Starbucked Read online

  Copyright © 2007 by Taylor Clark

  All rights reserved. Except as permitted under the U.S. Copyright Act of 1976, no part of this publication may be reproduced, distributed, or transmitted in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher.

  Little, Brown and Company

  Hachette Book Group

  237 Park Avenue

  New York, NY 10017

  Visit our website at www.HachetteBookGroup.com.

  The Little, Brown and Company name and logo are trademarks of Hachette Book Group, Inc.

  First eBook Edition: November 2007

  ISBN: 978-0-316-02617-8

  CONTENTS

  Copyright

  INTRODUCTION: The Experiment

  PART ONE: THE RISE OF THE MERMAID

  CHAPTER 1: Life Before Lattes

  CHAPTER 2: A Caffeinated Craze

  CHAPTER 3: The Siren’s Song

  CHAPTER 4: Leviathan

  PART TWO: GETTING STEAMED

  CHAPTER 5: Storm Brewing

  CHAPTER 6: A Fair Trade?

  CHAPTER 7: What’s in Your Cup

  CHAPTER 8: Green-Apron Army

  CHAPTER 9: The Seattle Colonies

  EPILOGUE: The Last Drop

  Acknowledgments

  Notes

  About the Author

  To Gina,

  my little sis,

  a great lover of coffee —

  even if she drowns it

  in vanilla syrup

  INTRODUCTION

  The Experiment

  Depending on your ideological tilt — and, really, on how much you like coffee — it was either an assault on decency itself or the most brilliant decision Howard Schultz ever made.

  In early 1991, just a few years after he had scraped together the money to buy a fledgling Seattle coffee company called Starbucks, Schultz’s most profitable café sat on a bustling intersection in the chic Robson Street shopping district of Vancouver, British Columbia. Aesthetically speaking, this coffee-house was unimpressive; it occupied a dilapidated, musty old space, and it had next to no room for patrons to sit down. Yet the store was a living testament to the world’s sudden, intense, and puzzling thirst for expensive coffee drinks. In an age when concoctions like the latte still seemed exotic and obscure, this tiny Starbucks served ten thousand people each week — and those were just the ones who could get in. The café was so busy, its lines so endless, that the store’s employees were certain they were turning away hundreds of potential customers every day.

  Which didn’t sit well with Schultz. A young and ambitious former house-wares salesman who grew up broke in Brooklyn’s housing projects, Schultz had been racing to snare customers and expand his chain since the day he bought it. When he acquired Starbucks in 1987, the company’s store count stood at eleven; barely three years later, he had increased its size nearly eightfold, to eighty-five cafés. So Schultz was not one to take lost customers lightly. For years, he had been pressing his Vancouver Realtor to find another space in the neighborhood, but nothing suitable turned up. And to make matters worse, Schultz learned that the landlord of his Robson Street store was planning to close down and gut the building within a few years, which would leave Starbucks without its main cash cow for as long as it took to complete renovations. For a company still struggling to break even selling coffee drinks that many considered as faddish as fondue or fanny packs, this was distressing news. In 1989 alone, Starbucks had lost $1.2 million; it couldn’t afford to lose much more.

  But as unwelcome as this information was, it gave Schultz an excuse to try an idea he’d been mulling over privately for quite a while — something that, as far as anyone could remember, had never been attempted before; something any sensible businessman would have called outright crazy. One day, while talking to his real estate agent about options for locations nearby, Schultz revealed the proposal.

  “What about the restaurant across the street?” he asked.

  “What are you talking about?” the Realtor said.

  “The one kitty-corner from us. I’ve been in there, and it’s dead.”

  “I don’t think they’re going to make it, and I doubt you could afford the rent,” the shocked Realtor replied, “but are you saying you’d open another one across the street?”

  “I would.”

  With that, Schultz set in motion a peculiar experiment: what would happen if he put a Starbucks literally within spitting distance of another Starbucks? (Their addresses were 1099 Robson Street and 1100 Robson Street — they were that close.) Schultz justified his plan to skeptical employees and investors in two ways. First, he explained that the move was guaranteed to generate dozens of news stories about the coffee chain that was insane enough to put two cafés across the street from each other, which would amount to free advertising for their cash-strapped company. Second, he argued that the twin Starbucks stores could develop completely separate clienteles if they looked different enough — essentially, if the company minimized the impression that someone had placed a giant mirror in the middle of the intersection. To this end, Schultz gave the new location a darker, more subdued design, with tones of black cherry, deep green, and white, which was at least marginally dissimilar to the first café’s touches of chrome and its emphasis on the loud colors of the Italian flag. On March 2, 1991, the dual-Starbucks intersection opened for business.

  That a Starbucks could open across the street from another Starbucks at all is strange enough, but the truly mind-boggling part of the story is this: instead of laughing Starbucks out of town for doing something so presumptuous, customers flocked to the new café as if the nearest alternative were out in the wilds of the Yukon. Schultz expected the two stores to eat away at each other’s sales, but nothing of the sort happened. As he’d hoped, they attracted mostly different crowds; the new café lured the well-heeled business set, while the original drew a hipper, more relaxed clientele. And both groups turned up in droves. Schultz’s gamble had hit the jackpot — amazingly, his two Robson Street coffee-houses soon became the best-and second-best-performing stores in the chain. The bizarreness of this point begs to be reemphasized: Starbucks’s top two stores were fifteen yards away from each other.

  On that street in Vancouver, Schultz saw what no one else saw. He saw that each corner of the intersection had its own unique traffic flow. (“It wasn’t a different neighborhood, but it had a different vibe,” he later told Newsweek — referring, incredibly, to the other side of Robson Street.) He saw that he could snag thousands of new customers just by making his store a few steps more convenient. But most important, he saw the sheer magnitude of society’s thirst for gourmet coffee drinks. As Art Wahl, an early real estate broker for Starbucks, put it to me, “After that, we said to ourselves, ‘Oh my god . . . We can put these things closer together than we ever imagined.’ ”

  Today, of course, the multi-Starbucks nexus is a common sight. For instance, in Portland, Oregon, when people wander through the Pioneer Place mall and see the Starbucks on the first floor and another hovering directly above it on the third floor, the spectacle doesn’t even merit a double take — despite the fact that a mere twelve feet of space separates them. If you stand in the right spot on Manhattan’s Astor Place, you can make out three Starbucks: one by the subway entrance, another across the square, and a third in the bordering Barnes and Noble. We’re now so accustomed to the chain’s ubiquity that its café cluster bombs have become more a source of comedy than concern. Take the movie Best in Show (2000) in which two characters playing a married couple explain how they first met at Starbucks: “Not the same Starbucks,” the husband clarifies. “We were at different Starbucks across the street from each other.” This could actually hap
pen. It probably has happened.

  So again, depending on your particular worldview, you could see any number of things in Schultz’s Robson Street gambit. Some view it as a victory for gourmet coffee or even as a welcome convenience. Others consider it a stroke of entrepreneurial genius, a monument to one of the great business stories of the past half century. And then there are those, like the comedian Lewis Black, who believe it foretells something far more dire.

  “Things went fuzzy for a moment,” Black wrote of his first double-Starbucks sighting, in Houston, “but when my head cleared, it felt as if God had reached down and bestowed upon me all the knowledge ever gathered since the beginning of time. I was indeed looking at the much-sought-after end of the universe.”

  The Call of the Siren

  Some things people need. Even the most Spartan lifestyle requires food, water, shelter, clothing, and so forth. No one in the history of humanity has ever needed a latte — much less a double tall vanilla soy latte, no foam, extra hot — yet the world’s thirst for them appears unquenchable. Twenty years ago, you couldn’t fill a high school gym with the number of Americans who knew what a macchiato was, but good luck finding a convenience store or gas station minimart that doesn’t offer espresso drinks today. Modern society accepts a level of coffee micromanagement that would have appalled our forebears. When we see someone giving more attention to the precise, scientific application of Splenda to their morning cappuccino than they seem to bestow on their own personal hygiene, do we even bother to raise an eyebrow anymore?

  Ours is a caffeinated nation. We buy more coffee than any other country in the world — almost a third of the planet’s supply — and consume somewhere around 110 billion cups of it per year. There’s no shortage of impressive-sounding statistics that demonstrate the little brown bean’s dominance over our lives: coffee is the second-most-traded physical commodity in the world, after petroleum; four out of every five American adults drink the beverage regularly.

  But these are just factoids. A better illustration of the pervasiveness of coffee in American life is currently floating around in Boston Harbor. In 1998, two researchers from the University of Massachusetts Boston performed a comprehensive chemical analysis of the harbor, and they learned something surprising in the process: its waters contain a significant amount of caffeine. The concentration was low — not even enough to give the fish a buzz — but its very presence was puzzling. Caffeine forms in only a few land-dwelling plants, so how did it get into Boston Harbor? The polite answer: human waste. Every day, the Boston metropolitan area ingests one thousand pounds of pure caffeine, a substance so potent in its crystallized form that one must don a hazmat suit before handling it. Human bodies absorb only 95 percent of this, which means that a huge dose of caffeine enters the waste stream and trickles into Boston Harbor every day. The net effect of this is comparable to dumping around a million cups of coffee into the harbor each week. In fact, caffeine shows up in hundreds of the nation’s rivers, lakes, and bays — as well as in treated drinking water. Edward Furlong, a U.S. Geological Survey researcher, even has a nickname for this phenomenon: “the Starbucks effect.”

  Starbucks didn’t invent coffee, of course; it just did something with it that no one thought possible. The company took a commodity that Americans could get for a quarter at carts and diners, reshaped it into a luxury product, convinced customers to buy it at hugely inflated prices, and built stores only a few blocks apart in every major city, yet patrons continue to line up in ever-greater numbers to fork over their money. Indeed, Starbucks has grown so popular with consumers that it even has the power to turn them from sinners into churchgoers. When one Southern Baptist pastor in Cooper City, Florida, set out to boost attendance at his church’s 2006 Easter service, he decided to send out a mailer promising a ten-dollar Starbucks gift card to every new parishioner. As the Miami Herald reported, the bait was devastatingly effective. On Easter Sunday, eighty-five hundred people — almost double the church’s typical Easter attendance — showed up for the service; the church’s staff actually had to turn people away at the parking lot. In the twenty-first century, apparently, the path to salvation includes pit stops for Frappuccinos.

  Fueled by this cultlike popularity, Starbucks now owns its market like few other companies in recent memory. Here’s a challenge: try to name the number two coffee-house chain in America. Any ideas? The question is especially tough to answer because the company’s closest competitor, the Minnesota-based Caribou Coffee, is just one twenty-fifth the size of Starbucks. In fact, if you merged all of its rivals (that is, chains with more than three stores) into one patchwork coffee goliath, it still wouldn’t be even half the size of Starbucks. “It’s like McDonald’s with no Burger King or Wendy’s or Subway,” said Kevin Knox, a longtime Starbucks roasting expert who is now an industry consultant. “It’s total domination.”

  With $7.8 billion in annual revenues, forty million customers a week, and more than thirteen thousand stores, Starbucks is no fondueesque fad. It’s a new American institution.

  Actually, given the chain’s breakneck international expansion and its ability to reshape coffee-drinking habits the world over, Starbucks is more like a global institution. Hyperbolically titled books abound these days, telling us How Velcro Shaped History and Why Paprika Matters, but with Starbucks, it’s no stretch to say that the company has changed the dynamics of the modern world. It influences automotive traffic patterns, affects the welfare of some twenty-five million coffee farmers, and sways the cultural customs of entire nations toward espresso consumption. It has inserted itself into the American urban landscape more quickly and craftily than any other retail company in history, and it has forever changed the way Western companies market themselves to consumers. Former Starbucks CEO Orin Smith, speaking to Fortune magazine, stated all of this even more boldly: “We changed the way people live their lives, what they do when they get up in the morning, how they reward themselves, and where they meet.”

  When you think about it, this whole phenomenon is baffling. How could a simple coffee company attain such wide-ranging influence on society, with its luxury-priced products becoming a fixture in daily life virtually overnight? In 1989, the United States could claim a grand total of 585 coffee-houses, according to statistics from the Specialty Coffee Association of America, and most people considered the idea of a business dedicated to selling coffee by the cup to be absolute lunacy. For years, business pundits thundered predictions of the coffee-house’s impending demise; yet today, America boasts twenty-four thousand of them and counting. After decades of exponential growth, the industry is still expanding faster than ever. This sustained café explosion has been an incredible moneymaker, but it’s far more than that: it’s a legitimate social movement. All around the globe — both in countries with their own centuries-old café culture and in those where coffee drinking was virtually non-existent twenty years ago — the coffee-house template pioneered by Starbucks is becoming dominant and pervasive. Millions of people the world over have integrated cafés into the fabric of their lives, making them into second homes. So surely, there must be some astonishing secret behind the coffee-house’s raw, bewitching magnetism.

  Luckily, we have the British government to help us figure these things out. In 2002, Britain’s Economic and Social Research Council gave two Glasgow University professors a $250,000 grant to investigate the social factors driving the rise of café society in England. The researchers, Eric Laurier and Chris Philo, conducted an exhaustive three-year campaign into the very heart of human behavior; they became “regulars” at a coffee-house, videotaped customers in their native environment, took extensive field notes, trained as baristas, conducted interviews with patrons and staff, and plumbed library archives for historical and literary context. The project’s staggering conclusion? Coffee-houses are comfortable, welcoming places where people can enjoy time alone or with others. Among Laurier and Philo’s crucial findings is the insight that the music played changes throu
ghout the day (at night, “There is more funk. It is a hearable thing”) and that a café visit is “a sequential object with a beginning, ordering, seat selecting, occupying the table, and leaving.”

  From this, we can draw a couple of conclusions: first, that the British government evidently plays it fast and loose with grant money; and second, that coffee-houses appeal to us on a deeper level than it might appear. Laurier and Philo’s results feel underwhelming not only because they’re painfully obvious and simplistic, but also because they fail to address exactly what it is about coffee-houses that makes them so enthralling to consumers. After all, cafés aren’t the only warm and convivial places in Britain — so are pubs. What’s more, the findings don’t speak to why coffee-houses have such strong allure all over the planet, even in countries that have long avoided coffee altogether, like China and, well, England. Starbucks has certainly had a lot to do with glamorizing and popularizing the coffee-house in America and abroad, but could it all be thanks to the company’s Midas touch? Why would the concept work just as well in Shanghai as it does in Seattle?

  Perhaps more important, do people want Starbucks to work just as well in Shanghai as it does in Seattle? For many, the answer is a resounding no. Starbucks likes to envision itself as a global good Samaritan, sprinkling community spirit and glee hither and thither like pixie dust, but the company has also kicked up a sandstorm of conflict. Foremost among the complaints are those about the chain’s ubiquity; Starbucks often tests the boundaries of what consumers will accept. To illustrate, consider this question:

  Which of the following places does not have a Starbucks?

  A. Guantanamo Bay Naval Base in Cuba

  B. A Christian church in Muncie, Indiana

  C. Beirut, Lebanon

  D. The town of Starbuck, Washington

  E. The Great Wall of China

  The correct answer, which was probably obvious since it doesn’t seem likely to enrage anyone, is D. The tiny eastern Washington town of Starbuck lies forty long miles from the nearest Starbucks, though hundreds of tourists pop in each year and are shocked to learn that Starbuck is not the company’s ancestral home. If Starbucks appears inescapable now, just wait. Howard Schultz likes to say that his company is only in “the second inning of a nine-inning game,” and his goal of forty thousand stores worldwide would make Starbucks the biggest chain on the planet.