Starbucked

Taylor Clark

📚 GENRE: History

📃 PAGES:  301

✅ COMPLETED: September 6, 2021

🧐 RATING: ⭐⭐⭐⭐

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Short Summary

Taylor Clark takes readers on a deep journey through the history of coffee, the evolution of Starbucks, and the polarizing discussions around gentrification and fair trade in the coffee industry. Clark reveals some of the strategies that have fueled Starbucks’s success, including the company’s comprehensive approach to real estate, hiring, and expansion.

Key Takeaways

1️⃣ Provide Value to Customers — A lot of the success Starbucks had early on can be attributed to creating and executing this idea of ‘The Third Place.’ This concept was inspired by the culture in Italy and was designed to provide customers with a third place, aside from the home and the office, to come in, relax, and interact with others. 

2️⃣ Persevere — After being hired in a marketing role initially, Starbucks CEO Howard Schultz tried several times, unsuccessfully, to get the company to adapt from its strictly coffee bean selling nature. He wanted the company to expand its ways and begin offering espresso to customers. When the company wouldn’t adapt, he created his own company and later came back to run Starbucks.

3️⃣ Real Estate = The Starbucks Secret Recipe — Starbucks owns and operates TONS of stores worldwide. The real estate value involved with these stores is huge. The company is both strategic and highly aggressive when selecting store locations. There’s a reason why there are usually 3 or 4 Starbucks stores right next to each other. 

Favorite Quote

"I didn’t know what to make of Howard (Schultz) back then. He was aggressive, not at all like the typical person I was used to dealing with in the coffee industry — laid back people who thought two stores would be plenty. Howard was always thinking bigger than that."

Book Notes 📑

*Did not take chapter-by chapter notes on this one. Running list below.

  • Coffee IS a drug. It’s a mind-boosting psychoactive drug that puts you in an altered state
    • It’s just so widely accepted and used that it doesn’t even matter
    • It can be addictive 
    • In soft drinks, caffeine is not part of the soda-making process at all. It’s always an additive that is used specifically for its addictive tendencies 
    • Starbucks drinks have much more caffeine in them than the competition
  • The coffee industry benefits from incredible profit margins
    • It costs like 16-30 cents to make a cup of coffee before overhead. Selling at like $4 a cup makes a big profit. 
  • Oil and coffee are the two most traded commodities in existence
    • Brazil and Colombia are the world’s top coffee producers
  • Java and Mocha were two islands that were major coffee sources in the 1700s
    • Mocha ☕ is now a drink you can order. It’s a drink at Starbucks and other coffee houses. 
  • 1987: Howard Schultz acquires Starbucks, which was based in Seattle and had 11 stores
  • 1991: In Vancouver, Schultz took a risk and opened a Starbucks 15 yards across the street from his best performing Starbucks location
    • Did this because the original location was doing well but had to turn away customers
    • This gamble worked out perfectly. Both locations did extremely well.
    • Because of this experiment, you now see Starbucks stores super close to each other throughout the world.
  • America loves coffee
    • We buy more coffee than any other country 
    • 110 billion cups consumed per yr 
    • After petroleum (oil), it’s the second most traded commodity in the world
    • In 1998, researchers found traces of caffeine in the Boston Harbor water because so many people in Boston were consuming coffee and pissing and the waste runs into the harbor 
  • Starbucks dominates the coffee market. No close competitor at all. All of its competitors combined would equal half of Starbucks size.
  • Although it was always a popular drink, coffee was not a thing in America in the 1940-1980 period.
    • People made horrible tasting coffee and most people just didn’t really drink it much
    • This gave Starbucks the opportunity to create much better tasting coffee and re-spark America’s love of coffee
  • 1773: The Boston Tea Party
    • 50 Boston citizens dressed like Mohawk Indians raided 3 English ships and chucked 342 crates of Tea into the Boston Harbor
      • Did this because they were upset with British rule at the time 
    • This sparked a surge of interest for coffee because it became American while tea was seen as British. We were against the British big time.
    • The Green Dragon coffeehouse in Boston became the “headquarters of the revolution”
  • Coffea Arabica = the leafy tree that generates all of the planet’s coffee
    • Found in Ethiopia 
    • It was discovered in the 6th Century when a goatherd named Kaldi noticed his goats were behaving weird after sniffing some of the coffee trees. He tried some of the berries and noticed the effects of caffeine. 
  • In 1700s Europe, people drank beer for breakfast. Their water was so contaminated that beer was the dominant drink. People walked around drunk.
    • The emergence of coffee changed Europe forever
      • People were more productive
      • People could wake up in the morning easier
  • England later moved to Tea because coffee tasted bad. So tea became the dominant drink.
  • As Americans began to attempt to make coffee taste better in the 70s and 80s, Gordon Bowker, Jerry Baldwin, and Zev Siegl decided to start Starbucks
    • Bowker had been making trips from Seattle to Vancouver to get good coffee beans. One day decided to import them because he was bringing back so much from Canada for his own personal use.
    • Starbucks was named after a crew member named Starbuck who was aboard the Pequod, a ship in the story Moby Dick 
    • The logo is the headshot of a naked mermaid drawing
  • March, 1971: First Starbucks is opened in Pike Place Market in Seattle
    • Today it is still operational and a big tourist destination 
    • The first Starbucks was a replica of Peet’s Coffee. Alfred Peet gave them permission to copy Pete’s Coffee at first. 
    • Starbucks was originally established to sell coffee beans by the pound to customers for home brewing. They offered samples via cups but that wasn’t the intent of the business at first. 
  • For Starbucks, success came more so because of the EXPERIENCE they were delivering than the actual coffee itself
    • 1983: Howard Schultz visits Milan, Italy and witnesses how the espresso bars worked there
    • Rather than selling coffee beans to customers once a week (as Starbucks was doing), these espresso bars were serving Italians coffee every day
    • The Italian coffee bars were more like social hubs for people to come to, talk with people, and have a great experience
      • Schultz loved it and wanted to replicate it with Starbucks on the U.S.
      • But Starbucks original owners were resistant to the idea of selling beverages. They wanted to continue to sell coffee beans exclusively. This drove Schultz crazy.
  • Schultz had a deep fear of failure but worked out of it by making 50 sales calls a day while a salesman at Xerox shortly out of college
    • Lesson: do what you’re scared of until the fear goes away
    • He was also VERY competitive.
      • Lesson: Compete!!
  • 1981: Schultz is a Vice President of a housewares company and notices that Starbucks is buying a large number of drip coffee makers.
    • He flies out to investigate 
  • 1982: Schultz is hired in a marketing role at Starbucks after begging to be part of the company
  • Quote (P.58): “I didn’t know what to make of Howard back then,” said Joe Monaghan, a Seattle coffee industry veteran. “He was aggressive, not at all like the typical person I was used to dealing with in the coffee industry — laid back people who thought two stores would be plenty. Howard was always thinking bigger than that.”
  • 1984: Schultz gets his way and Starbucks opens an espresso bar in one of its stores
    • Business was immediately booming thanks to the cafĂŠ latte, a cup of warm milk with a shot of espresso dropped in 
  • 1985: Schultz is again frustrated and leaves Starbucks to start his own espresso coffee company called Il Giornale.
    • He does pretty well, opening 7 stores in Seattle area
  • 1987: Starbucks owners decide to sell and Schultz acquires the company and merges Starbucks and Il Giornale into Starbucks Corporation.
    • Schultz has good success opening more and more stores through the late 80s and 90s
    • He tried to expand out of Seattle by choosing Chicago. The first Chicago store opened on October 19, 1987 aka Black Monday — the date of the 2nd largest one-day stock market drop in US history.
      • It was a failure at first but ultimately turned around 
      • This was regarded as the closest Starbucks came to failing
    • After Chicago, Schultz expanded the company to LA, where they had huge success 
  • Starbucks went public on the stock market with an IPO in 1992
  • Starbucks’ rise came in part because of the time period (Late 80s and 90s)
    • Technology was causing people to feel more disconnected from others
    • Incomes were rising so people were willing to spend disposable income on expensive products, like Starbucks coffee
    • Smoking and tobacco and other things were becoming unpopular vices 
  • Starbucks big appeals were:
    • The coffee 
    • The environment/“The Third Place”
      • Starbucks prided itself on producing an Italian style cafĂŠ coffeehouse environment 
      • People could come and feel unified with others as the world was becoming more disconnected
      • People could meet and talk with others over coffee at the cafÊ 
      • Starbucks became a “third place” for people to come and enjoy time. The other two “places” are home and work.
        • Starbucks heavily used this “third place” idea in its marketing and how it presented itself to consumers 
  • 1995: Starbucks debuts the Frappuccino, a new proprietary drink that they invented
    • A couple of Starbucks baristas at a Santa Monica Starbucks invented it on their own 
    • This new product allowed Starbucks to tap into even more consumers that weren’t customers before. Expanded their market share. 
    • Here’s an example of a new product fueling growth, as Philip Fisher writes about in his book: Common Stocks and Uncommon Profits 
  • Starbucks found, through extensive research, that its customers wanted an experience with their coffee and they were willing to pay for it.
    • Again, Starbucks’ success was more about the experience that was being delivered than the coffee itself
    • Starbucks began to call it “The Starbucks Experience”
  • A lot of the Starbucks mystique comes from its cup/size names
    • Tall = Small
    • Grande = Medium
    • Venti = Large (20 oz)
      • Venti means 20 in Italian and Spanish. Starbucks trademarked the word.
      • “Small” actually does exist as a secret menu item 
  • Starbucks was the first to purposely put the espresso machine in front, rather than the back, so customers could see the barista make the coffee.
    • Previously, these machines were placed in the back because of the noise generated 
  • As the company was rapidly expanding in the late 90s, they needed a more efficient and cost-effective way to open stores.
    • They hired a head designer, who created 4 coffee house “molds” that saved the company time bd money with each store
    • These molds are essentially the same thing but painted and designed different. The same furniture and parts are used. Contractors are shipped the materials and just have to glue it together basically.
      • Hence, all Starbucks stores look very similar 
      • Also, most of the money spent on the designs targeted the are between a customer’s knees and eye level. The ceiling for example is cheap. 
    • These coffee house molds allowed the company to open a ton of stores in the late 90s. 3,500 by 2000. 
  • Long lines have always been the biggest problem at Starbucks. But the company has consistently fought it:
    • A customized ice scooper to make Frappuccino’s 14 seconds faster on average 
    • Steam wands with temperature sensors so milk stops foaming at the perfect time 
    • People are generally content in a line for 90 seconds. After that, they begin to get impatient.
  • As of 2006 (when this book was written), Starbucks owned 73% of the specialty coffee market share 
  • The REAL KEY to Starbucks’ massive growth has been its real estate approach
    • Competitors can make coffee, offer an experience, etc. but Starbucks is absolutely dominant when it comes to real estate and getting high quality location stores. Nobody can compete.
    • They aim for high visibility locations and convenient locations for customers
      • Most stores are on the customer’s right when driving to downtown. Allows for an easy right hand turn into the parking lot.
      • Many stores were located by dry cleaning places because you have to drop off and pick up your dry cleaning. Two chances to buy a latte. 
    • Starbucks would literally bomb a city with stores. They would open a hub in the most popular part of town and then surround it with a bunch of smaller stores. Pure domination of the city.
      • This forced competitors to open stores on the outskirts of the city in less popular spots 
  • Chain store (like Starbucks) vs independent stores (mom and pop stores):
    • Chain: Tap into a community’s cash pool and reroute earnings to company investors 
    • Independent: Earnings are circulated throughout the local economy. Money stays in the local area.
  • Some people resist when Starbucks tries to open a store in their neighborhood, but gentrification brings:
    • Higher income levels
    • Higher quality of life
    • Elevated home prices for homeowners
    • Tourism 
  • Opposers of Starbucks want their town to remain unique and retain local charm. They fear that a Starbucks in their town will make the town bland and uninteresting.
    • For most towns however, Starbucks helps stimulate growth and revitalization 
  • Starbucks is aggressive with opening new stores:
    • They have tried to buy out competitor (other coffee houses) leases by approaching landlords 
    • They have opened stores right next to their competition in hopes of flushing them out 
    • They have tried to outright buy their competitors’ stores 
  • Contrary to popular belief, Starbucks actually helps independent coffee houses.
    • Most independents have reported boosted sales when a Starbucks opens right next to them.
      • This is because Starbucks draws out customers, who then like to try other coffee houses nearby 
      • Independent coffee owners actually WANT Starbucks to move in nearby 
    • Also, Starbucks almost single handily revitalized coffee houses in the 1980s and 90s. Coffee was so bad and had no future before Starbucks. The company gave life to the industry. Some of these independents wouldn’t even exist today without Starbucks. 
  • One reason Starbucks hasn’t decimated local coffee houses like Walmart has decimated local store competition:
    • Walmart undercut everybody with low prices. Starbucks generally has the highest prices around.
    • Walmart stayed open longer and offered far more stuff than its competitors 
  • There are over 25 million coffee farmers in the world. Most operate small coffee farms in South America, Central America, and Africa
    • For many of these nations (like Ethiopia, Uganda, and El Salvador, the entire economy depends on the price of crops like coffee, bananas, sugar.
      • A drop in prices in these crops can lead to violence and political upheaval 
  • Ironically, coffee farmers have suffered as coffee houses (like Starbucks) have prospered
    • In the early 2000s, the price of a pound of coffee was 41 cents compared to $3.18 per pound in the late 90s. 
    • Fair Trade was established. They put stickers on pounds of coffee beans that were traded at a fair price (at least $1.26 per pound) 
  • The coffee bean was discovered in Ethiopia (Cafea Arabica) and later mass produced in Brazil.
    • The coffee bean reached the Americas after a Frenchman stole a portion of the French King’s coffee tree and planted it in one of the Latin American countries.
      • Millions of these coffee trees blossomed in the warm tropical climate. This is why the Americas are responsible for so much coffee production today
    • Mid 1700s – 1888: Brazil imported 3 million slaves to operate the coffee farms in horrible working conditions
      • Average life expectancy for a Brazilian slave was 7 yrs.
      • As a result, Brazil became the top coffee producer by the 1900s and continues to be today.
  •  The coffee grower dilemma is a big problem. It’s an interesting look at the laws of supply and demand in a free market:
    • In the 1950s-1990s, there was a quota system that guaranteed a certain supply of coffee beans in the market and a certain price that would be paid to growers
    • The system now is all based on free market trading, and there are SO MANY countries and coffee farmers/farms in the world.
      • The result is that the world has a huge coffee bean surplus (too much supply), which means the price of coffee beans is super low right now ($1.09 per pound in 2018). Coffee farmers are paid very very little for really hard work. 
      • There doesn’t seem to be an end in sight. The best thing that could happen is that coffee farmers unite to stop growing coffee and therefore drop the supply. But this is unlikely because it takes 3-5 years to grow a producing coffee tree. You have to plan ahead for these things. 
      • Ultimately, the result is that coffee houses like Starbucks make a huge profit margin off of coffee because they sell a cup for $4 and barely pay anything to the growers/suppliers to acquire the beans.
        • A $4 cup of coffee is like 3 times more than what a pound of coffee beans cost in the free market. Huge profits.
    • Another problem that had happened because of this oversupply and cheap coffee bean prices is that many coffee farmers have given up and are instead using their farms to produce drugs/drug crops.
      • Between 2000-2001, cocaine production in Colombia more than doubled because farmers began growing coca plants instead of coffee trees. 
  • Fair Trade was established to guarantee growers/suppliers a (somewhat) fair price over free market value for their beans.
    • But usually this results in farmers not caring about the quality of their beans (because they have a locked in price), resulting in poorer quality beans
    • Also, if supply of coffee beans is suddenly dropped for some reason (storm, freeze, etc.), growers will break the contract so they can sell for way more on the free market 
    • Also, retailers (Safeway, etc.) have been known to be greedy and charge way more for Fair Trade coffee with the Fair Trade sticker 
  • The real problem for coffee growers is not Starbucks but instead the “Big Four” coffee retailers: Nestle, Proctor and Gamble, Philip Morris, and Masimo Zanetti.
    • These “Big Four” buy an enormous amount of coffee (60% of the US coffee supply) and they look to buy the cheap, low quality Robusta bean, which tastes terrible. To take out the bad taste, they inject it with a bunch of fake artificial flavors and sell for huge profit margins.
      • By buying such cheap coffee beans in mass, it kills the demand for high quality beans, which drops the price for good tasting Arabica beans.
    • Starbucks is actually a good guy here because they only purchase the highest quality beans because they want their product to taste good and be natural. By being such an advocate for good tasting coffee, all other coffee houses follow suit and buy the good beans at higher than market value.
      • In 2006, Starbucks actually paid $1.42 per pound of coffee, which is 16 cents higher than Fair Trade price, which is above the overall market price. So Fair Trade people that hate Starbucks are misguided here. 
    • The solution to this problem for growers is for more people to demand high quality beans. Instead, too many people purchase Big Four coffee, which is low quality. The Big Four are therefore encouraged to continue to buy cheap, low quality Robusta beans, killing demand and prices for high quality beans/growers.
      • If the Big Four bought high-quality beans, it would result in way more demand for these beans, driving prices up. 
      • Instead, they can get away with buying super low quality and cheap beans, inject them with artificial flavors, and reap the profits. 
  • Espresso: What is it?
    • 1 oz, single, superconcentrated shot of coffee that was made using an espresso machine and steam pressure.
    • 50 beans makes one shot of espresso.
    • Espresso machine was created in 1901 by an Italian guy who wanted to reduce employees’ coffee break times. 
  • As time has gone on and Starbucks has expanded rapidly, the quality of their coffee has gone down
    • This is inevitable. Quality of coffee is basically dependent on the quality of the coffee beans. When you have as many stores as Starbucks that need to be supplied with beans, it’s hard to get enough high-quality beans. 
    • Baristas no longer make espresso drinks manually like they used to. Instead, the company uses espresso machines designed to create a consistent product every time.
    • A lot of Starbucks’s drinks these days aren’t even really coffee — they are milk and sugar drinks with hints of coffee.
      • The success of the Frappachino proved that not all customers necessarily want super high-quality coffee 
  • Caffeine is literally poison. Bug poison.
    • Originally developed in plants as a way for the plant to kill bugs that were on it and trying to eat it
  • To the brain, caffeine looks like adenosine, a neurotransmitter that regulates sleep.
    • Adenosine essentially cools off the brain as it works and tells the brain that it’s time to rest and sleep. 
    • Caffeine disrupts to process and blocks adenosine from reaching the brain’s receptor sites. Therefore, we feel alert and awake more and longer because the adenosine isn’t reaching our brain.
      • Once the caffeine wears off however, we experience a sleepy “crash” because the built-up adenosine hits our brain all at once. 
  • Caffeine is an incredible mood booster that has been scientifically proven to be as effective as cocaine and amphetamines
    • It has never been proven to be harmful when used in moderation. It actually has benefits. 
    • It can be addictive, though. 
  • If you develop a physical dependency for caffeine, you will experience withdrawals in 12-24 hours.   
    • Symptoms include headaches