Whether you're a Starbucks fan or not, there's no refuting the impact this company has made on the coffee culture in the US and around the world.
Today, Starbucks is the largest coffee house chain in the world. As of March 2007, the chain includes 8500 company owned stores and 6500 licensed stores in 42 countries, for a total of over 15,000 stores globally. The fashionable retailer has clearly transformed the consumer preferences and coffee drinking habits of an entire market over the last thirty years.
Because the company has achieved such stellar success, the Starbucks business model is included for study in many business school curriculums.
Understanding the modern coffee industry simply wouldn't be complete without including a discussion of Starbucks history.
The Starbucks Founders
English teacher Jerry Baldwin, history teacher Zev Siegel, and writer Gordon Bowker were the original founding partners and opened the first Starbucks store in Seattle, Washington in 1971. The three collected $8000 in cash and loans as start-up capital.
The original concept, inspired by their friend Alfred Peet (Peet's Coffee and Tea), was to open a store in Seattle's Pike Place Market to sell premium coffee beans and specialty coffee equipment. Zev Siegel actually worked in Peet's Berkeley, California store for a summer to learn the trade.
The founders of Starbucks, with the permission of Alfred Peet, fashioned their first store after Peet's popular Berkeley coffee house. Peet supplied the green coffee beans for roasting in their new store. Very likely, Starbucks wouldn't be where they are today without the early influence of Alfred Peet.
By 1980, only nine years after the first store opened, Starbucks was the largest coffee roaster in Washington with six retail outlets. That same year, Zev Siegel decided he wanted to move on to other pursuits and his two partners bought him out.
A Brilliant Epiphany that Transformed the Retail Coffee Industry
In 1981, Howard Schultz, a sales representative for Hammerplast, a Swedish company supplying Starbucks, couldn't help notice how many plastic brewing thermoses Starbucks was buying. Schultz became very intrigued with the Starbucks operation and in 1982, Baldwin hired Schultz as the head of marketing.
Soon after coming on board, Howard Schultz attended an international housewares show in Milan, Italy. He was fascinated with the passionate coffee culture he found in Italy, and as the story goes, he sampled his first caffe latte in Verona, Italy. Apparently, he was even more impressed with the cafe culture he encountered with customers sipping espresso for hours in fashionable coffee house surroundings. This first encounter in Italy was a moment of inspiration for Howard Schultz.
The epiphany for Howard Schultz, and in retrospect, an absolutely brilliant marketing idea, was to model a retail cafe business in the fashion and style of the great "old world" coffee houses of Italy, and bring the same community and coffee culture to the American market.
It might be fun to speculate where Starbucks would be today if Howard Schultz had discovered French cafe culture in Paris ahead of his introduction in Italy.
Schultz brought the idea to Baldwin. Baldwin wasn't particularly interested in selling espresso by the cup and rejected a business shift that would distract Starbucks' from their original focus of selling whole coffee beans. Nonetheless, Baldwin did let Schultz test a modest espresso bar in a corner of one of the stores.
Howard Schultz Makes His Move
Howard Schultz, convinced that his idea was a big winner, eventually left Starbucks in 1985 to start his own business. He called his new venture Il Giornale, named after the largest daily newspaper in Italy. Il Giornale enjoyed immediate success selling espresso drinks.
In 1987, Schultz raised enough capital with local investors and purchased Starbucks from Jerry Baldwin and Gordon Bowker for 3.7 million. Did you know one of those local investors was Bill Gates Sr. (father of Microsoft's Bill Gates).
Interestingly, three years prior in 1984, Jerry Baldwin bought Peet's Coffee and Tea adding it to the Starbucks portfolio. Baldwin, a big fan of the Peets Coffee and Tea business that he now owned, was willing to sell off Starbucks to Howard Schultz feeling that Starbucks would never measure up to Peets. Incidentally, Jerry Baldwin continues to work at Peets to this day as "Roastmaster Emeritus".
Schultz combined the Starbucks and Il Giornale operations and re-branded everything back to Starbucks with a goal to open up 125 more stores over the next five years.
Starbucks Meteoric Growth
Expansion continued for the successful coffee retailer and the company went public in 1992. The meteoric business growth that followed was nothing short of phenomenal. By 1997, in only five short years, Starbucks had grown tenfold.
Today, Starbucks is a household brand name in over 40 countries around the world. Even though pundits continue to predict the demise of Starbucks as they relentlessly push the commercial envelope to keep up with shareholder expectations, let's be willing to acknowledge the fact that Starbucks raised the bar and transformed the coffee industry.
It will be interesting to see what the next chapters of Starbucks history will unfold.
For some interesting background on the evolution of the Starbucks logo, see Starbucks Logo - A Visual Twist of Starbucks History.
