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Starbucks: The Story Of How It Became The Coffee Giant

Starbucks, a multinational coffeehouse company that undoubtedly convinced us that coffee can be a luxury product which led to its early success in the markets.

Jerry Baldwin, Gordon Bowker, and Zev Siegl, all three founders who loved coffee and tea, started their first store in Seattle. They named the store “Starbucks” after the first mate in the novel Moby Dick.

As entrepreneurs in the coffee industry, they gained inspiration from a very adept and successful Dutch immigrant Alfred Peet. A coffee roasting entrepreneur.

Peet imported Arabica coffee beans to the US for making his fine grade coffee. Undoubtedly he was the initial supplier for Starbucks. Their very first roaster was a second-hand purchase from Holland. In which they practised and experimented with roasting techniques to produce their own unique flavours and different blends.

Around a decade after the company was founded, Siegl left the business to pursue his other interests which led to the recruitment of Howard Schultz, the present CEO of Starbucks.

How did a recruited head of marketing become the Chairman of Starbucks?

Handling the market space of Starbucks, he visited Italy for a conference. He was deeply impressed with their café models which he wanted to recreate back home with Starbucks.

The founders Bowker and Baldwin were not convinced of Schultz’ approach. They stood firm with their traditional business model of being a coffee and equipment seller. Schultz left the company in 1985, after failing to persuade the founders.

He started his own coffee house called Il Giornale. Which was an immediate success- and opened new branches in several cities. In March 1987, the founders Baldwin and Bowker decided to sell Starbucks, promptly Schultz purchased the company.

Countries that have Starbucks
Starbucks has pretty much dominated the coffee sector

He brought together the cafe concept and the old business model of sales of beans, equipment and other items together. By the early 21st century they became the world’s largest coffee chain. Starbucks’ entry into the instant coffee world is not new; it dates back to February 2009 when the coffee house chain introduced Starbucks “Via Instant Brew”.

Initially, they brought it into their own stores but the underlying aim was to expand its distribution chains into the markets of Nescafé and Kenco and in online stores. It was absolutely necessary for the company to get this right because any hitch in this new chain of coffee would cripple the company.

That is why they spent more than two decades on producing Via instant. The Instant Brew had to be indistinguishable to the freshly brewed cup of coffee at Starbucks store, retaining the authentic flavour, taste and freshness.

As Chairman Howard Schultz stated, “This is not your mother’s instant coffee”. He also said that this sector had not faced any innovation except for packaging in the past 50 years. He actively believed that they were bringing something fresh into the instant coffee market that previously had never been done and they would transform this industry. Via is made from Arabica coffee beans turned into a powder. Even after a decade of several attempts to crack the micro-grind technology, the patent is still pending.

Instant coffee is a $17 billion industry, which is 40% of coffee sales globally as of 2009. Within 10 months of Starbucks Via Ready Brew instant coffee, Starbucks’ global sales reached $100 million.

All this happened when the economic conditions dropped and along with it the Starbucks sales was brought down. The consumers had to roll back on their lattes and cappuccinos. When people cut down on the expensive drinks, the company was forced to shut down a few hundred stores, stripping off thousands of workers from their jobs.

But the customers’ cut back on Starbucks products had nothing to do with the Instant coffee which had been under progress for several years and came out simultaneously along with the sinking economy which was fortuitous.

What they did instead, to convince consumers that Starbucks was affordable was to introduce various breakfast deals. Despite being labelled as “desperate” and dealing with various other challenges, they brought consumptions up substantially, at an affordable price.

The Alliance

On 28th August 2018, Nestlé and Starbucks closed a deal, which granted Nestlé the perpetual rights for marketing Starbucks packaged goods and food services globally outside the stores.

From this alliance, these two companies worked together on Starbucks roast and ground coffee, whole beans as well as instant and portioned coffee. Their goal is to enhance the experience and product offerings for coffee lovers globally.

Starbucks utilizes the global reach of Nestlé which benefits its expansion into the grocery and food services. This global coffee alliance covers Starbucks packaged coffee and tea brands, such as Starbucks®, Seattle’s Best Coffee®, TeavanaTM/MC, Starbucks VIA® Instant, Torrefazione Italia® coffee and Starbucks-branded K-Cup® pods. It excludes Ready-to-Drink products and all sales of any products within Starbucks® coffee shops.

In 2019, as part of their portfolio of innovation of the Global Coffee Alliance that was formed the previous year, Nestlé launched Starbucks Creamers in the US entering the refrigerated creamer category for the first time.

Starting from February 2020 in the USA, a new range of Starbucks coffee has been made available for customers. Which includes Cold Brew concentrate, Fresh Brew coffee, coffee blends with essential vitamins and golden turmeric. Overall the new range consists of 24 products for caféphiles to cherish at the comfort of their homes.

Written By,

Padma Priya K,

Student, NIFTEM

Also, if you have interests in reading about similar powerhouses, check out our article on Red Bull: Unbeatable Marketing Powerhouse.

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