Posted: May 25th, 2022

The history and evolution of Starbucks.

Starbuck’s Case Study

Briefly describe the history and evolution of Starbucks.

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Seattle entrepreneurs Jerry Baldwin, Zev Siegl, Gordon Bowker founded Starbucks in 1971, locating their coffee importing business in Seattle’s Pike Place market. The founders were content to grow the coffee importer to five stores in the metro Seattle area, and were gradually becoming known in the coffee industry, and as a result of these associations met Howard Schultz, who would eventually buy the chain and transform its business model. Mr. Schultz was passionate about introducing retailing concepts he had originally discovered during a trip to Milan, Italy and immediately after coming back from Italy, launched what would become the prototypical Starbucks stores, combining meetings places with good ambience for friends catching up with each other while enjoying a quality cup of coffee, calling these locations Giornale. As a result of the success of these stores Schultz purchased the Starbucks store chain in 1982 for $4M. As part of the retailing strategy Mr. Schultz began providing coffee to restaurants and espresso bars in the same year he purchased the company. Throughout the late 1980s Starbucks completed its first geographic expansions to Chicago and Vancouver, and also created its own catalog as well. Mr. Schultz has been known to focus on the socially responsible aspects of Starbucks since its founding and in 1991 initiated a relationship with CARE (an international humanitarian organization) and introduced CARE coffee sampler, and in 1992 Starbucks completed its IPO (initial public offering) on the NASDAQ National Market. The first half of the 1990s were years invested in the development of retail locations throughout the U.S. And the sale of music through retail storefronts in 1996, and also in the same year Starbucks opened locations in Japan, Hawaii, and Singapore. Within two years Starbucks launched stores in Taiwan, Thailand, New Zealand, and Malaysia, with Starbucks Coffee International in 1999-2000 timeframe launching new retail locations in China, Kuwait, Korea, and Lebanon. During this global expansion phase, Starbucks partners with Delek Group to open Starbucks retail locations throughout the Middle East including Israel. During the 2000-2003 timeframe global expansion continued with locations added in Paris, more retailing alliances formed globally and within the U.S. including Albertson’s, and a more concentrated focus on acquisitions as well. The last three years of the company’s history has included several acquisitions, joint ventures and alliances for entrance into foreign markets, and a series of research efforts to determine how best to enter the Indian market as well. In addition to the retailing strategy efforts, Starbucks has also moved into music recording with a joint venture with Concord Music Group to create the record label, Hear Music, which was announced in March, 2007. Hear is going to focus on internally known artists, with the first artist being Paul McCartney.

In your view, what are the key events in the history of the company?

There are several pivotal moments in the history of Starbucks that have transformed the coffee importer into a global retailer. The first is clearly the insights gained by Mr. Schultz during his trip to Milan, Italy and the retailing concept of having a meeting place ambience and atmosphere where friends could gather and drink coffee while relaxing and listening to music, while enjoying pastries. The vision of what Starbucks could be was foundational to the limited geographical growth in the mid-1980s and the immediate development of retail channels for the coffee itself as well.

Another pivotal key event was the development and launch of the first international stores in 1995 in conjunction with SAZABY International, specifically to develop coffee houses in Japan. This event also fueled the development of Starbucks Coffee International, which eventually served as the catalyst for the company’s global growth into Europe and throughout Asia as well.

The company’s history of acquisitions also has solidified their growth as well. In 1999 the acquisition of Tazo, a premium tea provider, and Pasqua, a specialty coffee roaster gave Starbucks additional support for their product development strategies. In 1998 Starbucks acquired Seattle Coffee Company (SCC) for the supply chain, products, and 70 company-operated stores and 76 franchises owned outright by SCC. More recently Starbucks announced its acquisition of Ethos Water in 2005, a privately held bottled water company based in Santa Monica, California. Keeping up the acquisition pace, the company acquired full ownership of Coffee Partners Hawaii, the joint-venture company that operates its retail stores in Hawaii in 2006. Throughout that year the company also worked to acquire Cafe del Caribe, the joint venture company that operates its retail stores in Puerto Rico and throughout the Caribbean. This strategy of using acquisitions to gain entry into new markets has been successful and one that Starbucks relied on extensively in the 2006 timeframe. Also in that year H&Q Asia Pacific was acquired, a chain that will make it possible for 60 Starbucks retail stores in Beijing and Tianjin, People’s Republic of China to be licensed under Chinese law. It also acquired an authorized licensee of Starbucks Coffee International in October 2006. Starbucks launched operations in Brazil in December 2006 by opening two stores in Sao Paolo. Starbucks entry into India has not yet occurred yet it is clearly imminent and will most likely be handled through a series of joint ventures, or one large one as is evidenced by the acquisition of H&Q Asia Pacific to gain access to Chinese retailing locations quickly.

Using your own words, described the Starbucks model

The Starbucks Model is designed to capitalize on creating and sustaining a strong local presence in communities, and clustering stores for logistics and replenishment efficiencies while at the same time strengthen the brand. Starbucks clusters stores so closely together than there is often a 30% cannibalization rate, and this is intentional. Sawbucks has done studies of the costs of logistics and seen that having clusters significantly reduces re-stocking and deliver costs. In addition, store clustering with a 30% cannibalization overlap is comparable to blanketing an entire metro area with advertising. As Starbucks does not spend on advertising (according to the case study less than 1% of sales is spent on advertising) the clustering and concentration of stores also increases top-of-mind awareness of coffee drinkers in each area. The clustering of stores also leads to greater levels of customer loyalty and retention as well. As the case study has mentioned, on an average week 20 million people buy a cup of coffee at Starbucks with the average customer making a purchase 18 times a month.

What underscores the Starbucks model however at a foundational level are the following series of factors. First, the company’s coffee expertise is exceptional, and this is reflected in the supply chain developed that includes sourcing high-grade arabica beans from coffee-growing regions of Latin America, Africa/Arabia, and Asia/Pacific. As of December, 2007 there are 27 core coffees offered in Starbucks retail outlets and 10 promotional blends (e.g., Christmas blend). New product development is one of the core strengths of Starbucks, with the Frappuccino development a case in point (Plog, 2005). This new product development expertise has lead to the development of multiple coffee-based drink platforms, including cold-blended drinks (e.g., Frappuccino), the mainstream brewed coffee, hot espresso beverages, Espresso-based, and regionalized drink platforms as well. The Baristas go through intensive training to learn how to customize these drinks for customers and also to underscore the values that Starbucks has as part of their culture.

Another foundational element of the Starbucks model is the ability to quickly innovate and develop new drinks. In the 2005-2006 timeframe alone Starbucks launched 22 new beverages (Plog 2005). The company relies on innovation heavily during holiday periods as well, with seasonal drinks including Pumpkin Spice Latte, Cinnamon Dolce Latte, Green Tea Frappuccino blended creme, Banana Frappuccino blended beverage, and Frappuccino juice blends.

A third foundational element of the company’s success has been the ability to establish and maintain a third-place experience, precisely the vision of Mr. Schultz had for the company after visiting Italy early in the company’s history. Much of the success of the Starbucks brand in attributable to the customer experience in stores. The company refers to this phenomenon as the “Third Place Experience” to define how customers rely on the Starbucks coffeehouse concept as a “third” gathering place outside of work and home. Panera Bread has been very successful with this strategy as well. The Third Place Experience is built upon offering a variety of coffee and complementary products as well as high-quality customer service (by knowledgeable employees) in an appealing environment according to researchers who track Starbucks’ success in this area. It is clear that management at Starbucks sees the third-place experience as critical for growth in China and other geographies as well (Fowler, 2003) and believes that consumers want a “third place” across cultures as well, and this is considered one of the major global drivers of growth for Starbucks moving forward. This concept of the third place has potential among teens and young adults, as stores provide a safe place for these consumers to socialize.

A fourth foundational element is the strength of the Starbucks brand itself and is ubiquity globally. As a result of rapid and well-defined strategies for opening up retail stores, Starbucks is now considered one of the most preeminent and strongest brands globally.

Starbucks has generated the strength of their brand through combining high-quality coffee and tea beverages with the third-place concept to generate customer loyalty and world-of-mouth among customers and their friends. It is common to hear students mention they will have a team meeting at the local Starbucks, for studying or completing projects.

In summary the Starbucks model is strengthened by the company’s coffee expertise, impressive new product development record, and the development of Starbucks locations as “third places” where friends can meet and enjoy coffee and pastries. Underscoring all these points is the strength of the Starbucks brand.

What were the key issues and the decision by Starbucks to go international?

The key issues and decision by Starbucks to go international centered first on market growth and expansion, followed by the opportunity to grow their retail presence close to their suppliers. Starbucks deserves much credit for their ethical approach to managing their supply chain, a point that will be described later in this section. There is also the developing strength the company has at managing joint ventures to gain entrance into new markets, a skill set shown in the series of acquisitions made in 2006.

Starbucks has shown innate ability to expand both into Canada and the UK as well, with the majority of their global locations in these countries (Deutsche Bank 2006). Figure 1 shows a graphical breakdown of non-U.S. co-operated stores for Starbucks as of 2005, the most recent publicly available data through investment analysts Deutsche Bank securities.

Figure 1: 2005 non-U.S. co-operated store breakdown

Source: (Deutsche Bank 2006).

As is evidenced by this growth, Starbucks’ innate strength at global expansion, while discussed in the case, is supported with research that indicates the four targeted growth markets of China, India, Russia and Brazil are all a key focus (Harrison, Chang, Gauthier, Joerchel 2005). Of these, the case concentrates on the challenges of expanding into China, with the move to open a location next to the Forbidden City blocked by media, not citizens. Despite the media’s objectives, the Chinese government continues to cooperate with Starbucks and continues to be supportive of their development efforts in this nation. Investment analysts predict that China could within ten years account for 30% of the company’s store growth of company-owned stories ((Harrison, Chang, (Gauthier, Joerchel 2005).

It is widely believed within Starbucks that China will grow to be larger than the U.K. As a percentage of total stores by the year 2015, with the estimated China store count of 1,500 or more locations, generated well over $700M in revenue. Table 2, from a series of investment reports (Deutsche Bank 2006) show the extent of how aggressive the growth plans Starbucks has in China.

Figure 2: Starbucks Strategic Plan Targets for China through 2015 (Deutsche Bank 2006).

There will be logistics and affordability challenges with penetrating China and accomplishing the level of performance has shown in Figure 2, yet there are three economic drivers that will make the growth of the Chinese market attract8ive and worth the investment for Starbucks going forward.

First, the consumption of premium coffee, specifically from Starbucks, is seen as a symbol of wealth and leisure (Deutsche Bank 2006), (Fowler 2003). Chinese are making more money and living better lifestyles than ever. Along with a higher quality life, the Chinese have developed a love for many things associated with more affluent, westernized nations including the public consumption of premium coffees. This is especially prevalent in the larger, more industrialized cities including Beijing and Shanghai. Second, the “third place” concept is catching on due to the growth of working class Chinese wanting to enjoy time off with friends. The trendiness of a third-place, in addition to the strength of the Starbucks brand globally, is making China’s growth for Starbucks significant to the point of being predicted to be second behind the UK in revenue by the year 2015.

A second issue that is enabling Starbucks to grow globally is the depth and expertise in its supply chain. The case study only mentions it from a sourcing standpoint, yet the supply chain management systems within Starbucks are a major competitive advantage and also were designed from the very beginning to be measured for social responsibility in addition to financial benchmarks. While quite costly from a pure operations standpoint, the ethical policies and processes the company has put into place on “fair trade” coffee for example, where market rates are paid to growers, is a practice the company adheres to globally. While this strategy is costly vs. taking a price reduction approach, it sets the quality standard. The commitments of Starbucks to operate an ethical supply chain and enforce “good neighbor” business practices does more than just reinforce the brand – it makes good business sense and sustains the supply chain in the process. Higher employee wage costs are consistent with the higher level of service Starbucks expects from its workforce. The “CAFe” code for dealing ethically with suppliers leads to above-market costs paid for some raw materials, but ensures long-term access to high-quality coffee and other inputs, and sustainability of farmers. Overall, although the company has significant exposure to potentially volatile commodity inputs (coffee, dairy, sugar, paper) and engages in little hedging, long-term strategic relationships with suppliers and excellent supply chain management insulate this risk somewhat and the reliance on a higher level of ethical conduct is more costly in the short-run but a wise decision in the long-run as globalization of the brand is inevitable and benefits from the stance on ethics the company takes.

Figure 3 shows an example of the Starbucks supply chain, as defined by (Deutsche Bank 2006).

Figure 4: Starbucks Supply Chain (Deutsche Bank 2006).

As can be seen from the above graphic, because farmers are often not acting as the growers, processors, and exporters, Starbucks demands financial transparency throughout their supply chain to make sure growers are receiving proper compensation for their labor. This is one requirement to become a verified C.A.F.E. Practices supplier, a critical element of the ethical supply chain practices of Starbucks.

Within the Starbucks supply chain, coffee processors are required to show proof of payments both upstream and downstream within the su0pply chain, reporting that farmers have been paid and that exporters have not been priced to market values. According to (Deutsche Bank 2006) the Preferred Supplier Program/Coffee and Farmer’s Equity Practices (CAFe) was defined in 2001 as a means for ensuring ethical transactions in coffee supply chains, so the growers would be able to financial survive. This program also resulted in the development of the Preferred Supplier Program in 2002 in Starbucks, specifically to align with CAFe.. The guidelines set forth in the P.S.P. gave preference to suppliers who adhered to certain requirements of employee treatment, financial transparency, environmental consciousness, and premium quality coffee beans. This program later expanded to become the Coffee and Farmers Equity Practices (C.A.F.E.) in 2004. This helps guarantee that Starbucks will continue to have reliable sources from which to purchase quality coffee without fear of their suppliers being financially unable to maintain their farms. Starbucks continues to be one of the most active in this program, working to ensure that their supply chains are as ethically run as possible. This is quite a departure from their competitors and also from other industries that focus entirely on cost and don’t pay attention to ensuring the foundation of their supply chains, in this case the growers, have the ability to sustain themselves financially.

Identify and discuss some of the negative elements of globalization focused by Starbucks.

Globalization is seen as evil because people assume it negates or somehow wipes out a native culture. The concerns in the UK regarding the history district where Starbucks somehow robbing a specific historic district of its cultural value, or the reaction of Chinese media to the Starbucks location just outside the Forbidden City all underscore how native people react when their culture appears to be about to change or become more, in their minds, homogenized. Starbucks as a symbol of globalization is seen as obtrusive and not wanted, and even evil by anti-globalization activists who see profits generated by companies like Starbucks being taken directly out of their nations’ economies.

All of these perceptions are of course based on ignorance and a strong sense of ethnocentrism and a protecting of their cultures. In fact no single person can either change or protect a culture; it must be gradually accomplished over years.

Over and above the efforts to gain access into premium locations in the UK and China as discussed in the case, the retailing expansion strategy of Starbucks in European cities including Amsterdam (Burnson, 2002) has faced opposition as it is seen as taking away the historical significance of specific areas of the city. There are parallels to the development of EuroDisney as well, where French intellectuals roundly denounced any American enterprise being accepted or even thought of as worthy of a Frenchman’s leisure time. Yet Disney did exactly what Starbucks continues to do, which is concentrate on how to incorporate local expertise and experience into their efforts to grow in international locations. This does not overcome the anger anti-globalization activists have against Starbucks or any other high-profile, convenient brand to condemn, yet it does show that Starbucks is setting the foundation for localization ownership, a critical area of concern for the city of London when a Starbucks was opened in the Financial District of the city (Deutsche Bank 2006).

What is so ironic about the vitriol and anger anti-globalization activists aim at Starbucks is that it that this company has some of the most ethical supply chain practices in the world, and works very hard to ensure its growers can afford to stay in business. it’s not only the ethically right strategy to take; it is also the most effective at stabilizing their supply chain. Starbucks is also the only employer in the U.S. And in many nations to offer part-time employees full healthcare for themselves, their families or partners. The ethical decisions that Mr. Schultz makes has been tied to his own upbringing by parents who worked jobs yet did not have health insurance. Incredibly the anti-globalization organizations fail to realize that in Mr. Schultz they have potentially one of the very best allies possible; to bring a higher standard of living to otherwise less advantaged areas. All these benefits accrue from serving coffee, not producing harmful chemicals, or capitalizing on the pain of others; just serving coffee. Yet the brand is so universally recognized it is a convenient symbol to attack. Ironically activist go after the symbol and forget to look at the practices the company pursues to make one of the most ethical supply chains in any industry.

Based on your analysis, what advice would you provide Starbucks with respect to the next 3-5-year period?

The challenges to growth in the next three to five years are going to be significant and will require an even stronger focus on joint ventures and partnerships to further integrate the Starbucks products and brands into secondary channels. The two largest markets of interest, China and India, are considered to have the potential of increasing revenues by 45% combined by 2015. China’s market entrance strategy as defined in this paper from a strategic standpoint, needs to continually focus on joint ventures and partnerships to further support the retail roll-out in that nation. The relationship of Starbucks management with the Chinese government is positive (Deutsche Bank 2006) and also seen as an influencer in allowing the company to pursue an aggressive growth path in this nation.

Second, Starbucks needs to define a jount venture strategy to penetrate the Indian market as well, with concentration on sharing both risk and selecting a partner that will allow the company to gain the type of relationships it has with the Chinese government. Indian requirements for businesses stipulate that an Indian citizen must sit on the board of directors of any subsidiary operating in their country, and this favors the selection of India’s Amalgamated Bean Coffee Trading Company, the largest coffee retailer in that nation. Partnering with and developing a joint venture with this company specifically needs to be done in order to create a solid foundation for growth

Second, Starbucks need to continually increase same-store sales in the U.S. And increase customer lifetime value through the continual introduction of new drink platforms and the addition of new concepts in their retailing locations. The introduction in early 2007 of their music label called Hear Music is a case in point, as is the support for TMobile WiFi as well. Starbucks stores in Seattle are also experimenting with order entry systems that enable customers who are regulars to a specific store to order their favorite drink over their cell phones. Microsoft is a partner in this development, and Starbucks expects to have a cellular-based order entry system where drinks can be messaged in using a specific account type in the 2008 timeframe (Deutsche Bank 2006). All of these factors contribute to strengthening the brand and also increasing same-store sales, so critical to profitability, in stable markets including the U.S.

Third, Starbucks needs to concentrate on creating trust with customers and being forthright about its supply chain initiatives and the commitment to running an ethical supply chain. Starbucks’ focus on these aspects of their business model need to be on their website (part of their commitment to an ethical supply chain already are), presented at supply chain and ethics conferences, and underscored in messaging from the company. The anti-globalization efforts of activists can’t be met directly, the best strategy is to strive for a very high level of transparency and illustrate through results how each member of the supply chain is equitably paid. Ethnocentrism, like anit-globalization, will never go away, yet by evidence and transparency of being ethical, Starbucks can minimize tis disruptive influence.


Patrick Burnson (2002, December). Amsterdam’s key role in Starbucks’ global strategy. World Trade, 15(12), 40-41. Retrieved December 7, 2007, from ABI/INFORM Global database. (Document ID: 241805271).

Deutsche Bank (2006) – Starbucks Overview. Deutsche Bank Securities Research. New York, NY. 10 July 2006.

Geoffrey a. Fowler (2003, July 14). Starbucks’ Road to China; Prime Locations Are the Key, but So Is Using Snob Appeal to Lure Nation of Tea Drinkers. Wall Street Journal (Eastern Edition), p. B.1. Retrieved December 7, 2007, from ABI/INFORM Global database. (Document ID: 369860271).

Jeffrey S. Harrison, Eun-Young Chang, Carina Gauthier, Todd Joerchel, et al. (2005). Exporting a North American Concept to Asia: Starbucks in China. Cornell Hotel and Restaurant Administration Quarterly, 46(2), 275-283. Retrieved December 7, 2007, from ABI/INFORM Global database. (Document ID: 832085141).

Stanley C. Plog (2005). Starbucks: More than a Cup of Coffee. Cornell Hotel and Restaurant Administration Quarterly, 46(2), 284-287. Retrieved December 7, 2007, from ABI/INFORM Global database. (Document ID: 832085121).

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