The Starbucks Story

"I tried to build an environment and a place that could provide our customers with an oasis, a
'Third place' away from home or work, that would exceed their expectations."

Planet Starbucks (B): Caffeinating the World

Ten years ago, we had 125 stores and 2000 employees. [Today,] we have 60,000 people working
in 28 markets outside North America, serving approximately 20 million customers a week. Our
core customer is coming in about 18 times a month. With the majority of adults around the
world drinking two cups of coffee a day and with Starbucks having less than 7% share of total
coffee consumption in the U.S. and less than 1% worldwide, these are the early days for the
growth and development of the company. We’ve got a model that has been well tested from
market to market.
Q&A With Starbucks’ Howard Schultz
BusinessWeek Online, September 9, 2002

http://globalgateway.thunderbird.edu/wwwfiles/pdf/about_thunderbird/case_series/a07030013.pdf#search=%22Planet%20Starbucks%20(B)%3A%20Caffeinating%20the%20World%22
[Easier to read at above link]

Peter Maslen, President of Starbucks International, had just returned from Greece where the company
had opened its first café in downtown Athens. He had logged thousands of miles over the past few years
shuttling from country to country extending the boundaries of the Starbucks empire. In anticipation of
stagnating growth in North America, the company had embarked on a global expansion strategy with
the objective of becoming “a great, enduring company with the most recognized and respected brand in the
world.�?
Starting with Japan in 1995, the company had blazed through several key markets in Asia and
Europe. The company looked to move into more of the emerging world, including Latin America.
While much of the developed world had been conquered—or at least attacked—new growth potential
had shifted to the less-developed regions. Although the company had already established beachheads in
several emerging markets, many believed that the infrastructure and disposable income in these regions
would present forbidding obstacles for Starbucks’ expansion strategies. As Peter Maslen sipped his cup
of steaming espresso, his mind wandered to the challenges his company faced in global markets. Did it
make sense for Starbucks to continue expanding globally at such a breakneck pace? Would the firm be
able to meet the market’s insatiable appetite for earnings growth with its ventures into European and
emerging markets?
History
Starbucks was founded in Seattle by Gerald Baldwin, Gordon Bowker and Ziev Siegl in 1971 as a
gourmet coffee bean roaster and distributor. In 1982 Howard Schultz joined the company as a member
of their marketing team. After a visit to Italy for a trade show, Schultz urged the partners to consider
opening espresso bars in conjunction with their coffee sales. In 1984 Starbucks opened its first espresso
bar in a small corner of the company’s downtown Seattle Starbucks store, to rave reviews. Although
Schultz urged the company to expand the espresso bar line, the controlling partners, now Baldwin and
Bowker, were unwilling to enter what they considered the fast food business, wishing to focus on the
coffee roasting niche market.
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Howard Schultz then left Starbucks, and with the financial backing of his former partners, opened
Il Giornale in 1985, an espresso bar that sold coffee and assorted coffee beverages made exclusively with
Starbucks’ beans. Two years later, Schultz bought the former Seattle Starbucks company, six stores and
roasting plant, for $3.8 million from Baldwin (who wished to focus on managing Peet’s Coffee) and
Bowker (who wished to cash out of the business). Schultz now was in control of Starbucks, and with
new investors, began building a global business which reached sales of $3.28 billion by 2002 and was
acclaimed one of the top 100 growing global brands.
The Starbucks Experience
Howard Schultz’s dream was to take the concept of the Milan espresso bar to every corner of every city
block in the world. Captivated by the sense of community and neighborliness that he had seen in the
cafes in Milan, Schultz wanted to transplant a similar ambience into each Starbucks store. This desire
originated in the very first coffee experience that Schultz had in Milan. While attending a housewares
show in the city of over a thousand cafes, Schultz was quite impressed by the way in which the baristas
(coffee brewers) prepared a cup of espresso. It was pure theater to see a barista move effortlessly as he
ground the beans, pulled the espresso, and steamed the milk, seemingly at the same time and all the
while carrying on a conversation with the customer. It was precisely this experience that Schultz wanted
to bring to each of the Starbucks cafes. He envisioned each café as a gathering place for neighbors and
friends or a place of quiet contemplation and perhaps even a neighborhood office for the work a day
customer who might stop by to catch up on work and a steaming espresso at the same time. The
Starbucks café was indeed a destination. The Starbucks Experience had been designed to be pleasant,
uplifting and diverse.1 Experience and ambience were central to the Starbucks strategy. As Schultz
observed,
We certainly don’t ignore the product, but it is something we always knew we had and a lot of
others didn’t. But we built the business through experience, not through the product.
“Schultz’ Caffeinated Crusade,�? Brandweek, July 5, 1999
I tried to build an environment and a place that could provide our customers with an oasis, a
“Third place�? away from home or work, that would exceed their expectations.
M. Pendergrast, “The Starbucks Experience Going Global,�?
Tea and Coffee Trade Journal, Vol. 174, Issue 2, Feb. 20, 2002
The cafés exuded a sense of chic and featured comfortable seating, sometimes even sofas, a selection
of leading newspapers and magazines including Starbucks’ own in-house weekly, and the strong
aroma of rich coffee wafting through. In addition to a broad selection of coffee and Italian style espressos,
the cafes offered several blends of special teas, localized pastries, and coffee brewing equipment. The
stores themselves were designed to be bold and striking in their color palettes, often using primary
colors. The ambience of the cafes was accentuated by piping selected music to complement the atmosphere
of warmth and comfort. Employees were trained to not only provide advice on coffee selection
and appropriateness to potential customer needs, but to engage the customer.
Location, Location, Location
The company displayed remarkable business savvy in choosing its locations. It focused on spots that
provided ready access to consumer foot traffic, typically in densely populated neighborhoods. Stores
were located in such a way to blanket a neighborhood and often several stores competed for patronage
on the very same street. Starbucks had however been both admired and criticized for these marketswarming
expansion techniques that were used to proliferate within defined market locales. This approach
to first-mover advantage in a market space gave Starbucks sufficient time to establish itself while
holding competitors at bay. The downside however was the cannibalization of revenues across stores
1 “Schultz’ Caffeinated Crusade,�? Brandweek, July 5, 1999.
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located in close proximity to one another. Between 1995 and 1998 Starbucks had averaged $0.69
million per store per year. Beginning in 1999, this revenue per store value had continuously declined,
falling to $0.56 million per store in 2002.