How Starbucks made mega-bucks!

How Starbucks made mega-bucks! Fifty years to the day since it opened, how the shop which revolutionised coffee (now worth $128bn) made a whole latte money… with a little help from a topless mermaid

When three 28-year-old men got together to open a coffee shop in the U.S. city of Seattle on March 30, 1971, the American idea of a ‘cup of joe’ was a very different thing from what it is today.

Then, it was all too often a luke-warm, cloudy, brown liquid from a pot that had been sitting on its burner for rather too long and came served in a porcelain mug or a spongy foam cup in a choice of just three sizes: small, medium or large.

The coffee company they christened Starbucks changed all that. Using quality beans from a celebrated Californian coffee roaster called Alfred Peet, and inspired by one of their managers’ trips to the espresso bars of Italy, it staged a revolution and half a century on is a global phenomenon.

That one outlet in Seattle, Washington, that opened 50 years ago has grown into an empire with 31,000 coffee bars in 80 countries employing 349,000 people.

Starbucks founders Zev Siegl, Jerry Baldwin and Gordon Bowker, outside the first Starbucks in Seattle in February 1979

Today, Starbucks sells four billion cups of coffee a year, and the days when your coffee choice was limited to ‘cup’ or ‘mug’ are long gone.

Indeed, nobody asks for a ‘coffee’ any more. A barista will want to know whether you want a latte, a cappuccino, an espresso or an Americano.

And it has long since diversified into ever more exotic concoctions, from the iced white chocolate mocha and pumpkin spice latte to the cinnamon roll frappuccino and decaf oat-milk flat white.

A Starbucks advertisement once claimed: ‘If you take all of our core beverages, multiply them by the number of modifiers and customization options, you get more than 87,000 combinations.’

Today, Starbucks sells four billion cups of coffee a year, and the days when your coffee choice was limited to ‘cup’ or ‘mug’ are long gone. Pictured: The first Starbucks in Seattle

Visiting Starbucks with your baby? You can order a ‘babyccino’, which is a tiny serving of the froth from the top of the heated milk. A similar offering aimed at the dog market is known as a ‘puppuccino’.

Small, medium or large are not your only options either. The equivalent these days are ‘tall’, ‘grande’ and ‘venti’ but in 2011, Starbucks introduced the ‘trenta’ size, a cup that holds 31 fluid ounces (‘trenta’ is Italian for ‘30’). Critics pointed out that this is larger than the average human stomach.

And the good news for Starbucks is that the average customer is so addicted to its brews that they visit a Starbucks six times a month. About one in five are such devoted fans that they pop in 16 times a month.

No wonder Starbucks’ annual revenues today top $20 billion (£14.5 billion).

When three 28-year-old men got together to open a coffee shop in the U.S. city of Seattle on March 30, 1971, the American idea of a ‘cup of joe’ was a very different thing from what it is today

And like so many other nationalities around the world, we Brits woke up and smelt the (Starbucks) coffee long ago. The company’s first UK branch opened on the King’s Road in Chelsea in 1998.

At the time, the market leaders in this country were brands such as Costa and Coffee Republic but Starbucks didn’t mess around. It turned itself into a 56-branch chain overnight by buying the Seattle Coffee Company (which despite its name was UK-based), and rebranding its outlets. Today, it has more than 1,000 branches.

Its critics say this pell-mell expansion has been gained at the expense of independent operators.

In 2008, Starbucks settled an antitrust lawsuit in its city of origin that charged it with passing out samples of its habit-forming sugary drinks in front of rival coffee shops and strong-arming landlords into not leasing space to competitors.

It is also accused of using its resources to secure the best locations, driving up prices and forcing local ‘mom-and-pop’ enterprises to set up on streets with lower footfall. But the biggest controversy arose over its tax arrangements.

Today, Starbucks sells four billion cups of coffee a year, and the days when your coffee choice was limited to ‘cup’ or ‘mug’ are long gone

In 2012, it was revealed that since its UK subsidiary opened in 1998, Starbucks had racked up over £3 billion in coffee sales and opened 735 outlets but paid only £8.6 million in income taxes.

This appears to have been made possible by eroding the British company’s profitability by charging royalty payments for the use of its brand name and ‘business processes’, allocating a portion of its UK profits to its Dutch roasting and Swiss trading units, and the shrewd arrangement of inter-company loans.

Such controversies did little to impede its growth, however. For many people, the culture pioneered by Starbucks is something they couldn’t live without because its branches have become so much more than coffee shops. They have been described as the nation’s second living room, meeting place and study hall.

In 2012, the company decided to underline the personal relationship it had with customers, by instituting a policy of asking for your name so the barista could write it on your cup.

This was said to be ‘part of our promise to make your coffee experience as perfect as it can be’. However, in one London branch, it came up against the British sense of humour — when the man at the front of the queue was asked his name, someone shouted, like Captain Mainwaring in Dad’s Army: ‘Don’t tell him, Pike!’

Somewhere else that proved resistant to the policy was the CIA’s offices in Langley, Virginia. The U.S. intelligence service’s HQ has its own branch of Starbucks — but, funnily enough, customers there were less than keen to broadcast their names. So the staff don’t even ask.

And baristas do draw the line at some requests. When one woman asked a Starbucks employee to write ‘It’s Over’ on a cup, they replied: ‘I’m not breaking up with your boyfriend for you, and I honestly don’t think a flat white is going to soften the blow.’

It’s all a world away from that day when Jerry Baldwin, Zev Siegl and Gordon Bowker, three ex-students of the University of San Francisco, opened their first store.

When it came to choosing a name for their company, Bowker — who had his own advertising agency — told his partners that words beginning with ‘st’ were considered powerful. Someone recalled Starbuck, the first mate on the whaling ship in the novel Moby Dick, they added an ‘s’, and were off and running.

For the first decade Starbucks sold only coffee beans, and the equipment to grind and serve them, rather than the actual drink. But in 1982 it started offering brewed coffee.

Two years later, after one of their managers, Howard Schultz, had visited Milan and seen how coffee drinking was an inherent part of Italian life, they opened their first espresso bar.

By 1989 there were 46 Starbucks stores across America’s northwest, and the company was roasting nearly 1,000 tonnes of coffee a year.

As the company expanded and went more mainstream, the mermaid in its logo became more respectable. The original figure displayed bare breasts, and was seen by the firm’s founders as a siren enticing passers-by into their store. But in 1987 her hair was rearranged to cover the breasts, and in 1992 her navel was hidden.

By 1999, the brand was so ubiquitous that the Brad Pitt movie Fight Club had a Starbucks coffee cup in every scene. This was a nod by the movie’s director David Fincher to the fact that ‘when I first moved to LA in 1984, you could not get a good cup of coffee to save your life. Then Starbucks came out, and it was such a great idea: good coffee.’

In 2014, Starbucks’ image was burnished further by a heart-warming episode at a drive-through store in the St Petersburg, Florida.

At 7am a woman paid for her iced coffee, then asked — simply because she was in a good mood — to also pay for the driver behind her.

That person, learning of their good fortune, did the same for the motorist behind them. The chain lasted all the way until 6pm, by which time 378 people had bought drinks for complete strangers. (Unfortunately the 379th customer — an unnamed woman in a white Jeep Commander — declined to take part, and ‘pay-it-forward day’ came to an end.)

Today, Starbucks is valued at $128 billion (£93 billion) but, unfortunately for Jerry, Zev and Gordon, they sold out long before the big bucks came in.

The buyer was their former manager Howard Schultz. It was he who took it from a handful of sleepy stores in Seattle to a global behemoth. While the founders pocketed $3.8 million (£2.8 million) between them, he now has a net worth of $5.1 billion (£3.7 billion).

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