By MATTHEW REES
November 7, 2007; Page D9
Starbucks, the Onion once reported, "continued its rapid expansion Tuesday, opening its newest location in the men's room of an existing Starbucks." In real life, it hasn't come to that -- yet. But Starbucks has seemingly caffeinated the U.S. and the world. There are now 10,000 stores spread across North America (more than 170 in Manhattan alone) and an additional 4,000 in more than 40 countries, stretching from Bahrain to Brazil. Starbucks stores have become a retail icon, a daily habit and a late-night punchline. "The only way the oil companies could make more money," Jay Leno quipped a couple of years ago, "would be if they were drilling for oil and struck Starbucks coffee." In "Starbucked," Taylor Clark sets out to explain such scorching success. He offers, along the way, an entertaining, instructive and refreshingly even-handed account of the company's life so far.
The first Starbucks was the brainchild of a Seattle-based writer, Gordon Bowker, who in 1970 was making monthly treks to Vancouver (280 miles, round-trip) to buy quality beans for his own coffee-drinking pleasure. He eventually persuaded two friends, Jerry Baldwin and Zev Siegl, to join him in opening a gourmet-coffee shop, which started doing business, in Seattle, in March 1971. Three more stores opened over the next decade. They, in turn, caught the attention of Howard Schultz, who at the time was a kitchenware salesman. He fell in love with the shops and their coffee and persuaded Mr. Baldwin to let him join the small business (Messrs. Bowker and Siegl had moved on). Mr. Schultz had visions of an ambitious expansion from the very beginning. When he eventually assumed the top job in 1987, the multiplying began: 11 new stores in 1988, 20 in 1989, 30 in 1990, and 32 in 1991. The growth only accelerated and hasn't stopped since.
Under Mr. Schultz's guidance, Starbucks never lost sight of its core product -- coffee. As obvious as such a focus may seem, it proved revolutionary, if only by contrast with the company's competitors. The big mid-century brands, like Folgers and Maxwell House, had long since fallen into lackluster bean-buying habits, mostly to keep costs down. Meanwhile, annual coffee consumption in the U.S. -- primarily a kitchen-table ritual -- declined. Starbucks stepped into the breach.
In particular, Mr. Schultz recruited Mary Williams, a veteran coffee buyer, to purchase beans directly from leading growers in Guatemala and elsewhere, and he initially positioned the Starbucks "brand" in retail stores rather than on grocery shelves. Mr. Schultz had fallen in love with Italian coffee bars and thought -- rightly, as it turned out -- that a version of them could be a success in America. It helped, of course, that Starbucks was serving quality coffee and not the swill that poured from the overheated urns in so-called coffee shops and diners.
A major part of the Starbucks story has to do with real estate, since the company obviously favors a kind of neighborhood saturation. "Through a combination of cunning store-placement strategy and ruthlessness with competitors," Mr. Clark writes, "the company attempted to make it so customers couldn't help but go to Starbucks." One Starbucks real-estate dealmaker, who was turned down for an attractive commercial space, discovered that the refusing landlord was a doctor. She made an appointment to see him, pretending to be a patient, and repeated her pitch at his office. He caved in, and Starbucks got the space. As for what space is best, Starbucks prefers to be near dry cleaners and video stores, because they require two visits -- for dropping off and picking up.
The company has been no less relentless about its image. The high prices signal not just quality but luxury, and the specialized vocabulary ("venti," "doppio" and the like) elevates a mundane form of consumption into the realm of cosmopolitan taste. In the same vein, Mr. Schultz strives to make each Starbucks a "third place" between work and home. "We're not in the coffee business serving people," he likes to say, "we're in the people business serving coffee."
It helps that the people doing the serving are well-treated. Staff turnover is lower at Starbucks than at similar establishments, not least because the company provides full health benefits for even part-time workers. In fact, it spends more on health care than on coffee. One wonders what might happen to such generous benefits if Starbucks' profits ever fall below the high levels they have achieved for so long.
For now, though, things are brewing along nicely. Starbucks is 25 times bigger than its closest competitor, Caribou Coffee. The stores have been a smashing success in unlikely places, such as tea-drinking nations (Britain, Japan) and others with their own distinctive café cultures (France). The company's stock price has also skyrocketed since debuting in 1992. The story of the stock's movements, incidentally, is dissected in exquisite detail by Karen Blumenthal, a former Wall Street Journal reporter, in her recent "Grande Expectations: A Year in the Life of Starbucks' Stock" (Crown Business).
Perhaps the best evidence of Starbucks' hallowed place in the American landscape is the effort that Starbucks-free communities make to attract a store. Alhambra, Calif., according to Mr. Clark, devoted $136,000 in public development funds to the purpose. When a Starbucks opened in Muskegon, Mich., the president of the local chamber of commerce declared it nothing less than "a symbol that we are a community of the future."
Naturally, there has been a backlash, with critics seeing Starbucks as a kind of liquid Wal-Mart. Mr. Clark expresses some unease about the proliferation of Starbucks stores, but his research leads him to dismiss familiar complaints. Independent coffeehouses, he says, far from being killed off by Starbucks, are thriving (their numbers grew 40% from 2000 to 2005). And the coffee retail experts I've spoken to advise independents not to open a store until there is a Starbucks in town, since Starbucks is likely to create a clientele for coffee that otherwise wouldn't exist.
Can Starbucks continue its meteoric growth without sacrificing its quality or compromising its image? In an internal memo that later became public, Mr. Schultz conceded earlier this year that there had been a "watering down of the Starbucks experience, and what some might call the commoditization of our brand." Still, Starbucks' share of the U.S. coffee market is only about 8%. And it has announced plans to open 10,000 new stores, world-wide, over the next four years. Maybe the Onion wasn't so far from the truth.