The phenomenal growth of Starbucks is a legendary story of American enterprise. Starbucks is now the largest coffeehouse company in the world with more than 18,000 location in more than 60 countries, annual worldwide earnings for the first quarter of 2013 of a record $3.8 billion, and a stock market value exceeding $42 billion.
The Birth of Starbucks
In 1971, English teacher Jerry Baldwin, history teacher Zev Siegel, and writer Gordon Bowker opened their first coffeehouse location in Pikes Place Market in Seattle, Washington. Having met while they were students at the University of San Francisco, the three partners shared a love of fine coffees and exotic teas, and they believed that the market was ready for their brand of better-tasting coffee beans.
Dutch immigrant and fine Arabica bean coffee importer, Alfred Peet, was the inspiration for the Starbucks business model. Peet was a coffee connoisseur who ran a small coffeehouse in Berkeley, California. Baldwin, Seigel, and Bowker visited Peet’s Coffee and Tea coffeehouse on many occasions and spent countless hours listing to Peet explain the European method of dark-roasting beans to bring out their full flavor. The three friends became devoted customers of Peet’s coffeehouse. They even began to purchase their personal coffee supplies from Peet by mail.
After making the commitment to open their own coffeehouse to sell coffee beans and other coffee products, each partner invested $1,350. Then, with a bank loan of $5,000 they opened their first location and decided to call the coffeehouse Starbuck Coffee, Tea, and Spice. During the startup phase, Bowker and Baldwin kept their day jobs and helped out during lunch and after work. Siegel worked full-time at the coffeehouse selling coffee beans as the company’s only employee.
Starbuck’s Meteoric Expansion
Within a year after opening their first coffeehouse they opened a second location. By the early 1980s, they operated fourStarbucks locations in the Seattle area. Now the company was positioned for continued growth even though Seigel had chosen to leave to pursue other interests.
That was when Howard Schultz arrived on the scene. Schultz was an executive at Hammarplast, a Swedish maker of stylish kitchen equipment. He noticed that Starbucks was placing huge orders for their drip coffee makers and decided to pay the owners a visit. When he arrived, he was struck by the authenticity of the coffeehouse and the passion that Baldwin and Baker had for their business.
Shultz approached Baldwin and Baker in 1982 with the idea of expanding Starbucks all across America. Shultz offered to take a salary cut in exchange for an equity stake in Starbucks so that he could manage the expansion. Although they were worried that the company would expand too fast, they agreed to the proposal and brought Shultz on board.
It was Shultz who reworked the coffeehouses in 1983 so that they recreated the experience of the Italian coffee bar culture. That’s when he introduced the baristas and the coffeehouses began to sell fresh-brewed coffees, espressos, cappuccinos, and lattes, as well as beans and coffee equipment.
By 1992, Starbucks had opened more than 160 company-run stores. In December 2012, they announced that they would open an additional 1,500 locations over the next five years.
As Starbucks continues to open new locations, they are also following a plan to expand their product offerings to include tea and juices in standalone tea or juice shops. Time will tell whether this strategy will pay off.