Starbucks Coffee, Spices, and Tea has changed the way America views coffee. It has changed coffee from a drink that appeals to only adults to a drink that appeals to many people and across age groups.Thanks to Starbucks, coffee appeals to people who would not normally drink it, and as Howard Schultz would put it is –As much a part of American culture as Levis.”(http://www.greenmoney.com/gmj/starbuck.html)
When my parents grew up in the 1940ęs coffee was viewed as an –adult drink.”(MD Interview) Today, Starbucks has enhanced coffee to the point where people have gone out and bought expensive machines to make coffee. In the 1940ęs there was no speciality coffee shop and no one even knew of the name Starbucks or of the idea of dark roasted coffee. Clearly, things have changed from that time to today.
In the future, Starbucks has a place. I predict that though Starbucks is growing by leaps and bounds, I think the expansion will have to stop somewhere. I think the income will level off about now, with possibly the loss of a couple of stores. Starbucks right now has great appeal to the teenage population. When I walk into Starbucks, I see many of my classmates there too. Often, they are there to pick up a Frappucino which has made most of us catch on to Starbucks. I predict continued success for Starbucks both domestic and abroad, but feel that they will not grow much more.
The idea of creating a speciality coffee store came mainly from a man called Alfred Peet, who is now referred to as the –Spiritual founder of Starbucks.” Peet was a Dutchman who was the son of an Amsterdam coffee merchant.
During his youth Peet traveled to many places where coffee was grown including Java and Sumatra. Later, Peet became a trainee at a big coffee store in Berkeley and in 1966 opened his own store named –Peetęs Coffee and Tea.” Peet opened this store because he felt Americaęs coffee was horrible. The differences that made his coffee special were two factors. First, Peet used arabica coffee beans which were strong and fine. Second, he used a technique called the dark-roast. This process, by which the beans were extensively heated, brought out the full flavors of the coffee. Americaę s supermarket coffee was bitter because it used a light roast during which the beans were heated less because the dark-roast technique shrinks the volume of coffee. (Schultz 35)
From Alfred Peet, the root idea for Starbucks was formed. Starbucks was founded by three friends named Jerry Baldwin, Gordon Bowler, and Zev Siegl. Jerry was an English teacher, Gordon, a writer, and Gordonęs neighbor Zev was a tea drinking history teacher. They had ordered coffee by mail from Peet. However, the friends yearned for a place close to there home in Seattle where they could buy this distinctive dark-roasted coffee since Berkeley was far away.
In 1970, Jerry, Gordon, and Zev finally decided to open a coffee store in Seattle to fulfill their need for coffee.The first task was to gain money for the store. So, each of them invested $1,350 and then borrowed $5,000 from the bank.(Schultz 31) Next, of course was the name. Gordon then contacted his friend, artist Terry Heckler, and informed him that they wanted a name that was distinct to the northwest. Terry then found the word Starbo- in the dictionary which was a term for 1900ęs mining camps on Mount Ranier. Then Jerry, who loved literature, thought to call it Starbucks because the name of the first mate in Moby Dick was Starbuck.
So, in the latter part of 1970, Starbucks opened in Pike Place Market buying all their coffee from Peetęs.
Initially, they got business from many Swedish and Norwegian immigrants but business picked up when the Seattle Times gave a rave review of the store. Starbucks, however, was not the business that we know today. Zev, was the only full time employee. He scooped coffee while the other two came by after work. Starbucks had no ready-made coffee! Customers had to grind it at home themselves!
Soon, Starbucks expanded to a new location near the University of Washington. There stores soon exceeded the capacity they could buy from Peetęs and they bought a used coffee roaster from Holland.
One way Starbucks achieved many customers and a high level of customer satisfaction was by teaching others about coffee. About one year after opening they produced this philosophy which is much like the philosophy today. –1. Companies must stand for something, Starbucks stood for the dark roast. 2. You must give customers something theyęre not accustomed to, to develop their palates and create a feeling of discovery. 3. Assume intelligence and sophistication and inform those who want to learn.” (Schultz 36)
Starbucks became what we know today because of a man named Howard Schultz. Schultz shaped Starbucks. This is the story of how he became a part of the biggest coffee chain today.
In New York, in 1982, after discovering Starbucks in Seattle, Schultz sat down with then owner Jerry Baldwin to try to become a part of Starbucks. Despite initially getting turned down for a job as director of marketing because of his idea of expanding, he was hired later that year. He received a steep cut in pay from his $100,000 job and also received a small share of their stock.
After, starting out in Starbucks, one of Howardęs main jobs was to go to houseware shows to check out the latest coffee merchandise. In 1983, it just happened that it was in Milan. While in Milan, Howard received a brainstorm. As he walked through the city streets he found they were lined with coffee bars. Here he learned of the milky caff¦ latte and espresso. Soon, Schultz sought to bring these new innovative Italian drinks to America. Jerry Baldwin allowed espresso to be introduced into the Pike Place store. Soon, many people enjoyed the new drinks and business increased by over 300%. (Schultz 59-60)
These new drinks, however, created an argument between Howard and Jerry that would change Starbucks forever. In 1985, after testing the drinks in Pike Place, Howard asked Jerry to begin to sell cups of coffee and expand the market for the Italian drinks to other stores. Schultz also suggested that food could be served in Starbucks. Jerry refused. Howard left later on that year and started his own store in 1986.
Howard consulted artist Terry Heckler to find a name for his establishment. Terry suggested Il Giornale, the name of the biggest newspaper in Italy, to give the place an Italian flavor.
One of the major problems Schultz faced was getting the 1.7 million dollars that would be needed to start Il Giornale. Many people did not believe in his idea of a restaurant/coffee bar. Schultz ended up going door-to-door to raise the money and received a large amount of money from Starbucks who wished him well in his new venture.
On April 8, 1986, Il Giornale opened in the Columbia Center in Seattle. By closing time the store had 300 customers. Soon, paper cups were used to help people on the go have coffee in their cars. Live music also helped add to the atmosphere. Schultz began serving more then 1,000 customers a day. (Schultz 86-88)
In March of 1987 Jerry Baldwin and Gordon Bowler decided to sell all the Starbucks stores, the name Starbucks, and the roasting plant. Howard, still loving the passion for coffee at Starbucks, decided to try to buy it. He needed over 4 million dollars. Howard received money from Il Giornale investors by stressing the ownership of Starbucks be distributed evenly.
Howard, sadly, had no idea what problems Starbucks had since he had left the company. The trust and vision of the company had weakened. Mutual respect had to be reaffirmed and employees had to be trained better. Starbucks had lost much of its magic.
Schultz decided that if he expanded and worked on the internal problems perhaps the problems would lessen. He promised investors 125 new stores in the next 5 years.(Schultz 104)
Schultz began by opening stores in Chicago, Los Angeles, and Boston. In Chicago, many people didnęt know what Starbucks coffee was like. Soon, however, people caught on to the Italian drinks and business boomed. Because of these initial problems, investors began to doubt the national plan. In Los Angeles business boomed. The L.A. Times named Starbucks the best coffee in America. Howard even ignored the father of Starbucks, Alfred Peet, who said the quality would suffer if Starbucks continued to expand. In Boston, Starbucks bought out the Coffee Connection. Immediately, Schultz noticed New Englanders preferred a lighter roast and soon a lighter roast of coffee was available in all New England stores.
Howard also felt he needed to set in values to make Starbucks the team it once was. Howard therefore set up a mission statement in 1990. This stated –1. Provide a great work environment and treat each other with respect and dignity. 2. Embrace diversity as an essential component in the way we do business. 3. Apply the highest standards of excellence to the purchasing, roasting, and fresh delivery of our coffee. 4. Develop enthusiastically satisfied customers all of the time. 5. Contribute positively to our communities and our environment. 6. Recognize the profitability is essential to our future success”
These ideas were intended to –develop Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles as we go.” (Customer Relations Packet)
Schultz also felt that Starbucks needed to prove to the world and the areas around the world where coffee is grown that Starbucks did not just care about profit. As a result, Starbucks developed this Environmental Mission Statement and a Code of Conduct in 1994. The Environmental Mission Statement said Starbucks must establish –1. Understanding of environmental issues and sharing information with our employees. 2. Developing innovative and flexible solutions to bring about change. 3. Striving to buy, sell, and use environmentally friendly products. 4. Recognizing that fiscal responsibility is essential to our environmental future. 5. Instilling environmental values as a corporate value. 6. Measuring and monitoring our progress for each project. 7. Encouraging our partners/employees to share in our mission.:” (www.greenmoney.com/gmj/starbuck.htm)
The code of conduct states to help improve conditions in coffee origin counties Starbucks must have – 1.Coffee quality- encouraging coffee producing practices that produce the highest quality coffee. 2. Quality of our work life- improving the quality of work life for those who produce, harvest, and process coffee. 2. Environmental quality- promoting sound environmental practices for producing and processing quality.” (Customer Relations Packet)
In 1992, Howard Schultz decided that he would open stock in Starbucks to the public. Howard found it difficult to find a company to broker Starbucks since he wanted a company who was as passionate about both the coffee and the company as he was. Finally, after much time Schroeder Werthem was selected to do the brokering since they had looked around the roasting plant and the stores. They showed genuine passion for Starbucks.
On June 26, 1992 Starbucks opened on the Nasdaq stock exchange with the keyword SBUX. (Schultz 187) Starbucks quickly more than doubled the price from $14 to $33.(Schultz 187)This was a logical step for Starbucks but it exposed the company to a lot of scrutiny.
That summer, in Santa Monica, California Starbucks store owners became angry because they were losing customers to other stores who sold blended drinks during the hot weather. Despite his initial thoughts that it would dilute the true coffee ideals of Starbucks, Howard gave the go ahead to try to make a blended drink.
In 1994, the testing began. Soon, a powder based, bad tasting drink was developed. As a result, ice and liquid amounts and the variation of blending time was changed.
That summer the drink was created. It used low fat milk so its texture was icy. The drink was then tested at 12 stores in South California. This drink became very popular and was found to have a wide appeal.
A name, however, was a problem. They needed a distinctive name that could identify this drink as a Starbucks drink. So, they began to look around for different names. They found their name from an old drink at the Coffee Connection which they had acquired in Boston. The name –Frappucino” had the sound of both a cold drink but a frappe with a taste of cappuccino.
Soon, a massive project began to give all 550 stores blenders and also train the bartistas or employees to make the new drink in 5 months. It was introduced on April 1, 1995. That summer Frappucino was a hit. By the end of the fiscal year it had accounted for 11 percent of the income.(Schultz 209) In 1996, BusinessWeek named it one of the best new products of the year. This introduced non-coffee drinkers to Starbucks.
Throughout its existence Starbucks has redefined itself. One thing that it did was that it began to sell music.
In 1995, many baristas began to get requests for a way to purchase the jazz the was played in Starbucks. So, Starbucks got in touch was Capital Records/Blue Note Records. They compiled a collection of songs and by March 30 of 1995 it had sold over 75,000 copies. (Schultz 207-214) In 1996 Blue Note II came out and later that year Blending the Blues came out. This sent a message to customers that new unique products would be available at Starbucks.
Yet another story comes from Don Valencia who was a cell biologist at the University of California. He developed a coffee extract by isolating the molecules of coffee and concentrating it. As a result, he went to Seattle to meet Howard. Howard said how much he liked the extract and said he couldnęt tell the difference. In 1993, Don became a member of the Starbucks team. By 1996, several million dollars were invested into a new state of the art plant that focused on coffee technology with Don as head. (Schultz 220)
In 1994, Starbucks and Pepsi announced a joint partnership to have a ready to drink coffee beverage that would be sold everywhere Pepsi was. Later that year, Mazagram was introduced. It was a cold lightly carbonated drink but had very small appeal. Some loved the new drink while others hated it. Because of a lack of appeal, Pepsi decided it would be a good idea to develop a bottled Frappucino. In 1996, the drink was sent out to all major supermarkets. They sold 10 times the quantity projected, therefore, making the drink have to be withdrawn from the market to produce more. (Schultz 225)
In 1995, Dreyeręs Ice Cream proposed the idea of a Starbucks coffee ice cream. It was introduced on July 4, 1996 and was potentially a 100 million dollar market. In 1997, Starbucks ice cream was rated the #1 coffee ice cream in America. It now has 8 flavors including two blended bars which are: Vanilla Mochachip, Javachip, Low Fat Latte, Low Fat Mocha Mambo, Italian Roast Coffee, Caff¦ Almond Fudge, Biscotti Bliss, Frappucino Blended Bar, Dark Roast Espresso Swirl, and Caff¦ Almond Roast Ice Cream Bar.(Starbucks Annual Report 1997 20)
Today, Starbucks is opening many new locations a day. On August 2, 1996, they opened in Tokyo and later over the next 18 months have opened stores in Hawaii Singapore, and the Phillipines. Later in 1998, Starbucks plans to open locations in the Republic of Korea and Taiwan.
In conclusion, in the past, coffee was seen as mainly an adult drink. Today, Starbucks has changed that persona. Through the introduction of the dark-roast by Alfred Peet coffee reached its best taste. This was then brought into the main stream of business by the three original founders of Starbucks, Jerry, Gordon, and Zev. Howard Schultz then joined and later split with the company to form Il Giornale, which introduced America to Italian coffee drinks. Howard later rejoined the company and became CEO and President. Starbucks then expanded to new cities like Los Angeles, Chicago, and Boston.
To set in values, Schultz introduced new guidelines for the business such as the Mission Statement, Environmental Mission Statement, and Code of Conduct. Later, Starbucks was introduced to the Stock Market in 1992 and gained prominence there. The Frappucino was then introduced, which brought a welcome summer alternative to coffee. Starbucks later developed a jazz album, and hired Don Valencia to help with his fabulous coffee extract. Starbucks soon thereafter formed a partnership with Pepsi to create a ready made drink and then with Dreyeręs Ice Cream to create their coffee ice cream. In the future, I predict Starbucks to have continued success, but has just about reached its peak.
Bibliography
Customer Relations Packet c/o 1-800-STARBUC
http://www.greenmoney.com/gmj/starbuck.html
Schultz, Howard, Yang, Dori Jones. Pour Your Heart Into It: How Starbucks built a Company One Cup At a Time New York: Hyperion Books, 1997
Starbucks Company Starbucks Annual Report 1997