Starbucks at 50 Pt.1: The Rise of a coffee giant

Starbucks' original Pike Place store exterior pictured in 1981 | All photos courtesy of Starbucks Coffee Company

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Pt.1 – The rise of a coffee giant 

Over the last half a century, Starbucks Coffee Company has played a central role in establishing coffee shops as aspirational, profitable and truly global consumer experiences. Through financial crises and a global pandemic, ‘The Third Place’ experience popularised by Starbucks continues to capture the hearts and minds of consumers the world over. It has become an indelible part of daily life for communities everywhere.

“Starbucks is the most important branded coffee shop format there is; they essentially defined it. It is the brand all other coffee shop brands define themselves against,” says coffee historian and author, Professor Jonathan Morris.

“It dominates our perception of what a coffee shop is and what a coffee shop should be. In some ways, when we frame ideas about what a coffee shop shouldn’t be, we also frame them around Starbucks,” he adds.

When Starbucks was first established in 1971, the notion of the coffee shop as a destination to enjoy high-quality coffee, meet with friends, or conduct business from, was barely in its infancy. According to coffee folklore, it was Peet’s Coffee founder, Alfred Peet, who inspired English teacher Jerry Baldwin, history teacher Zev Siegl, and writer Gordon Bowker, to begin selling high-quality coffee beans and coffee equipment.

In 1971, the trio opened their first store in Seattle’s Pike Place Market. There, you could pick up bulk coffee beans, tea and ground spices, but it would be several years before customers could enjoy a barista-pulled espresso, latte or Frappuccino at a Starbucks store.
 

"Starbucks was the first to add value to coffee in America  in 1971"

– Barry Kither, UK coffee professional

In fact, it was not until 1984 that the first Starbucks caffè latte was served in downtown Seattle. That momentous development was the result of a now legendary trip to Milan by Starbucks’ then Director of Retail, Howard Schultz. Inspired by the city’s caffè culture, Schultz convinced Starbucks management to begin selling Italian-inspired espresso-based beverages in-store.

“During my first trip to Milan in 1983, I was captivated by the sense of community I found in the city’s espresso bars – the moments of human connection that passed so freely and genuinely between baristas and their customers,” said Howard Schultz, Chairman Emeritus of Starbucks, during the opening of the Milan Reserve Roastery in 2018.

“Starbucks was the first to add value to coffee in America in 1971,” says Barry Kither, a UK-based coffee professional with 30 years’ experience.

“But it was Howard Schultz who created a viable business model in the US where, at the time, coffee was becoming cheaper and increasingly even served as free refills. Schultz managed to separate the relatively cheap ingredient cost from the overall experience of enjoying a cup of coffee,” he adds.

In doing so, Schultz set in motion the genesis of much of the second and third wave global coffee shop movement that endures today. That sentiment is echoed by Kent Bakke, an instrumental figure and board member at legendary Italian espresso machine manufacturer, La Marzocco, an early supplier to Starbucks.
 

Starbucks Reserve Roastery, Tokyo, pictured in 2019

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“Starbucks’ expansion came when the specialty coffee market was just beginning to grow in the late 1980s and early 1990s. They certainly accelerated that growth, not only in the US, but internationally. The fact that they were using traditional espresso machines in the beginning certainly put La Marzocco on the global map.”

Working with Starbucks in the early days of its US expansion, Bakke recalls some fascinating insight into the business’ early aspirations. “They wanted to become the McDonald’s of coffee. For Starbucks, expansion was not just about establishing retail locations and making products from a recipe they could control – it was becoming part of the culture and creating a process of working with partners in different countries.

“Starbucks achieved with coffee what McDonald’s did with exporting the hamburger stand to countries with no experience of the concept. Finding the right partners to work with and successfully doing US-style business internationally is not easy to do. Starbucks have delivered much more than just coffee – they have delivered a global business model.”
 

A savvy business strategy

Starbucks’ early focus on quality, and the establishment of the coffee shop as an aspirational venue for both work and pleasure, generated business opportunities still being reaped across the global coffee industry.

“Starbucks’ origins lie very much in the beginning of a specialty movement in the US. But it’s at the point where Starbucks becomes a branded chain and goes through its first IPO in the early 1990s that it completely transforms coffee the world over,” says Morris.
 

"Starbucks have delivered much more than just coffee – they have delivered a global business model"

– Kent Bakke, La Marzocco

Since becoming one of the first branded coffee chains in the 1980s, Starbucks has achieved remarkable growth. In 1987, when Howard Schultz merged Starbucks with the Il Giornale coffee chain he founded in 1985, the company operated 17 stores. When it went public in 1992, Starbucks had 165 locations. In 1996, with 1,015 stores, Starbucks opened its first location outside of North America in Japan. 1998 saw Starbucks open its first European store in London, UK, following the acquisition of Seattle Coffee Company.

In 2021, Starbucks operates over 33,000 stores worldwide, with 400,000 of its partners serving 100 million customers a week.

The success of the coffee shop format that Starbucks was so instrumental in defining and popularising is evident, not only in its global influence, but its prowess as a lucrative business model. If you had invested $10,000 on June 26, 1992, when Starbucks went public at $17 per share, your investment would have been worth around $2.6m as of May 14, 2020. Price appreciation for shareholders has been a staggering 21,000% since 1992.

Pt. 2 of the series will explore Starbucks' role in popularising premium espresso-based beverages around the world and how the Seattle-based coffee chain has championed ethical practices in the workplace and across its global supply chains. 
 

This article was first published in Issue 7 of 5THWAVE magazine.

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