My previous post talks about a company that didn't change with the times. This post, on the other hand, talks of one that did.
Not many companies can boast of having their presence in 62 countries with more than 20,000 stores around the world. From free WiFi to introducing the Italian coffee culture to the rest of the world, since its beginning in 1971, Starbucks has done a lot more rights than wrongs. The rise of Starbucks can be attributed to one man - Howard Schultz, who, ironically, neither started the company nor is an Italian.
Starbucks was started by three people from academics - English teacher Jerry Baldwin, history teacher Zev Siegel, and writer Gordon Bowker. The store was inspired by Peet's Coffee and Tea, in Berkeley, California. It was not until Howard Schultz joined the company in 1982 that it started to grow at a steady place. His visit to Italy in 1983 convinced him of the potential of a coffeehouse culture in US to the point that he left Starbucks and started his venture, Il Giornale (pronounced ill jor-nahl-ee). This venture faced a lot of criticism. As a case study rightly puts it, "Many who heard Schultz's hour-long presentation saw coffee as a commodity business and thought that Schultz's espresso-bar concept lacked any basis for sustainable competitive advantage (no patent on dark roast, no advantage in purchasing coffee beans, no way to bar the entry of imitative competitors). Some noted that consumption of coffee had been declining since the mid-1960s, others were skeptical that people would pay $1.50 or more for a cup of coffee, and still others were turned off by the company's hard-to-pronounce name." This didn't stop him from pursuing this idea. His espresso-bar would serve beverages made from Starbucks coffee beans. Il Giornale eventually acquired Starbucks in 1987 when the founders of the latter decided to sell it to concentrate on their other interests. Il Giornale was then renamed to Starbucks Corporation, which is the company we see today.
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Events:
So how did Starbucks go from a small store in Seattle, Washington to the largest coffeehouse company in the world? Let's have a look at its timeline (source):
1971 - Starbucks opens its first store in Seattle's Pike Place Market.
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Events:
So how did Starbucks go from a small store in Seattle, Washington to the largest coffeehouse company in the world? Let's have a look at its timeline (source):
1971 - Starbucks opens its first store in Seattle's Pike Place Market.
1982 - Howard Schultz joins Starbucks. Starbucks starts providing coffee to restaurants and espresso bars.
1983 - Impressed by coffeehouse culture during his travel to Italy, Schultz sees potential to develop a similar culture in Seattle.
1984 - Coffeehouse in downtown Seattle serves first Starbucks Caffe Latte
1985 - Schultz leaves Starbucks and founds Il Giornale, a company that offers beverages made from Starbucks coffee beans.
1987 - Il Giornale acquires Starbucks (renamed to Starbucks Corp.) Stores open in Chicago and Vancouver.
1988 - Starbucks offers health benefits to full-time and part-time employees.
1991 - Becomes the first privately owned company to offer stock options to part-time employees. Opens first airport store. (Total stores - 116)
1994 - Opens first drive-thru location.
1995 - Introduces Starbucks super premium ice-cream.
1996 - Opens store in Japan (1st store outside North America) and Singapore. (Total stores - 1015)
1997 - Establishes The Starbucks Foundation
1998 - Launches Starbucks.com
1999 - Acquires Hear Music
2003 - Acquires Seattle Coffee Company. (Total stores - 7225)
2006 - Launches industry's first paper beverage cup containing post-consumer recycled fiber. (Total stores - 12440)
2007 - Eliminates all artificial trans-fat and makes 2% milk the new standard.
2008 - Launches My Starbucks Idea, Starbucks' first online community.
2009 - Launches iPhone apps to facilitate mobile payment.
2010 - Offers free unlimited WiFi at its stores.
1983 - Impressed by coffeehouse culture during his travel to Italy, Schultz sees potential to develop a similar culture in Seattle.
1984 - Coffeehouse in downtown Seattle serves first Starbucks Caffe Latte
1985 - Schultz leaves Starbucks and founds Il Giornale, a company that offers beverages made from Starbucks coffee beans.
1987 - Il Giornale acquires Starbucks (renamed to Starbucks Corp.) Stores open in Chicago and Vancouver.
1988 - Starbucks offers health benefits to full-time and part-time employees.
1991 - Becomes the first privately owned company to offer stock options to part-time employees. Opens first airport store. (Total stores - 116)
1994 - Opens first drive-thru location.
1995 - Introduces Starbucks super premium ice-cream.
1996 - Opens store in Japan (1st store outside North America) and Singapore. (Total stores - 1015)
1997 - Establishes The Starbucks Foundation
1998 - Launches Starbucks.com
1999 - Acquires Hear Music
2003 - Acquires Seattle Coffee Company. (Total stores - 7225)
2006 - Launches industry's first paper beverage cup containing post-consumer recycled fiber. (Total stores - 12440)
2007 - Eliminates all artificial trans-fat and makes 2% milk the new standard.
2008 - Launches My Starbucks Idea, Starbucks' first online community.
2009 - Launches iPhone apps to facilitate mobile payment.
2010 - Offers free unlimited WiFi at its stores.
2013 - Total stores - 20891
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Analysis:
There are many things that Starbucks did right. Let's look at some of them:
People
1. Employees
Starbucks showed that it cared for its employees time and again. It provided them health benefits. It was the first privately owned company to provide stock options to part-time employees. It also discarded the term employee and replaced it with partner to indicate that the employees had a stake in the company.
2. Customers
Starbucks showed that it cared for its employees time and again. It provided them health benefits. It was the first privately owned company to provide stock options to part-time employees. It also discarded the term employee and replaced it with partner to indicate that the employees had a stake in the company.
2. Customers
Employees were trained to be knowledgeable about the company's products, communicate the company's passion for coffee, and deliver consistently pleasing customer service. Speedy service was seen as a competitive advantage.
When customers demanded milk without trans-fat in 2007, Schultz had to make a tough decision between the company’s commitment to quality and its goal of pleasing customers. But Starbucks went with the customers' choice of no trans-fat in 2007.
3. Corporate responsibility
The case study also says that Schultz' aspiration was for Starbucks to become the most respected brand name in coffee and for the company to be admired for its corporate responsibility.
The Starbucks Foundation has helped a number of its employees in the developing countries to meet their financial needs.
3. Corporate responsibility
The case study also says that Schultz' aspiration was for Starbucks to become the most respected brand name in coffee and for the company to be admired for its corporate responsibility.
The Starbucks Foundation has helped a number of its employees in the developing countries to meet their financial needs.
In 2008, Starbucks started using recycled paper cups to reduce its carbon footprint.
Product
1. Quality
Starbucks avoided franchising to keep the quality of the products under the company's control. To keep the coffee aromas in the stores pure, it banned smoking and discouraged employees from wearing perfumes. Foods were kept covered to minimize the contamination of the coffee smell. All this shows the amount of care Starbucks has taken to keep the quality of its products consistently good.
Starbucks avoided franchising to keep the quality of the products under the company's control. To keep the coffee aromas in the stores pure, it banned smoking and discouraged employees from wearing perfumes. Foods were kept covered to minimize the contamination of the coffee smell. All this shows the amount of care Starbucks has taken to keep the quality of its products consistently good.
2. Location
In the initial stages, the company chose its site location based on research data of the demand through mail orders. By 1997, the company had closed just 2 out of 1,500 sites it had opened.
3. Adapting and Innovating
Right from its bold move to bring the Italian coffeehouse culture to US and, later, the rest of the world to its trying out new products such as the Frappuccino and Super Premium ice cream, the company has never shied away from trying out new ideas.
When it comes to technology, Starbucks readily accepted it. It launched its website in 1998, started its first online community in 2008, and launched iPhone apps in 2009. It also offered free WiFi at its stores, which turned out to be a competitive advantage.
However, apart from all the positives listed above, and a controlled scale-up and expansion of its operations across borders, Starbucks has made a few mistakes as well. For example, a study reveals that Starbucks has tried to bring the American coffeehouse culture to Australia, which already has a thriving European cafe culture. It's reception in Australia, therefore, has not been as good as in other places.
Nonetheless, Starbucks is a shining example of how a company can grow from a small corner shop to a multinational powerhouse.
This brings me to the end of this post.
So long,
So long,
Ganesh
"Work until your idols become your rivals."
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