Uncommon Grounds by Mark
Pendergrast, 1999, Excerpts
Many of the disaffected baby boomers had hitchhiked through
Europe or were stationed there while serving in the military, and they had
discovered the joys of espresso, fine foods, specialty coffee shops, and the
cafe. With heightened international tastes, they were also searching for
community, for grassroots verities. They found them in aromatic fresh-roasted
whole beans, tumbling from small roasters. Many had been directly inspired by a
pilgrimage to Berkeley to inhale the atmosphere at Peet’s.
Jerry Baldwin, Gordon Bowker, and Zev Siegl started a small,
quality roasting business in Seattle. With a bare-breasted, twin-tailed mermaid
as a logo, Starbucks opened on March 30, 1971, and was an immediate hit,
selling primarily whole beans and supplies.
By 1980 the specialty coffee was entrenched in the big
cities on the East and West coasts of the United States and reaching further
into the heartland. Specialty coffee proved to be the perfect drink for the
go-go 1980s, which witnessed the triumph of yuppies – young urban professionals
– willing to pay top dollar for life’s luxuries.
In March 1987, Howard Schultz bought Starbucks which lost
$330,000 in 1987. It appeared that another business cycle was beginning. Just
as the traditional coffee industry had gone through fragmented growth and
merger, the specialty coffee movement would also consolidate. In the process,
would it also lose its soul?
In 1990 the company turned the corner, building a new
roasting plant and showing a small profit. Shultz began to hire MBAs and
corporate executives with experience running chain franchises, creating complex
computer systems, and training employees nationwide to deliver standardized
consumer goods. He recruited many of them in the early 1990s from fast-food
companies such as KFC, Wendy’s McDonald’s, Burger King, Pepsi, and Taco Bell,
and they brought professional management to the preexisting coffee idealism – though
the two did not always coexist comfortably. By the end of 1991, there were just
over one hundred stores with $57 million in sales, and Schultz was preparing to
take Starbucks public in order to finance even more rapid expansion. On June
26, 1992, Starbucks launched its initial public offering [IPO], going public at
$17 a share with a market capitalization of $273 million. Howard Schultz had
paid less than $4 million for the company only five years earlier. Within three
months, the stock price had reached $33, making Starbucks worth $420 million.
A darker aspect to this coffee surge was that many yuppies
were recovering cocaine addicts by the early 1990s, and they turned to
maximum-strength coffee as an alternative recreational drug that they could
take along with their antidepressants, antipsychotics, and other prescriptions.
These aging baby boomers had come full circle, back to the drink of their
parents, after a childhood of Cokes and coming-of-age with cocaine. The
television show “Frasier” placed the pretentious psychologist in Seattle, where
he and his friends drink cappuccinos at the Cafe Nervosa.
The chain paid slightly above minimum wage – better than
most fast-food companies – and provided an innovative benefits package that
included part-time employees who worked twenty hours a week or more. As a
result, employee turnover at Starbucks was only 60 percent a year, compared to
the industry standard of 200 percent of more.
In 1989 the sociologist Ray Oldenburg published The Great,
Good Place, a lament over the passing of community meeting places like the old
country store of soda fountain. Schultz loved the book and adopted Oldenburg’s
academic term, christening Starbucks as a “third place” beyond home or work,
“an extension of people’s front porch,” where people could gather informally.
Modern coffeehouses such as Starbucks do arguably provide a much-needed space
for friends and strangers to meet, especially as our cultural ethos becomes
more paranoid and fragmented.
Shultz, however, was not in business primarily to provide
community. He was in it to win. Starbucks mounted a blitzkrieg across the
country following the initial public offering, growing to 165 stores in 1992,
272 by 1993, and 425 in 1994. By mid-decade, the company was opening an average
of a store every business day, targeting appropriate locations by studying the
demographics of mail-order customers. Though Schultz could have quadrupled his
rate of expansion by franchising Starbucks, he chose to open only company-owned
stores, except in airports or other odd spots the demanded licensure. This way
he could maintain strict control over quality and training.
Starbucks became a household word without mounting a
national advertising campaign. Indeed, the company spent less than $10 million
on advertising in its first twenty–five years. It was a veritable
“word-of-mouth wonder,” as a stunned Advertising Age reporter put it.
Starbuck’s overwhelming success, with its aggressive
tactics, inevitably brought criticism along with adulation. Specialty
competitors complained that Starbucks used predatory retail tactics, frequently
opening outlets directly across the street from their stores. Defensive
Starbucks executives denied they were targeting competitors.
