[Market Economy Guide] Starbucks’ Evolution and Corporate Growth

“Starbucks started in Seattle as a specialty coffee bean store.

Howard Schultz struck gold by combining it with a relaxed café culture.”

The first Starbucks store, now a world-famous coffee franchise, was originally a very small specialty shop selling Arabica coffee beans when it opened in 1971 at Pike Place Market in Seattle, USA. Starbucks was founded by three friends—college classmates and coffee lovers Gerald Baldwin, Gordon Bowker, and Zev Siegl—who each invested $10,000, for a total of $30,000, to open “Starbucks Coffee, Tea & Spice.”

“Moby-Dick” and the name Starbucks

The store’s name was taken from Melville’s novel *Moby-Dick*. “Starbucks,” referring to the three first mates named Starbuck, was combined with “Coffee, Tea & Spice” to reflect the fact that the shop sold coffee, tea, and spices, resulting in the name “Starbucks Coffee, Tea & Spice.”

At the time the three friends joined forces to open the first Starbucks store, there were no specialty Arabica bean shops in Seattle. Even across North America, very few people preferred Arabica beans. The three friends had long enjoyed Arabica beans for their smooth taste and pleasant aroma, and were so enthusiastic that they would personally buy them or have them delivered by mail. That is why they understood better than anyone the market competitiveness of high-quality Arabica beans, and it goes without saying that this directly led to the opening of the first Starbucks store.

As everyone knows, the result was a huge success. The three friends achieved more than they had expected, and Starbucks’ sales rose sharply day by day. Demand for Arabica beans also surged explosively, leading to the opening of a second Starbucks store in 1972. After that, Starbucks continued expanding its stores.

After Howard Schultz acquired it…

But if the story had ended there, Starbucks would have remained just another specialty coffee bean shop. The reason Starbucks was able to transform into the massive global coffee franchise it is today is Howard Schultz.

Inspired by Italy’s café culture, Schultz envisioned a coffee franchise business. He wanted to incorporate the Italian espresso bar concept into Starbucks. He believed that if Starbucks sold coffee beverages made from its high-quality beans, it could easily gain a competitive edge in the coffee market. Schultz’s idea did not immediately become reality because it did not align with the views of Starbucks’ leadership at the time. Only a few years later, when Il Giornale, the company Schultz had founded independently, acquired Starbucks, did the idea begin to take concrete shape.

From the moment Il Giornale acquired it, Starbucks began changing dramatically. The combination of Il Giornale’s coffee beverage service and Starbucks’ roasted bean production facilities brought about a full-fledged transformation into a coffee franchise. Starbucks soon began selling not only roasted beans but also coffee beverages made directly in its stores, and customers responded enthusiastically.

What is particularly noteworthy was Starbucks’ pursuit of premium coffee and a comfortable store atmosphere. Starbucks focused on ensuring that every location could deliver the same distinctive Starbucks coffee taste. It not only supplied the same beans and established manuals for bean roasting and beverage preparation, but also consistently shaped the atmosphere of every store into “a space where people could relax comfortably.” Thanks to these efforts, Starbucks was able to instill in customers the belief that they could trust the Starbucks brand and enjoy its coffee anytime, anywhere. In addition, Starbucks’ uniquely comfortable store atmosphere—where customers could stay without feeling any burden—successfully appealed to them as a distinctive café culture.

Its distinctive store atmosphere and expansion

Starbucks steadily moved along the path to becoming a global coffee franchise. To meet rapidly growing coffee demand, it built additional roasting facilities and established a joint venture with PepsiCo called the North American Coffee Partnership. It also continuously expanded its business scope by successively acquiring related companies such as Seattle Coffee Company, a coffee chain in Africa, and the American tea manufacturer Tazo Tea, while also forming business partnerships with companies such as Kraft Foods, a major American food manufacturer. It also accelerated the expansion of its offline stores. Moving beyond the United States and Canada, it entered global markets and increased the number of Starbucks locations worldwide.

What if Starbucks had failed to grow into a leading global corporation and had remained a small specialty Arabica bean shop in Seattle? Demand for the beans Starbucks consumes would not have increased, and the bean market would likely not have grown to its current size. And without Starbucks stores around the world, it would have been difficult for people in other regions to enjoy Starbucks’ distinctive coffee taste. Nor would there have been the tens of thousands of jobs held by employees working in Starbucks stores across the globe.

Sung-no Choi, President of the Center for Free Enterprise (CFE)

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Original title: [시장경제 길라잡이] 스타벅스의 진화와 기업의 성장

Author: Sung-no Choi

Date: 2019-05-27

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=13&idx=20239