STARBUCKS: Reasons behind their Success

Starbucks is just by far the number one, about half of their locations are in the US and the other half are spread throughout the rest of the world notably almost 5000 in China, 1,500 in Canada, 1,200 in Japan, 1,200 in Korea, 1,000 in the UK.  About half of those are company owned and the other half are licensed obviously they make way more money from the company owned stores. Their 2018 revenue by the way was almost 25 billion dollars making them a fortune 500 company ranking them right there at 121. 

Gordon Bowker, Jerry Baldwin and Zev Siegl three students that met each other in the early 1960s while attending the University of San Francisco the way they all met is actually really unusual,  two of them decided to live together after having only known each other for a few minutes and then another two met each other through answering a bulletin about carpooling across the country.

A few years after graduation they were all living in Seattle on separate career paths but looking for a way that they could get together and start working on something. Volker was a writer for a magazine that had just gone out of business, Baldwin was an English teacher, Siegl was a history teacher but they were all passionate about their coffee and particularly Gordon Bowker because he had been taking trips to Vancouver from Seattle which is a sizable trip for the sole purpose of bringing back some coffee and coffee that he would bring back became really popular among his friends. 

They would buy it from him and that’s where the whole idea came from the three of them. They just stopped and said look we all love premium coffee there’s an underserved market for it out here.

It became a no-brainer at that point when they decided that they would open a high quality coffee store but they didn’t jump right into it. They located a coffee store in California that was successfully doing what they were looking to do. 

The man who ran that store Alfred Peet ended up becoming somewhat of a mentor and if you’re familiar with Pete’s coffee it’s the same Pete, so after about three or four months of learning about the business and Pete’s methods they each contributed one thousand three hundred and fifty dollars of their own money collectively took out a $5,000 loan and used it to open up the first ever Starbucks.

They settled on that name because they wanted something that started with that strong S T sound. After going through a long list of the s t words they thought of the first mate from the book Moby Dick named Starbuck, now there’s a name with some strong sounding letters all the way through plus it  is an added bonus it evoked the romance of the high seas and the seafaring tradition of the early coffee traders though. 

So here we are Starbucks now exists as a single Seattle location but it’s important to point out that this store was nothing like the one we know today mostly because the coffee they sold wasn’t ready to drink instead they sold all the stuffs you can make it yourself at home, meaning they sold the coffee beans teas spices in addition to the coffee makers and other accessories.

This was more of a retail store than a restaurant but it did well and over the next few years they expanded into a handful of locations around the Seattle area in addition to starting a wholesale business. They would provide their special roasted coffee to local restaurants.

Zev Siegl, one of the three founding members left the company in 1980 and that leads us to the second part, this one concerning a man named Howard Schultz. His initial connection with the company was that he was a Salesman for one of their suppliers. 

During his first trip to one of those Starbucks stores in 1982 he was so impressed with everything that he instantly wanted in on it so desperately that he actually convinced them to hire him on as a manager, one year later they sent him to a trade show in Italy he was in Milan and again recognized something good this time he was impressed by all the coffee shops and espresso bars that he encountered over there just nice fun relaxing environments. 

When he returned he told Bowker and Baldwin about them and heavily urged them to move their business in that direction. He may have come on a little strong but in his mind, coffee shops in espresso or the way of the future was far more lucrative than the retail business that they were currently pursuing; Bowker and Baldwin weren’t nearly as convinced to give them credit.

They did listen and start experimenting a bit with the idea but it was just one location and it wasn’t their focus, to Schultz it wasn’t nearly enough and he wasn’t about to pass up this opportunity.

In 1986, he resigned from Starbucks so he could start his own chain of coffee shops that were actually closely tied to Starbucks; there were early investors and actually supplied his coffee. Alfred Peet and his original coffee business in California that they modeled the first Starbucks after, Pete had since sold it to someone else and in 1984 Starbucks jumped at the opportunity to buy it given their history with it in the respect for it so now, they owned it. 

Then in 1987 Gordon Bowker left the company and Jerry Baldwin decided he’d be happier running Pete’s rather than sticking with Starbucks so here’s what happened Pete’s and Starbucks were separated, Jerry Baldwin stuck with Pete’s and sold Starbucks to Howard Schultz he combined it with the smaller company that he had started. Jerry Baldwin was now in charge of Pete’s and Howard Schultz was now in charge of Starbucks.

Well, Howard Schultz is the reason Starbucks is so big. We all know how much he believed in the concept and it was that confidence that motivated him to take some big risks and expand it. He spared no expense and hiring top-tier managers went into dead-even posted losses for a while but the important thing is even through these uncertain times, he never compromised his vision.

Here’s what they had going for them,

  • For one quality at times you can call this a disadvantage but from the beginning one of their principles was never to sacrifice quality and good employees. Starbucks offered good pay and benefits which resulted in a lower turnover and meant they were more knowledgeable and happier than their competitors. 
  • They would receive greater training when they were first hired and just be more experienced since they worked there longer their reputation, this sentence sounds ridiculous today. Starbucks was sort of a cool mysterious place that a lot of people had heard of but few had actually been to their reputation preceded them. So, whenever they would enter a new city everyone would just hurry down to check them out. 
  • So in answering how did they get so big that would simply summarize they had a good idea, a good reputation, good employees, good management, high standards, and most important a leader, who believed in what they were doing from the time that he took over 1987 to 1992. The chain had grown from six locations into over 100 which is incredible right there but then they had their public offering and things started exploding again. 

What can you really say about this it’s just fun to look through how many locations they’ve opened over the years, this graph is crazy you can’t even see the lines until they started getting into the 1990s that’s when all those late-night jokes started and when the second Austin Powers movie was poking fun at how big they were that was in 1999 and we can see how much they’ve grown since then.

They added more stores each year than the year before from 1987 to 2001 and have added new stores every single year with the one exception of 2009 you know it’s the economic recession and all that not great for a high-quality coffee provider but obviously they brought it right back just a few other things, worth mentioning that have contributed to their growth and brand awareness in 1994. 

They entered into a joint venture with Pepsi to produce those frappuccinos then, in 1998 they formed a licensing agreement with Kraft to make those bags of their coffee that you see in the grocery store in 2003 they paid 72 million dollars to buy the Seattle coffee company which included the brand Seattle’s best.

CONCLUSION

Howard Schultz has remained the CEO of Starbucks for the better part of the last thirty plus years and the short times he wasn’t, he was always involved in other big roles in the company. Today he’s worth four point six billion dollars and Forbes ranks him as the 617 richest man in the world which I know 617 isn’t that high on the list but it’s still pretty rich. 

Howard Schultz saw a promising small business and not only squeezed his way into it. He eventually took it over and scaled it to an unheard-of proportion, it doesn’t even seem possible but he made some smart moves, took some big risks and it all paid off.

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