Why did Starbucks REALLY become so popular?

Summary

The story of Starbucks is a remarkable tale of persistence and vision. Howard Schultz, the mastermind behind its global empire, transformed the coffee industry by focusing not just on coffee, but on creating a unique customer experience. From his early struggles and eventual purchase of Starbucks to its aggressive global expansion, Schultz revolutionized how coffee was consumed worldwide. Beyond the product, Starbucks thrived by redefining the coffee shop as a third place between home and work, and by leveraging real estate and financial innovations. Today, Starbucks isn't just a coffee company—it's a global phenomenon with a vast future ahead.

Takeaways

• 😀 Howard Schultz’s early life was shaped by adversity, including growing up in poverty and his father's struggle with losing his job due to an injury.
• 😀 The original Starbucks, founded in 1971, focused solely on selling high-quality coffee beans and equipment for home brewing, not drinks.
• 😀 Howard Schultz first encountered Starbucks in 1981 when he was vice president at a company that supplied products to them, becoming intrigued by their business and the quality of their coffee.
• 😀 Schultz’s trip to Italy in the 1980s inspired him to envision Starbucks as a place for socializing, where coffee was more than just a product—it was an experience.
• 😀 Despite facing resistance from the original founders of Starbucks, Howard Schultz persisted and eventually joined the company in 1982.
• 😀 Schultz’s vision for Starbucks—turning it into a café-style experience—was initially rejected by the founders, leading him to leave in 1985 to start his own business, Il Giornale, which mirrored his Italian café inspiration.
• 😀 In 1987, Schultz had the opportunity to buy Starbucks from its original founders for $3.8 million, despite the challenges of raising funds.
• 😀 Thanks to persistence and help from Bill Gates’ senior, Schultz secured funding to purchase Starbucks, ultimately turning it into the global coffee empire we know today.
• 😀 Schultz’s leadership strategy involved aggressive global expansion, growing Starbucks from 17 stores in 1987 to nearly 177,000 stores worldwide by 2008.
• 😀 The 2008 financial crisis hit Starbucks hard, causing stock prices to plummet and revealing deeper issues within the company, including diluted brand experience due to rapid expansion.
• 😀 To address Starbucks' troubles, Schultz reentered as CEO, focusing on restoring the brand’s core values—retraining baristas and reemphasizing the customer experience, which led to a 143% growth in 2009.
• 😀 Starbucks is not just a coffee company; it is involved in real estate, influencing property values by selecting prime locations, often gentrifying areas.
• 😀 Starbucks has transformed itself into a quasi-bank, with customers prepaying for drinks through their app, giving the company billions of dollars in interest-free loans to fund expansion.
• 😀 Schultz's true genius was not in coffee itself, but in selling the ‘Starbucks experience’—a combination of quality coffee and a unique, social café environment that attracted millions of customers worldwide.

Q & A

What was Howard Schultz's defining moment at the age of 7?

At the age of 7, Howard Schultz's father lost his delivery job after falling on ice and breaking his hip and ankle. The family had no medical insurance, savings, or hope, which had a lasting impact on Schultz's view of business and the importance of providing better opportunities.

How did Gordon Bowker contribute to the founding of Starbucks?

Gordon Bowker, one of Starbucks' founders, was inspired by his travels in Europe, where he experienced high-quality cappuccino. He shared his experience with two friends, leading them to open Starbucks in 1971, initially selling high-quality coffee beans and equipment, rather than serving coffee drinks.

Why was Howard Schultz initially rejected by the founders of Starbucks?

Howard Schultz was initially rejected by the Starbucks founders because they were not interested in changing their business model. They focused on selling coffee beans and equipment, and they didn't see the potential in Schultz's vision of transforming the store into a coffeehouse experience that served drinks.

What inspired Howard Schultz's vision for Starbucks after his trip to Italy?

Schultz was inspired by the Italian coffee culture, where coffee shops were places of community and socializing. He saw the opportunity to bring that same experience to America, where coffee was mainly consumed quickly and without the cultural connection found in Italian cafes.

What was Schultz's first attempt to create a coffeehouse business?

After being rejected by Starbucks, Howard Schultz left to start his own business called 'IL Giornale,' which was inspired by the Italian coffee shop experience. Despite initial rejection from investors, Schultz persisted and eventually succeeded in opening the first IL Giornale store in 1985.

How did Howard Schultz acquire Starbucks from its original founders?

In 1987, after the original founders decided to sell Starbucks, Schultz had the opportunity to buy the company. Despite lacking sufficient funds, he raised the required $3.8 million to purchase the company with the help of investors, including Bill Gates Sr., who played a pivotal role in securing the deal.

What was Howard Schultz's strategy for Starbucks as CEO in 1987?

As CEO, Schultz focused on aggressive expansion, rapidly increasing the number of Starbucks stores globally. He was determined to not only expand in the U.S. but also make Starbucks a global brand, opening stores in countries like Japan, the Philippines, and the UK by 1998.

What was the impact of the financial crisis on Starbucks in 2008?

The financial crisis of 2008 hit Starbucks hard, with a 50% drop in stock price as consumers cut back on discretionary spending, including expensive coffee. This prompted Schultz to reassume the role of CEO and refocus the company on improving customer experience and restoring Starbucks' original values.

How did Howard Schultz address the problems Starbucks faced during the financial crisis?

Schultz reintroduced key elements of the original Starbucks experience, such as removing automatic espresso machines to restore the art of coffee-making. He also closed all U.S. stores to retrain employees on crafting quality drinks, which helped rebuild the brand and improve customer satisfaction.

What is the 'Frappuccino effect' in relation to Starbucks' real estate strategy?

The 'Frappuccino effect' refers to the phenomenon where property values near Starbucks stores increase significantly. Starbucks has a sophisticated strategy for selecting store locations in up-and-coming neighborhoods, which in turn drives gentrification and raises property values, benefiting both the company and local real estate markets.