Starbucked Read online

  If the kids were into it, the entertainment media couldn’t be far behind. The most symbolic coffee-house of the time was a fictional haunt called Café Nervosa, on the NBC sitcom Frasier. The show’s neurotic psychiatrist star had been a regular at the iconic 1980s bar where everybody knew your name, Cheers, but when he went solo in 1993 and moved out to Seattle, he switched his allegiance to a coffee-house. It was a cultural changing of the guard; out with the bars, in with the cafés. And another, more infamous example soon followed: Central Perk, a Starbucksesque Manhattan coffee-house and second home of the sextet from Friends. Unlike the effete snobs of Frasier (whom one would expect to see drinking cappuccinos with pinkies raised), the attractive Friends cast inspired popular emulation — not just by the legions of women who wanted “Rachel hair,” but by the millions of ordinary Americans suddenly itching to loaf around at coffee-houses. Budding coffee impresarios designed their cafés to look exactly like the Friends hangout, down to the orange velvet couch and the comically large mugs. Before long, everyone wanted to sell espresso, no matter how odd the circumstances. Even Hustler’s sex superstore in West Hollywood added a coffee bar, so customers could enjoy a latte while perusing the merchandise.

  All coffee-houses benefited from the national spotlight on the caffeinated lifestyle, but Starbucks was the only one with the funds and cachet necessary to flood the country with its stores. Between 1992 and 1995, Starbucks mounted full-scale assaults on Boston; New York; Washington, DC; Denver; San Diego; Minneapolis; Dallas; Atlanta; Las Vegas; Cincinnati; and Philadelphia, just to name a few. (The opening of the first Manhattan Starbucks was such a huge event that the company had to hire someone to do crowd control at the door.) In 1990, Schultz had brought in Orin Smith, an elder-statesman-like financial expert with a Harvard Business School pedigree, to help rein in the chaos, and the decision paid off. With Smith as the company’s president, Schultz as its charismatic CEO, and Behar as its retail whiz — a management trio employees dubbed “H2O,” for Howard, Howard, and Orin — Starbucks showed the first signs of becoming a disciplined, dominant profit machine. As one former executive explained it to me, “You had the visionary in Howard Schultz, the scrappy executioner who wouldn’t let any bullshit get in his way in Behar, and Orin was the pillar.” In July 1993, the month of his fortieth birthday, Schultz made his first appearance on the cover of Fortune magazine.

  Competitors like Seattle’s Best and Diedrich Coffee certainly couldn’t match Starbucks’s management or bankroll, but the company had one more weapon in its arsenal that truly secured mainstream domination: a glorified milkshake called the Frappuccino. “It just got so big so fast, and ’95 was the turning point,” the longtime barista Suzanne Foster told me. “The Frappuccino reinvented them.”

  Despite its explosive success, Starbucks hadn’t added a single new drink to its menu since Schultz bought the company in 1987. * If Schultz had gotten his way, it never would have; the boss still believed Starbucks was bringing the authentic Italian espresso bar experience to Americans, and he flew into a rage whenever anyone suggested altering the drinks even slightly. After Howard Behar proposed that Starbucks cave to customer demand and offer nonfat milk — a painfully obvious choice today — Schultz grew so livid that Behar thought he would be fired. (Schultz and the rest of the company’s ultraconservative faction finally gave in to skim milk after a day and a half of tense, combative meetings on the subject.) And when Harry Roberts suggested that Starbucks carry a few syrups to add to the drinks, Schultz sent him in front of an employee firing squad at a charged town hall meeting, where Roberts had to defend the idea under withering questioning. The spirit of innovation wasn’t exactly roaming free.

  So try to imagine how Schultz responded when some proposed that the company introduce a cold blended drink that would require a noisy blender and a radical departure from the Italian aesthetic — you can’t get much less Italian than a milkshake. “I remember Howard telling me, ‘We’ll never have that product in our stores,’ ” Behar recalled. “So we just did it behind his back.” There’s plenty of dispute over who can include themselves in that “we,” however; at least half a dozen different people told me they “invented the Frappuccino.” Many have legitimate claims, but all roads lead back to Santa Monica.

  At the time, the Southern California Starbucks stores were deserted in the afternoons. Customers would overwhelm them in the mornings, when the weather was relatively cool, but once the Californian heat started cranking, few people had any interest in hot coffee. In the early nineties, various Starbucks teams had tried to formulate a recipe for a powder-based granita — a milky, sugary coffee slush — but Schultz inevitably hated the chalky-tasting results. By May 1994, the project had fallen all the way to Anne Ewing and Greg Rogers, the two managers of a Starbucks on the Third Street Promenade in Santa Monica. Since the two had worked together previously at a smoothie bar called Humphrey Yogart, they knew the intricacies of blended drinks. Rogers began experimenting, and before long he had something he liked. “It was just half and half, regular sugar, espresso, ice, vanilla powder, the chocolate powder we used for mochas — basically, all of the ingredients we happened to have in the back room,” Rogers told me. “I didn’t even go out and buy anything for it.”

  Once Behar tasted the new drink, he insisted on giving it a test run — much to the chagrin of the company’s old guard, who considered it a blended abomination. “Then as soon as they saw our sales, they changed their tune,” Rogers recalled. “By the end of that summer, it was thirty percent of sales.” Starbucks refined the formula and gave the concoction a proprietary name it had acquired from George Howell’s Coffee Connection earlier that year: the Frappuccino. When Starbucks debuted the drink on the national stage in April 1995, it was an instant hit. The bottled version, produced jointly with Pepsi, initially sold ten times faster than either company expected; Pepsi had to pull the product completely until it could build enough capacity to keep up with the demand. Today, the Frappuccino alone brings in well over a billion dollars a year.

  In exchange for their gift to Starbucks, Rogers, Ewing, and their district manager, Dina Campion, each received a five-thousand-dollar bonus, a glass statue called the President’s Award, and — after Rogers complained — a Rolex watch. (“They would laugh if someone asked if Starbucks is corporate and bureaucratic,” Schultz wrote of the three in his book.) Rogers remained a manager at the Santa Monica store for a while but soon left, bitter that he hadn’t even received a promotion within the company; customers at the time reported seeing an employee wearing a shirt that read, “I invented the Frappuccino, and all I got was this lousy T-shirt.” He eventually came to terms with the resentment, but not the sad reality that he couldn’t even use his creation as fodder for cocktail party conversation. “About a year after the Frappuccino came out in grocery stores, I was standing in line next to a girl,” he said. “She asked me, ‘Have you tried these? They’re so delicious.’ So I said, ‘Well actually, I invented it,’ and she just looked at me like I was the village idiot and turned away. I kind of eased up on telling people about it after that experience.”

  With the invention of the Frappuccino, the company’s metamorphosis from small-time latte peddler to caffeine dynamo was finally complete. In the drink, Starbucks had more than a wildly successful product; it now had a draw for those who would’ve never fallen for bitter espresso drinks. The coffee-house had once been a place to make a statement about one’s political and artistic values, but Starbucks — with its perky employees, mainstream chic appeal, and coffee-flavored shakes — transformed it into a haven for moms and office workers. Anywhere Starbucks went, customers of all types flocked in.

  No one was safe from the coffee-house’s charms. Lured in by the Frappuccino — what we might call a gateway drink — teenage girls latched on to coffee as a signal of maturity and celebrity-endorsed cool, and the vanilla latte became their beverage of choice. It was also a fashion accessory; one teen told the Seattle Times, �
�Carrying around a cup of coffee helps complete a look. A pair of capris, flip-flops, and a coffee — and it has to have that cardboard sleeve — is very trendy.” Evangelical Christians took to it as well; some megachurches even put cup holders in the pews. As Monique Willett, a customer who coerced her family into driving to Starbucks whenever possible, explained it to the Washington Post, “We just have to stop at a Starbucks. . . . Sure, it’s a little expensive. But we’re Christian and don’t have any other vices. Coffee is it.” (In Utah — stronghold of the Mormon church, which forbids caffeine consumption — independent coffee-houses reportedly offered to serve customers drinks in opaque 7 Up cups to conceal their sinful habit from others.)

  By the end of 1995, Starbucks was up to almost seven hundred stores, and coffee-houses were a certifiable phenomenon; when cappuccinos became available at Mobil stations, we had passed a point of no return. In the decade since Schultz had started Il Giornale, specialty coffee had developed from an afterthought inside the mass-market coffee trade into a vigorous $2.5 billion growth machine. Coffee-crazy Americans were buying up products like “Lipachino” caffeinated lipstick, “Shower Shock” caffeinated soap, and “Coffee Tights” caffeinated hosiery. (The caffeine was supposed to eliminate cellulite by revving up skin cells.) The gourmet coffee industry was doubling in size every four years, and Starbucks was doing that every two years. The national validation emboldened Schultz, fueling increasingly grandiose pronouncements. “If I look at the landscape of America, we have an opportunity to change the way people live,” he declared to the Seattle Times. Whereas before Schultz had been awestruck that the CEO of Pepsi wanted to fly him around in his private plane, now he was making public appearances with President Bill Clinton.

  But even though America was responding so enthusiastically to its coffee and to the third-place concept, Starbucks was still a company with a major internal problem: Schultz wanted his company to be growing by thousands of stores a year, not just hundreds, yet the costs of designing and building each store individually were spiraling out of control. New competitors were popping up all the time. Meanwhile, Schultz himself was reaching the limits of what he could micromanage; he was still approving each decision personally and attending almost every store opening. “I can’t do this. It’s killing me — it’ll keep me from being a good father,” he confided to one coworker. What Starbucks needed was a system for opening dozens of stores a week without breaking a sweat, and a formula that would hook its customers permanently. The endearing coffee-fanatic ethos and anti-fast-food philosophy had to go. To get where it is today, Starbucks had to become a machine.

  3

  The Siren’s Song

  In the spring of 1999, keepers at the National Zoo in Washington, DC, noticed that their most famous resident, the giant panda Hsing-Hsing, had stopped eating his daily meal of bamboo and rice gruel. At the ripe old age of twenty-eight, Hsing-Hsing — who had arrived at the zoo in 1972 as a gift from Mao Tse-tung to mark President Richard Nixon’s infamous China visit — was suffering from arthritis, which left him lethargic and uninterested in food. The worried keepers knew the only way to keep him comfortable was to get him to swallow anti-inflammatory pills, but Hsing-Hsing had no interest in swallowing anything at all. For years, they had been able to trick the panda into taking his medication by hiding it inside a sweet potato; now Hsing-Hsing eyed these with distaste. Zoo veterinarians knew better than to try to force pills down Hsing-Hsing’s throat (pandas may look like teddy bears, but they’re still bears), so they just kept trying different foods, hoping that something would stir his appetite again.

  One day that June, a keeper named Brenda Morgan — a self-described “Starbucks addict” — was having her morning coffee and blueberry muffin near Hsing-Hsing’s cage when the panda suddenly caught the scent and became unusually animated. After Hsing-Hsing enthusiastically accepted Morgan’s offering of muffin, the keepers were elated; now they could embed the panda’s medication in a blueberry muffin, and he’d be feeling better in no time. But as they soon found, there was one hitch to this plan: Hsing-Hsing wasn’t interested in just any muffin — in fact, he refused even to touch store-bought or frozen varieties. They had to be Starbucks blueberry muffins.

  In other words, Hsing-Hsing was the ideal Starbucks customer. For him, no other muffin experience would suffice, a sentiment Starbucks has long endeavored to drill into its customers’ brains. After all, Starbucks doesn’t sell a patented, complex product like a microchip; the bulk of its sales comes from two commodities you can buy anywhere, coffee and milk. When your core product is something that basic and easily copied (and you’re charging an outrageous markup), you must give people a reason to believe that no competitor is even worth considering. To become a globe-straddling colossus, you must create millions and millions of Hsing-Hsings.

  Starbucks has an uncanny knack for this. Its ability to lure customers in, convert them into devotees of the Starbucks brand, and milk every penny out of them is virtually unequaled in the retail universe. The average Starbucks customer comes in eighteen times a month, a rate Howard Schultz claims makes the company “the most frequented retailer in the world.” Just how good is Starbucks at winning over the hearts and wallets of its clientele? Consider the case of Tully’s Coffee, a midsize chain that has made a policy of locating each of its stores as close to a Starbucks as possible, to capitalize on overflow customers and Starbucks’s savvy real estate machine (which we’ll discuss in the next chapter). “The theory is, Starbucks probably has more people in its real estate department than we have total,” explained Tom O’Keefe, the head of Tully’s. In effect, most every Tully’s goes head-to-head with a Starbucks. Tully’s offers more or less the same drinks as its giant rival, its stores look very similar, and its freshly baked pastries are vastly better than those at Starbucks — many of which are prepared at massive bakeries in Texas and Pennsylvania, then shipped frozen all over North America. On the surface, Tully’s seems an awful lot like Starbucks. Yet the average Tully’s brings in revenues of about $400,000 a year; the average Starbucks has over $1 million in revenue.

  So why would Starbucks stores demolish the competition by such a wide margin? Price couldn’t have been a factor, since the chain generally charges more than its competitors. And it certainly isn’t due to the company’s advertising presence; between 1987 and 1997, Starbucks spent $10 million total on ads — an amount Coca-Cola blows through every two days. Maybe it was something about the coffee? Indeed, research by the Wall Street Journal revealed that Starbucks’s drip coffee packs more of a caffeine wallop than any other major brand, which makes it easier to develop physical dependence on its product. But really, the caffeine gap is too slight to provide Starbucks with any actual advantage. In truth, the quality of the company’s coffee has very little to do with its dominance, as many who have worked for the chain admit. “To be honest, you could train a monkey to pull a double shot,” said Scott Bedbury, a former Starbucks marketing director who also guided Nike’s legendary “Just Do It” campaign in the 1990s. “It’s just not that hard. The coffee wasn’t the hard part.”

  If it wasn’t advertising, value, or even the main product that ensnared so many customers, then what was it? The secret behind Starbucks’s magnetic pull on consumers lies in the extraordinary amount of control it exercises over its image. At Starbucks, nothing is accidental. Everything the customer interacts with, from the obsessively monitored store environment down to the white paper cups, is the product of deliberation and psychological research. The coffee-house as we know it is a calculated creation, tweaked and refined in large part by Howard Schultz and his army of designers. In an age when homogenous ad campaigns cover every surface that can be bought, Starbucks chose a novel marketing approach: it transformed into an ad for itself. Its stores became billboards, its cups and bags mobile brand beacons. And the company made sure to keep people thrilled to help the cause. No longer would consumers just grab coffee; now they would come for the “Starbucks Experi
ence.”

  For its ability to create a new, brand-centered coffee-house lifestyle, Starbucks has become a darling of the business world and an object of considerable emulation. Companies now want to turn themselves into “the Starbucks of the ham business” or “the Starbucks of fuel-injector makers.” “Starbucks has moved coffee from being a commodity to an experience,” said Kirk Kinsell, the CEO of the Hangars Cleaners chain, in Inc. magazine. “We are moving dry cleaning from being a chore for the customer to an experience.” With the right amount of Starbucksian finesse, would customers even relish having a shirt pressed? Who knows? As the cultural critic Virginia Postrel explained in her book The Substance of Style, Starbucks’s aesthetic focus in many ways rewrote the rules of American business: “With its carefully conceived mix of colors and textures, aromas and music, Starbucks . . . is to the age of aesthetics what McDonald’s was to the age of convenience or Ford was to the age of mass production — the touchstone success story, the exemplar of all that is good and bad about the aesthetic imperative. Hotels, shopping malls, libraries, even churches seek to emulate Starbucks.”

  But imitating Starbucks’s branding and design is no easy task; it’s not just a matter of inventing some New Age iconography, jamming stores with plush furniture, then tripling prices and watching the cash flow in. At Starbucks, what you don’t see can be more important than what you do see. As Eric Flamholtz, a business consultant who worked with Starbucks for many years, told me, “All of these things they were doing were invisible to their competitors. It’s like the stealth bomber — if you can’t see it, how can you copy it?”