Research

Starbucked: Background reading for a corporate reorganization

Coffee juggernaut Starbucks is facing new challenges in the American-style café business that it created around the globe. Competition is increasing; even McDonalds — where the ambience is not exactly Starbucks — is adding the job title "barista" to its stores. Meanwhile, the "Starbucks Experience" itself is showing signs of losing some of its charm in some places. Last week, Starbucks Coffee Company announced that it was bringing back its founder, Howard Schultz, as CEO. Schultz pledged to refocus the company on the vision that changed the morning "joe" habits of the world. Consider Taylor Clark's engaging and critical new book, "Starbucked: a Double Tall Tale of Caffeine, Commerce and Culture," as background reading for the unfolding Starbucks story.

2008-01-14

A number of books have been written about Starbucks, the café-chain juggernaut that has changed the world's urban landscapes and the daily habits of commuters everywhere. Taylor Clark's "Starbucked: a Double Tall Tale of Caffeine, Commerce and Culture" may be the most engaging and sweeping saga of what the Portland-based author terms, without intended hyperbole, "a new American institution."

Those of us who patronize our local coffeehouse on a regular basis probably take for granted the incredible impact of Starbucks on our lives. But consider: In 1987, there were 585 coffeehouses in the United States, according to the Specialty Coffee Association of America. Today, there are more than 24,000.

Starbucks constitutes less than half of these, but it's certain that the Seattle-based institution is responsible for fueling the gourmet coffee craze. "For its ability to create a new, brand-centered coffeehouse lifestyle, Starbucks has become a darling of the business world and an object of considerable emulation," writes Clark. But those who attempt to re-create the success formula of Starbucks find it's no easy task.

That's because, according to its famous chairman and returning CEO, Howard Schultz, Starbucks is not simply a brand or a product but "an experience." Indeed, "the Starbucks Experience" is a phrase that is drummed into every employee, from the green-aproned baristas to the suits occupying the highest corner offices in Seattle.

Modest beginnings

The corporate behemoth started out modestly, with a trio of gourmet coffee lovers inspired by a simple motive: to share their version of good-tasting coffee with the local population, which had no choice but to suffer the mediocre supermarket brands. Gorden Bowker, Terry Heckler and Zev Seigel actually began their enterprise as apprentices to Alfred Peet, gourmet roaster and owner of Peet's coffee in San Francisco.

Clark tells the tale of the nascent Starbucks franchise with great enthusiasm, complete with the twists, turns and intrigues that build into a great story. There was the struggle to settle on a logo design, with the mermaid/siren undergoing several revisions, from the original erotic imagery to the current family-friendly star-crowned lady (some people don't realize it's a mermaid, and that "Starbuck" was the first mate in Melville's "Moby Dick").

The breakthrough came with the visionary Howard Schultz, a salesman who came to work for Starbucks and took it to the next level(s). His relentless drive steered the company to stellar growth, discovering that it was possible to open a store literally across the street from the original, and see profits soar into the stratosphere. "Starbucked" is good reading whether you are a Frappacino fanatic or one who loathes the bitter blend (the dark roast has resulted in critics coining the disparaging nickname "Charbucks").

Clark divides the book in two parts. The first part tells the story of how the green-and-white cups rose to prominence as a status symbol, a must-have accessory for Beverly Hills celebs and soccer moms — as well as the lore and marketing story behind the label. The second part examines global ethical issues such as fair trade, unionization and globalization as they relate to Starbucks.

Another view: neighborhood-killer

Clark himself is no fan of Starbucks; it's evident in the tone of the book, and he acknowledges as much in the book's epilogue. Still, his treatment of the company is evenhanded in many respects. While he reports that disgruntled employees are entitled to complain about erratic shift assignments, low pay and stressful conditions, he praises the company's benefit and stock option plans (Starbucks offers both to employees working over 20 hours a week).

Clark's attitude toward Starbucks is emblematic of the growing movement against what some have termed "the Wal-Mart-ization of America." He grew up in Ashland, Oregon, a community known for its unique charm as well as its well-known annual Shakespeare festival. Against a tide of opposition, Starbucks managed to open three retail outlets in Ashland.

"Starbucks diminishes the world's diversity every time it builds a new café, and I can't help but feel troubled by this," Clark writes. "For me, Ashland's three Starbucks stores — so plainly reminiscent of their 13,000 clones around the world — take something irreplaceable away from the character of the community."

While he notes that local opposition doesn't prevent Starbucks from steamrolling its way around the world, Clark nonetheless expresses a grudging admiration for the marketing genius of its corporate leadership. Furthermore, he admits having patronized Starbucks on occasion — "if I'm stuck at an airport with nothing to do."

Awake and smelling the coffee

Soon after "Starbucked" was published, the company's fourth-quarter 2007 earnings were released, showing that net profits fell 5 percent to $117 million. Nevertheless, "The Motley Fool" rated Starbucks among its "Best Stocks for 2008" in a year-end column, noting that further growth is in store for the company as it continues to expand in markets, mostly outside the United States.

Then in January, Starbucks Coffee Company announced that it was bringing back its founder, Howard Schultz, as CEO. Schultz pledged to refocus the company on the vision that changed the morning "joe" habits of the world. Consider Taylor Clark's engaging and critical new book as background reading for the unfolding Starbucks story.

Bottom Line:

Interesting facts from Taylor Clark's book:

• Starbucks boasts $7.8 billion in annual revenues, 40 million customers a week, and more than 13,000 stores around the world.
• Although it affects the welfare of some 25 million coffee farmers, Starbucks buys only 2 percent of coffee produced worldwide.
• In the years since the U.S. "coffee boom" spurred by Starbucks, large amounts of caffeine have entered waterways near major cities. In Boston, for example, the net effect of this is comparable to dumping around a million cups of coffee into the harbor each week. Scientists have coined a term for this phenomenon: "The Starbucks Effect."
• In the mid-90s, Starbucks developed a cold, carbonated coffee beverage which they called Mazagran, based on a concoction the French Foreign Legion drank in Algeria in the 19th century. It failed early test runs. The company also published a lifestyle magazine titled "Joe," which failed after three issues.

Management