How Starbucks Became An $80B Business

How Starbucks Became An $80B Business


With nearly 30,000 cafes across the globe, Starbucks has become more than just a household name. From its iconic cups, often adorned with misspelled names, to the espresso inside them, Starbucks has catapulted from one coffee bean shop in Seattle to a sprawling $80 billion business over the last 47 years. Starbucks sales account for 57 percent of the total cafe market. Yes, 57 percent. Nearly two-thirds of all coffee sold at cafes in the U.S. comes from a Starbucks. But this impressive expansion hasn’t come without growing pains. With more than 14,000 locations in the U.S. alone, Starbucks has spread itself too thin. Having too many stores has led to fewer transactions at individual stores. To compensate, the company has raised prices. But doing this too quickly or too often can drive customers away. So how did this happen? And what’s a coffee giant to do about it? The year is 1970. Three college friends, Zev Siegl, Jerry Baldwin and Gordon Bowker decide to get into the coffee business. They found a mentor in Alfred Peet, founder of Peet’s Coffee and the man responsible for bringing custom coffee roasting to the U.S.. He knew the coffee industry inside and out, especially the gourmet end. He was the most educated coffee guy in the country at that time. So with Peet’s help, the three friends open Starbucks, a coffee bean shop and roastery at Seattle’s famous Pike Place Market in 1971. Peet provided the young entrepreneurs with roasted coffee beans and connected them with coffee brokers until they could set up their own roastery and source their own beans. For the first decade, the founders opened five more locations in Seattle. At this point, contemporary coffee consumers might have noticed a glaring absence: actual coffee drinks. But that’s the thing about the 70s coffee culture: it didn’t really exist outside the home. There were no coffee bars. Nor was there much of a demand for espresso-based drinks. You purchased coffee beans and you either took them home as beans or we ground them for you in the store. Nobody expected to get a beverage at a Starbucks coffee store until after 1980. Starbucks’ initial focus was bringing high quality beans to consumers who were more accustomed to instant or canned coffee. But that changed with the addition of one man. The company hired its first really professional Director of Marketing and Sales, and that man was Howard Schultz. And he couldn’t figure out why we weren’t selling beverages. In 1983, Schultz travels to Italy and returns with an idea: turn the coffee bean stores into cafes. Starbucks served its first latte the next year. The experiment was a success, and four years later, Schultz partnered with investors and bought Starbucks for $3.8 million. He was only 34 at the time. Schultz pursued a strategy of aggressive expansion. By the time the company went public in 1992, it had 165 stores. By 1996, it had opened more than a thousand locations, including its first international cafes in Japan and Singapore. Growth was so rapid that, just three years later, Starbucks opened its 2,000th location. Schultz switched from CEO to Executive Chairman in 2000, at which time Starbucks operated 3,500 stores in more than a dozen countries. Between 2000 and 2007, the number of Starbucks cafes more than quadrupled, from 3,500 to over 15,000. During this period, the company opened an average of 1,500 stores every year, including 2,500 in 2007 alone. Sales shot up from $2 billion to $9.4 billion. Consumers were increasingly ditching their kitchen mugs for these iconic paper to-go cups. But then, Starbucks hit a wall: the 2007 financial crash. That year, its rapid growth screeched to a halt and its stock price plummeted by 50 percent as cash-strapped consumers backed away from pricey coffee habits. So Starbucks brought back Howard Schultz. This news alone caused Starbucks stock to shoot up by 9 percent. Schultz halted growth and focused on customer experience. He shuttered cafes – more than 600 in 2008 and another 300 in 2009 – and laid off around 6,700 baristas. A month after his return, Schultz ordered Starbucks to close all of its U.S. locations for one afternoon so he could retrain more than 135,000 baristas about how to make its signature espresso. Schultz’s goal was to remind customers what they loved about the brand by making the stores an experience, not just a place to get a quick coffee. They stopped selling breakfast sandwiches and brought back in-house grinding, infusing the cafes once again with that fresh coffee aroma. Schultz even mandated the removal of automatic espresso machines. These made service faster, but removed much of the romance and theater of watching baristas craft each cup of coffee. Schultz’s makeover worked. The company’s stock soared more than 143 percent in 2009 and same-store sales rebounded. Starbucks has posted positive same-store sales ever since. During Schultz’s makeover of the cafes, Starbucks barely opened any new stores. But the pace picked up again in 2012. By 2017, Starbucks opened nearly 3,000 more locations, ending the year with 28,000 cafes around the world. However this brings us back to the first problem: profit cannibalization. Over-saturation, particularly in urban locations, has spread sales thin. Because Starbucks has so many locations, customers don’t have to be loyal to just one. So even if Starbucks overall sales are growing, its individual same-store sales won’t reflect it. Compounding this problem are changing consumer preferences. People are shying away from sugar-laden calorie bombs. which happens to be one of Starbucks’ staples. These signature Frappuccinos contain an average of 57 grams of sugar. That’s more than double the recommended daily limit of sugar. So to combat these problems, Starbucks is changing once again. The company announced the closure of 150 stores in 2019. That may seem like a drop in the bucket for a sprawling company like Starbucks, but it’s three times the number of stores it usually closes each year. The company will still open stores, but future growth will be more focused. Additionally, decadent drinks topped with whipped cream are taking a backseat. Instead, the company is pushing lighter drinks like cold brew and its fruity Refreshers. The company also plans to roll out delivery to a quarter of its company-owned stores by the middle of 2019. Perhaps the company’s biggest undertaking is its new line of upscale stores: Starbucks Reserve Roasteries. These massive, 20,000-square foot stores are designed to be a tourist destination. Here, Starbucks baristas and bartenders experiment with different brewing methods and craft new, innovative beverages. These have proven popular. In the first weeks, the Shanghai Roastery made an average of $64,000 every day, which is double what a regular cafe makes in a week. The company has opened four Roasteries so far with plans for two more.

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About the Author: Oren Garnes

100 Comments

  1. I fail to see the "experience" part of it. You order a coffee and you leave… Or the best case scenario – you sit on a stool for 15 minutes and then you leave

  2. How to create a $80 billion business: first, sell beverage and grow like mad; then, make it an experience and focus growth; now, make it upscale and craft new beverage.

  3. I personally think Starbucks is gross; the coffee beans are over-roasted, so it tastes super bitter and not pleasant at all. Their specialty drinks are often just a bunch of high sugary syrups; not an authentic coffee experience by any means. With that being said, you've gotta respect what they've done as a company and brand over the past few decades, and they generally provide good customer service, which I can't say about some other chains. I will stop by on occasion for their to-go protein boxes when I'm in a rush.

  4. 1971 was the year of coffee the biggest coffee barista in the US and the biggest coffee Barista in the UK were both founded in ‘71

  5. I never like a female narrator as their voice gets faded when they talk continuously without any pause. A heave male voice is much better at narration.

  6. But they haven't won coffee. The UK's favourite coffee shop is Costa Coffee and in the UK, you are more likely to see Costa Coffee than a Starbucks Coffee. Plus, Costa is slightly cheaper than Starbucks.

  7. I hear if you buy Starbucks and don't post a picture of it on any social media platform you're some tipe of rare creature.

  8. Muy sensillo es grasias a el esfuerso de toda la pobre gente que se pasa cultivando cafe a su sudor a la explotacion …y a la gente tonta q sabe o se hacen tontos tambien q piensan que por tomarse un cafe de esa marca ya son muy finos jajajajajaja de ahi de la pobre gente es la fortuna de explotadores de star bucks ..

  9. unless they sell my favourite yeast rings that i like to have with my coffee, i won't step on their threshold

  10. They can thank me… Been going since 1994. Every single day almost. In my 20s and 30s I went 3 times a day. I could have bought a house from all of the Starbucks I have consumed…

  11. 8100 liker AND COMMENTING ON 4 JUNE 2019 AT 8:30 PM(btw from india) EDIT-I AM WATCHING THIS VIDEO A DAY AFTER AND I COMMENTED AGAIN SO LOOKING IN COMMENTS I DELETED IT xD

  12. It’s funny because the nearest Starbucks to me is 20 minutes away and I live near a city. There is a Starbucks opening a mile from me and I’m going to be happy

  13. I really don't know what's the big deal about buying over priced coffee . I go to Walmart , buy a bag of Bustelo and make my own strong as hell

  14. Starbucks is selling overpriced coffee and hoping that I will pay that price because they will write my name on the cup.

  15. Americans are the only people who enjoy Starbucks as they are used to poor quality coffee. The rest of the world actually has good coffee so when Starbucks wants us to pay for overpriced poor quality coffee we laugh

  16. I work for Starbucks and after 3 hours into my shift we did a register check and it was slow and I sold over $600 worth of product imagine this times the crazy number of stores and if other stores were busier and you are making money

  17. You might want to take the cup off Australia.
    The attempt to move in here was near totally laughed out, and most of the stores got bought out by Gloria Jean, who CAN make coffee.

  18. DONT USE STARBACKS SUPPORT LOCALS NEW BUSINESSES.

    Let’s start global movement:
    People over Monopolies.

  19. Please lower the volume of music next time. It made it hard to hear the voiceovers… And thanks for the slick vid!

  20. Am i really the only human that stays away fro Starbucks because of price?
    I mean how can some water + coffee bean drink cost so damn much?

  21. Combine addictive substances like caffeine and sugar together, engage social media to make you think it's cool or something. Also charge way too much so any reasonable person that would blow your cover will never come around.

  22. I make coffee at home and save/ invest $$$. Retiring well off at 60 y/o. I look at all these high fat/ sugary foo foo drinks and all the fat people drinkng them…..More than about 2 teaspoons worth of sugar a day is poison.

  23. I went to the Starbucks coffee farm in Costa Rica. It's was a great experience. But I have to say. Colombian coffee is better. Not sure if they have a farm in Columbia.

  24. Starbucks coffee is crap 💩 according to my expert friends. Also overpriced!! If people use this shops for internet, stop drinking £5 coffees and I guarantee you can afford to pay for your own internet!!!!!

  25. 這部影像紀錄片內容製作單位及職務執政者必需同與參政言論活動當中移交的執政人物強迫遣送出境海外市場營銷進行查證涉嫌違反公平交易不當互盟各個國家建設操作違反群組規範服務性條款政策紀律公務職務執政經營投資產業資源合資協議夥伴關係協定記載事項教義科學性系統工程的交易經營方式。持有不當模式操作系統直播節目必定有危及到生命及竊賊盜取機體文件技術性技能訓練有素的天賦異樣創造出更多的年少輕狂無知過失殺人罪行為科學性投資者的最大規模最大的危局,甚至破產後債務糾紛難以處理的最大的傷害。相信這部影像製作單位及著作者自己應該會更清楚自己現狀的債券基金銀庫生存競爭空間。已難以伸張正義感的愧疚於百姓萬民生計問題物資所供應量需求。股市財經經濟銀庫同時急速再度引發冷凍的供應借貸互動連結關係。事實證明一切。

  26. When I saw the NY roastery was being built I knew it was terrible decision. Starbucks hasn't been doing too well in US compared to China. The first few weeks at the roastery I was in heaven and felt very VIP. They had well over 100 baristas on the floor watching customers like a hawk. I opened a tab just kept ordering and ordering I loved it. Baristas moved from all over the world to work at the roastery. Then I didn't go for a few months because it was so crowded so I didn't bother going in. Then I noticed the local fever died and it's now empty during the week and basically a tourist trap on weekends. It has sunk like the titanic. Corporate slashed baristas hours so most of the ones I knew from Day 1 are already gone. They no longer have that amazing VIP experience. You have to wait a long time on long lines and even longer time for your drink to be ready. It's just not worth the price anymore. I'd say if it's worth going once to check it out or as a date option but that's about it. Corporate has been so desperate to keep it afloat that they have sent over executives I guess while they try to figure out how to redesign the operation. Oh well… 🤷‍♂️🤷‍♂️🤷‍♂️🤷‍♂️🤷‍♂️🤷‍♂️🤷‍♂️🤷‍♂️

  27. All your videos are good. It shows the sales growth. It would be great if you can add the net profit over the years which would show the exact growth.

  28. Their teas make me happy yes it’s over priced but you don’t get that at any fast food joint the variety is unbeatable. I’ll treat myself when i can

  29. Starbucks customers start to get ripped off once Starbucks join Wall Street. From that point on it’s a matter of growing yearly sales and how are they doing that ? By raising prices. Nickel and dime every customer and prices will continue to go up.

  30. They cause too much problems with customers . no store policy. No one gets fired???? Each act as the snobish owners. They name you and judge you. Not clean…..

  31. I literally pay for starbucks vias ONLY each pack sells for $10 for 16 packets of a specific coffee blend, or 4-6 for either a refresher or iced tea powder blend. I literally walk in a starbucks, ask for hot water or a hot water with a cup of ice or iced water only and i have my kit right there and i save on so much visits. You may get a few snarky looks here and there but $4-$8 for 1-2 drinks? No sorry its cheap cheap gang-gang over here lol.

  32. Let's get something straight here: The U.S. had become accustomed to crap coffee, with Folgers, etc. because those companies bought crap beans and ground or powered them. Starbucks brought good coffee to the U.S….what Europe and many places on earth had been using for many years. This doc implies that Starbucks just started charging more for coffee. Not the whole story.

  33. Got to love CNBC. Starbucks rarely dominates any market outside the USA. It doesnt in most of Europe, certainly not Australia or New Zealand. In fact in Australia they had to shut many stores as you can get better made and roasted and cheaper coffee in pretty much every cafe in the country.

  34. Having never patronized a Starbucks, I simply don't get it. I've had their coffee and frankly, it is horrendous and overpriced. Starbucks is successful not for their coffee but for their name recognition. No-one, actually likes the taste of Starbucks coffees. They like the "status" it gives them as a Starbucks customer. Every darn movie that features a coffee shop, generally takes place in a Starbucks. This is why Starbucks is successful. Not quality, not speed, not even good service. Branding.

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