his decision on what he wants to do next is a personal decision. I have great respect and affinity for Howard and I will support him in no matter what he chooses to do.
JIM CRAMER: Thank you for putting up with me and my nagging questions. And fabulously go to the Roastery. That's Kevin Johnson. Back to you guys, downtown.
CARL QUINTANILLA: One of the big headlines from Starbucks Investor Day yesterday was this partnership with Uber to bring delivery to about a quarter of its U.S.-based company owned stores. This of course comes as we get the news that Uber has confidentially filed for that IPO. Let's get back out to Jim with the CEOs of Uber and Starbucks. Jim.
JIM CRAMER: Well, this is incredible, I've got Kevin Johnson and Dara Khosrowshahi. Dara, many remember you from a previous company that you did such a great job. What I want to ask you guys is – it – a lot of people feel this doesn't mean anything other than for show. But when you had Miami test, is it not remarkable how many people wanted so much to use Uber Eats to be able to get coffee and pastries to their place?
DARA KHOSROWSHAHI: Well what's amazing is the Starbucks brand, but also the product. And being able to get coffee, croissants, etcetera, in under 30 minutes at your desk or at your home was just a home run. And when we saw that in the Miami high pilot, we said "Hey, this is something that we can expand" and what is just amazing about working with Starbucks is that discipline in terms of the end-to-end customer experience is incredible in terms of integrating with our systems, etcetera. So we could not ask for a better partner to learn from and hopefully to grow with.
JIM CRAMER: Now I'll go to you, Kevin, because as someone who owns a couple of restaurants, what I am conscious of is you've got to choose the guy who can make it so it's hot when it gets there. You are the number one account in this country. Why did you choose these guys?
KEVIN JOHNSON: Well first of all, we learned a lot as we launched Starbucks Delivers in China in partnership with Alibaba. And so we have taken a lot of those learnings and we've actually shared them with Dara and his team at Uber Eats. But the thing that made Uber Eats the right strategic partner for us to now announce Starbucks Delivers in the United States in partnership with Uber Eats was the fact that we had kind of a shared view of "Let's make sure we integrate the technology in a way that seamlessly flows from the order into the store," and then we applied some of the things we learn in China. When we prepare beverages, we know how to prepare it at the exact temperature so by the time they're handed to their customers, they cool down a bit, and they are the exact temperature as if you were in the Starbucks store, handed to you from the barista. So we are using technology and we're using the learning that our partners and stores have had in China to create a great experience for customers who want to order Starbucks Delivers.
JIM CRAMER: Next week the Federal Reserve meets. And one of the things they're so worried about is basically full employment. They want to be sure there are enough workers to go around without having wage inflation. Both of you gentlemen single handedly trying to pay your workers more. Is the government antithetical to what you believe we should have workers be able to make in this country?
DARA KHOSROWSHAHI: I don't know if the government's antithetical to it. I think that the fact is that the economy is now doing very well, that labor is at full employment. For the first time you are seeing earnings go up. And we think that's a positive force.
JIM CRAMER: You think workers are allowed to make a little money in this country versus CEOs?
DARA KHOSROWSHAHI: Workers are allowed to make more money. And we think that's – by the way, that's a good economic force. So we see it with our driver partners, we see it with our delivery partner. And I think that's a terrific force going forward for us.
JIM CRAMER: Now will that be reflected and people not want to be shares -- take shares of your IPO because your gross margins may not be as good as others because you like to make it so we pay your drivers more?
DARA KHOSROWSHAHI: The good news is we're a growth company and growth is coming from plenty of places including Uber Eats with this partnership that we are having with Starbucks.
JIM CRAMER: Kevin, when I think about Uber Eats and when I think about this economy, what it says to me is something that you taught me. We are in a digitalize economy which allows personalization and allows better service. Is your tech background, is it helping you, you used to run Juniper, a great company, is it helping you or is it infusing your thinking of what individuals should get of this fabulous Roastery or every day when we go to Starbucks?
KEVIN JOHNSON: Well, I think it is Jim. In fact the relationship that I developed with Daniel at Alibaba in China for the China digital partnership and with Dara around what we're doing with Starbucks Delivers here in the U.S., you know, are examples of how we can bring technology solutions that really are addressing the fact that digital lifestyle, more and more customers are embracing the digital lifestyle, they want more personalized experiences, they want more channels to order and to get their favorite food and beverage. And we are doing that. In addition, we've found ways to use technology to help administrative tasks that partners of our stores have to perform and we're allowing partners then to -- through that automation to spend more time with customers. Both of those things are elevating the customer experience at Starbucks.
DARA KHOSROWSHAHI: You know, technology used to be just something just in the digital field. But technology now more and more is infusing itself into the physical world now, into everything that we do. And what's amazing is what used to be delightful five or six years ago, it has now become ordinary. Right? Five or six years ago, you push a button and you can get your food within an hour, it's awesome. Now, if you don't get it within 35 minutes, "What's going on?" So I think tech forces us to raise the game but it also creates extraordinary opportunities to create new experiences for consumers at home or at a business.
JIM CRAMER: You represent one of the most premier growth companies in the world. There is a gloom – a shroud over our stock market. Some people can't even come to grips as to why it is. You've got a fresh perspective. You've been at other companies. Can you try to put into context the gloom verses what you see when you look at your numbers every day?
DARA KHOSROWSHAHI: I think the stock market is reflecting the uncertainty that you see in macro environment. And the uncertainty and the beta used to be in the outskirts, right? Was emerging markets, etcetera. But it's in the middle now. You think about what's going on in this country or the UK with Brexit or France with the protests, et cetera. I think the volatility and the uncertainty coming into the developed markets is creating uncomfortableness within the market. But I think that innovation still goes on, digitization continues, growth continues, so I'm hoping that as this uncertainty passes, we're going to be okay. And I think what Kevin and I can do is build a great business and eventually the markets will catch up.
JIM CRAMER: His balance sheet, because of some disposals you've made that are still working for you, you've been able to make the gloom work for you. I have seen a voracious buyback the likes of which only a few companies have. You obviously are using whatever gloom is out there to buy stock because your business is going to get better in 2019.
KEVIN JOHNSON: Well certainly, Jim. We've committed to return $25 billion of cash to shareholders in the form of dividends and buybacks over this three year fiscal period of '18 through '20. Just last fiscal year alone, we returned roughly $9 billion of capital to shareholders. And so we continue, this fiscal year we used the proceeds from the Nestle Global Coffee Alliance, we initiated a $5 billion accelerated share repurchase. And so we're in the market buying our stock back, because we believe in the long term growth agenda for Starbucks.
JIM CRAMER: Dara, I want to talk to you because a lot of us -- Uber is in our cell phone, it's in our life. Uber's become something -- it's a verb. There aren't many verbs that just got invented, frankly. But the one issue that had been with your company is whether it was run right. You brought in a man by the name of Tony West. We know Tony West as someone who is the -- you can't buy Tony West, maybe he was the toughest person justice has ever seen. You and him together cleaned up the whole culture?
DARA KHOSROWSHAHI: We are on our way to cleaning up the culture. I think as a company we're doing the right thing. And Tony is not only a Great General Council but he's a culture carrier for the company. He's a real leader for the company. But I wouldn't pretend you can change cultures overnight. One of – actually, Kevin and I got to know each other and one of my questions for Kevin is, "How do you build this kind of culture that Starbucks has built?" We want to do that with Tony, Nelson, some of the other folks on the team. It will take time but I can't tell you how happy I am to have Tony on the team.
JIM CRAMER: For you, your culture has – it's been unmitigated. Now you had an incident in Philadelphia, my hometown. It could have festered. Talk about crisis. Talk about the way you handle it. When we look back, it has to be the way you have to handle something that is antithetical to everything you believe in.
KEVIN JOHNSON: First of all, Jim, I've got to say that when I saw the video of the two gentlemen arrested in our store it was heartbreaking, but I knew at that moment that you know, as the CEO of the company I'm accountable and we have got to show up – I have got to shop. So getting to Philadelphia, being on the ground and talking to everyone that I could talk to and learn from and understand why this happened, how this could happen and then take action to ensure that it never happens again. Now we're proud of the actions we've taken. You know, we closed our stores for the afternoon on May 29. We did the first round of training every month, we're continuing to drop new training modules to our stores and it has made us a better company. It has allowed us to elevate the customer experience in our stores.
JIM CRAMER: I have to tell you -- from the point of view of seeing a lot of CEOs address the issue, you got in front of it. That's why we talk about something like this. It could have been something we talked about for a long time. I want to ask you, when you look at this palace, are you proud to be affiliated with these guys?
DARA KHOSROWSHAHI: Absolutely. And by the way, it doesn't take this palace to be proud to be affiliated with Starbucks. I've been in Seattle for a long time. Starbucks is an iconic company and brand around the world, but especially in Seattle. This is just a partnership that I'm really proud of but a partnership we have some work ahead of us to create a great, great experience for the consumer and I think both companies are up for that.
JIM CRAMER: Will it be something you mentioned in the prospectus for your IPO, and do you intend to beat Lyft to market?
DARA KHOSROWSHAHI: Well, if there's a prospectus for the IPO out there, it just might be --
JIM CRAMER: Do you really have to lawyer up like that? Come on, it's you and me. It's exciting.
DARA KHOSROWSHAHI: You and me and everyone else.
JIM CRAMER: Alright. Well, that's true. We're not really off the record here. But there's a lot of people who want to own shares in a company that they love. I mean look, we love Tesla, people own shares in Tesla. But Uber, where is your penetration in Uber and will where will it be five years from now, if you don't mind?
DARA KHOSROWSHAHI: What's amazing is while we're a big company and a significant part of urban transportation, we account for less than 1% of miles driven in the U.S. So actually the penetration – what's incredible about this company is that when you talk about the transportation market, this is a trillion dollar global marketplace and while we're perceived as a big company, we don't think we're a big company. We have a long way to go and we have many markets to penetrate.
JIM CRAMER: They're telling me I have a few seconds left. But I have time for this. How have you empowered individuals? Because I think both of you are emblematic. This is a theme of mine for 2019. You have empowered individuals. Talk about it.
DARA KHOSROWSHAHI: Well, listen, we essentially have over three million driver partners who are micro entrepreneurs. They run their own businesses. They provide terrific service for our customers. And they get to earn money on the platform on their terms.
JIM CRAMER: You?
KEVIN JOHNSON: Well, we took our shareholders through yesterday. What we're doing to accelerate the velocity of innovation at Starbucks and this partnership is a great example of that. We had a small virtual team from Starbucks and from Uber that actually co-created and developed the software that is needed to integrate the Uber Eats experience into the Starbucks experience in a very short period of time.
JIM CRAMER: I like people who put people back to work. Carl, I'm going to send it back to you. I've got Centene and Okta tonight. This is Dara Khosrowshahi and it's Kevin Johnson. And I just think these two people put a lot of people to work and maybe that is, in the end, the most important thing a company can do.
CARL QUINTANILLA: Jim, great stuff as always. Jim Cramer at the Starbucks Roastery. As he said, a lot more with Jim from Dara and Kevin tonight on "Mad Money," 6:00 p.m. Eastern time.
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