The health concerns of the previous decade were mostly tossed aside as the nation crested on a caffeine high. Coffee lover Joan Frank described “a quivering bunch of quasi-homicidal crackpots” standing in line at Peet’s in San Francisco. “Don’t mess with us,” their eyes seemed to warn. “We haven’t had our coffee.” But who cared? “Bless every drop and granule of the stuff,” Frank wrote. “Coffee’s the vital juice that flows through the nation’s veins, and on which floats its fragile morale.” Baby boomers had come full circle, back to the drink of their parents, after a childhood of Cokes and coming-of-age with cocaine.
If this java nation had a capital, it was Seattle, the home of Starbucks and many other coffee companies. “It is hard to go anywhere,” one visitor observed in 1991, “whether it be the local hardware store or shopping downtown, without coming across a sidewalk espresso cart, or passing the doorway of a sleek café with a gleaming espresso machine behind the bar.” Truck drivers sipped lattes from drive-throughs. The television show Frasier placed the pretentious psychiatrist in Seattle, where he and his friends drank cappuccinos at the Café Nervosa.
Starbucks: The (Very) Public Years
On June 26, 1992, Starbucks launched its initial public offering (IPO) at $17 a share with a market capitalization (the value of all shares) of $273 million. Howard Schultz had paid less than $4 million for the company only five years earlier. Within three months, the stock price had reached $33, making Starbucks worth $420 million. Schultz, Dave Olsen, and other executives were overnight millionaires. Schultz personally held 1.1 million shares, or 8.5 percent of the stock.123
Starbucks employees were indoctrinated in twenty-five hours of course work that imprinted company rules. Among them: thou shalt brew a double espresso shot between eighteen and twenty-three seconds and serve within ten seconds of brewing it, or throw it out. The courses, called Coffee Knowledge 101, Retail Skills, Brewing the Perfect Cup, and Customer Service, were taught by ultra-earnest, peppy young instructors. “Lovely! Fabulous foam!” they would burble as students created lattes. Hip young Generation Xers had to remove studs and rings from nose, lip, or tongue, nor could any employee wear fragrance that might interfere with the roast aroma.
Though Schultz could have quadrupled his rate of expansion by franchising Starbucks, he chose to open only company-owned stores, except in airports, bookstores, or other odd spots that demanded licensure. This way he could maintain strict control over quality and training.
The chain paid slightly above minimum wage and provided an innovative benefits package that included part-time employees who worked twenty hours a week or more. As a result, employee turnover at Starbucks was only 60 percent a year, compared to the industry average of 200 percent or more. In 1991 Schultz introduced his “Bean Stock” program, in which employees—now called “partners”—received stock options worth 12 percent of their annual base pay, to be vested in one-fifth increments over a five-year period. Every year, new options would be issued. Theoretically, each employee had a stake in the company’s success. Since the average employee left after a year and a half, however, most options expired worthless. Still, for those who stayed with the company for several years, Bean Stock could provide a nice little nest egg if the stock kept climbing.
Starbucks became the largest U.S. corporate donor to CARE, specifying that its contributions go to help coffee-producing countries such as Indonesia, Guatemala, Kenya, and Ethiopia, pledging $500,000 a year by mid-decade. The company sold a coffee selection package called a “CARE sampler,” donating a portion of the proceeds. The grateful charity responded by giving Starbucks its International Humanitarian award.
Indeed, Schultz appeared to be a master image builder. As he himself has said, “My story is as much one of perseverance and drive as it is of talent and luck. I willed it to happen. I took my life in my hands, learned from anyone I could, grabbed what opportunity I could, and molded my success step by step.”
In 1989 the sociologist Ray Oldenburg published The Great, Good Place, a lament over the passing of community meeting places like the old country store or soda fountain. The book contained an entire chapter on coffeehouses, concluding: “The survival of the coffeehouse depends upon its ability to meet present day needs and not those of a romanticized past.” Schultz loved the book and adopted Oldenburg’s academic term, christening Starbucks as a “third place” beyond home or work, “an extension of people’s front porch,” where people could gather informally. Modern coffeehouses such as Starbucks do provide a much-needed space for friends and strangers to meet, especially as our cultural ethos becomes more paranoid and fragmented.
Following the initial public offering, Starbucks grew to 165 stores in 1992, 272 in 1993, and 425 in 1994. By mid-decade, the company was opening an average of a store every business day, targeting appropriate locations by studying the demographics of mail-order customers. Schultz monitored the daily sales and profit numbers for each store, calling managers to congratulate or berate them.
In 1993 Starbucks established a beachhead on the East Coast in Washington, D.C. On National Public Radio, Susan Stamberg doubted whether the concept would work there: “I’ve lived in this town for thirty years. You are in workaholic central here. I mean, this is not a town where people want to hang out and take their time.” Stamberg was wrong. Washingtonians flocked to Starbucks. Fortune featured Schultz on its cover as the CEO of one of America’s one hundred fastest-growing companies. “Howard Schultz’s Starbucks grinds coffee into gold,” the magazine noted.
Starbucks announced its intention of rolling into Minneapolis, Boston, New York, Atlanta, Dallas, and Houston in 1994. In Boston, Coffee Connection founder George Howell had feared such a move. In 1990 Schultz had sought to buy him out. The answer was no. Schultz repeated the offer over the next few years. Howell despised the dark Starbucks roast. He prided himself on nuanced roasting to bring out the delicate flavor of each bean. He didn’t want to see the work of two decades destroyed, so he opened new Coffee Connections, beginning in 1992. By 1994, Howell had opened twenty-one outlets, with plans for six more that year.
The Boston Globe reported on the looming battle. “We don’t like to get in coffee wars,” Starbucks marketer George Reynolds told the Globe. But he added, “We want to dominate.” Howell responded by calling his rival “Charbucks,” referring to its roast style. Then, in March 1994, Howell shocked the specialty coffee world by agreeing to sell out to Starbucks for $23 million. He realized that he would have lost some quality control in the rapid expansion. He didn’t enjoy financial management. The business wasn’t fun anymore. “Howard Schultz promised that the Coffee Connection would remain in business, that they would keep the concept and product unaltered,” Howell recalled ruefully.
Within two years, all Coffee Connections were converted to Starbucks, and the roast profile shifted toward the dark end of the spectrum. Requiring a centralized roasting plant on the East Coast, Starbucks opened a facility in York, Pennsylvania, shutting down the Boston Coffee Connection plant.
The enterprise moved at “warp speed,” as Business Week observed, swiftly conquering New York City. In 1995 Starbucks opened in Pittsburgh, Las Vegas, San Antonio, Philadelphia, Cincinnati, Baltimore, and Austin for a total of 676 stores by year’s end. The following year Starbucks grew to a thousand, one of which was an outlet in Tokyo. Howard Schultz was there, witnessing Japanese lined up in 95-degree weather for the “Starbucks experience.” He cried.
Through shrewd joint partnerships, Starbucks spread its fame and logo while making even more money. With Pepsi, it created Mazagran, a carbonated coffee drink, its first flop, but followed that with Frappuccino, a cold, milky coffee that took off in supermarkets. Teaming with Redhook Ale Brewery, the company came out with Double Black Stout, a coffee-flavored beer. Dreyer’s produced a Starbucks coffee ice cream that swiftly became the best-selling brand of that flavor. Starbucks even issued its own music, Blue Note Blend, a jazz CD for easy listening and coffee sipping,
and Songs of the Siren, a collection of female singers. In Barnes & Noble superstores in the United States and in Chapters bookstores in Canada, customers could sip Starbucks coffee while reading in a comfortable café.
Starbucks opened stores in Singapore, Hawaii, the Philippines, Taiwan, and Korea. It was in the air with United Airlines and Canadian Airlines, partnered with Oprah Winfrey to promote literacy, entered into deals with hotel chains and cruise lines, became part-owner of a bagel chain, and tested supermarket sales. Starbucks became a household word without mounting a national advertising campaign. Indeed, the company spent less than $10 million on advertising in its first twenty-five years. It was a veritable “word-of-mouth wonder,” as an Advertising Age reporter put it. Not only that, it made money while advertising itself, selling mugs, thermoses, and canisters with the emblazoned logo. In 1994 Dave Olsen wrote Starbucks Passion for Coffee, a coffee primer with recipes that was sold by Sunset Books, followed by Starbucks Pleasures of Summer the following year.
Two years later, Howard Schultz told his story (cowritten with a Business Week reporter) in Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time, donating the proceeds to the newly formed Starbucks Foundation. On April 1, 1996, National Public Radio’s All Things Considered reported: “Starbucks will soon announce their plans to build a pipeline costing more than a billion dollars, a pipeline thousands of miles long from Seattle to the East Coast, with branches to Boston and New York and Washington, a pipeline that will carry freshly roasted coffee beans.” It’s a testament to Starbucks’ ubiquity that many people initially believed that this April Fool’s hoax was a real news story.
Deflecting the Critics
Starbucks’ overwhelming success, with its aggressive tactics, inevitably brought criticism. Specialty competitors complained that Starbucks used predatory retail tactics, frequently opening outlets directly across the street from their stores. “It has never been Starbucks’ intention to put anyone out of business, and we adhere to standard real estate practices when obtaining new locations,” a public relations spokesman said. The company simply looked for optimal locations. Besides, “having competitors nearby does nothing but increase the awareness of coffee in general.”
Despite complaints, it was clear that Starbucks was doing something right. The average customer visited Starbucks eighteen times a month, and 10 percent came twice a day. “If you walk into any Starbucks store,” Howard Schultz said, “you see little vignettes. Of business people having meetings. A mother and her child in a stroller. You see single people actually meeting there.” He was right, though far more frequently people came there seeking communal solitude. “The coffeehouse is the ideal place,” as Viennese wit Alfred Poger once put it, “for people who want to be alone but need company for it.”
Owing to its ubiquity, Starbucks perhaps attracted an unwarranted amount of criticism. “It always has baffled me,” Schultz commented in 1997, “that in America for some reason, there are people who passionately root for the underdog to succeed, and when the underdog reaches a level of success, some of those same people find a need to tear it down.” Specialty coffee veteran Dan Cox called for an end to “Starbucks bashing,” pointing out that the brand had excellent management, provided consistent quality, treated its employees well, gave back to the community, and had been innovative within the industry.
Within a few years, Schultz built a $1 billion-a-year business with only the earth’s boundaries as a limit. “Starbucks is going to be a global brand,” Schultz predicted. Comedian Jay Leno suggested it might go even farther, showing his audience a satellite picture of Mars—where there was already a Starbucks.
A Maturing Market
By mid-decade, there were signs that the specialty revolution had reached a plateau. Though coffeehouses were still popping up—even a Mocha Joe’s in Peoria—the number of espresso carts in Seattle declined, and analysts began to talk about “saturation.” In rebuttal, the Specialty Coffee Association of America estimated that, though over 4,000 specialty outlets existed in 1995, there would be 10,000 by the turn of the twenty-first century.
From fewer than a hundred in 1985, SCAA membership had swelled into the thousands a decade later. Its annual convention turned into a gigantic marketing opportunity for suppliers of roasters, brewers, flavors, T-shirts with coffee messages, mugs, books, and every other device having anything remotely to do with coffee. Members listened not only to coffee experts but to slick motivational speakers. Veterans complained that neophytes had dollar signs in their eyes instead of coffee beans. Since it cost around $250,000 to open a coffee bar, perhaps that was understandable.
A new round of coffee books for the would-be connoisseur flooded bookstores. Magazines devoted to coffee—Coffee Journal, Cups, Café Olé, Coffee Culture, Fresh Cup, Literal Latte, and others—appeared in the 1990s. Most vanished as quickly as the morning cup of coffee, but a few survived with loyal readerships.
Dunkin’ Donuts didn’t have the upscale panache or special drink jargon of Starbucks, but since its inception in 1948 as the Open Kettle, it had served excellent coffee. In 1983 it began to sell whole beans and by 1995, with over 3,000 franchised outlets, it was actually a “coffee company disguised as a donut company,” as one coffee expert described it. So was Tim Hortons, a similar Canadian chain.
The battle over whole beans in the supermarket was another sign of maturity. In the 1980s grocers were overjoyed to stock little-known specialty whole beans, since they offered a much larger profit margin than canned coffee. But as the competition mounted, the supermarkets began to demand discounts in the form of slotting allowances, gate fees, promotions, and free first-time bin fills—all trade practices that charged coffee roasters simply to get their beans onto shelves.
By the mid-1990s business consultants were taking note of the specialty trend. Procter & Gamble bought Millstone in December 1995 for an undisclosed sum.124 By that time, founder Phil Johnson had grown Millstone to a seminational brand with roasting plants in Washington and Kentucky and its own truck fleet, selling 1.5 million pounds per month and grossing over $40 million annually.
It appeared that another business cycle was beginning. Just as the traditional coffee industry had gone through fragmented growth and merger, the specialty movement would, in its maturity, consolidate. In the process, would it also lose its soul?
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Final Grounds
Coffee is turning out to be quite a cosmic issue—and the way it’s grown, marketed, and consumed has implications for the environmental health of the world.
—Russell Greenberg, director, Smithsonian Migratory Bird Center, 1996
“These are Coffee People. They pick coffee to buy food. They say the coffee price is bad. So the pay is too low to buy food. This village is fucked.”
—Men With Guns, film by John Sayles (1997)
Like many fine beans, those that made my cup of Kopi Luwak were processed by the wet method, but in this case, removal of the pulp, mucilage, and parchment was performed as the cherry progressed through the gut of the palm civet, paradoxorus hermaphroditus (in Indonesian parlance, luwak), also known as a civet cat. I figured that at $300 a pound, the cup was worth more than $7. As I prepared to try it, I caught a sweet, tantalizing aroma. Then I took a sip. A full-bodied coffee, it had an unusual taste—earthy? pungent? gutsy?—that lingered in my mouth long after my final sip. But I wouldn’t pay $300 a pound for the beans.
That’s one of the things I have learned through my coffee research: one consumer’s poison is another’s nectar. Harsh, fermented Rioy Brazilian beans, despised by most connoisseurs, are prized by the Greeks. The French love their coffee adulterated with chicory. Then there’s the psychological factor. The rarer the bean, the more expensive and desirable. Hence, Hawaiian Kona and Jamaican Blue Mountain command premium prices, even though most coffee experts consider them bland in comparison to Guatemalan Antigua or Kenya AA. Why the higher price, then? In a good year, the Hawaiians and Jamaic
ans produce balanced, aromatic brews that appeal to just about any coffee lover. Primarily, however, the beans are scarce, and Japanese buyers have made them scarcer by buying most of the small production.
Many specialty coffee roasters offer fine, unblended estate coffees, likening them to wine. Indeed, the taste of coffee grown on a particular estate varies depending on the type of tree, soil, atmospheric conditions, and processing. “Some coffees bring with them the smells of the forests they grew near,” rhapsodized coffee expert Tim Castle, “the taste of the water that soaked their roots, the flavors of the fruits that grew near them.”
La Minita: A Coffee City-State
Bill McAlpin grows coffee at La Minita, his showplace Costa Rican farm. An imposing man of six foot three whose considerable girth adds to his air of authority, McAlpin has built a reputation for delivering quality coffee. Though McAlpin is a U.S. citizen, he grew up in Latin America and began to grow coffee in Costa Rica in 1974.
In 1987 McAlpin, then thirty-six, culled the best of the best beans, shipped two hundred bags to Virginia, rented a U-Haul truck, and took to the road. With wife Carole Kurtz, he toured eastern U.S. specialty roasters to introduce them to his superb beans. His most important new customer was George Howell at Boston’s Coffee Connection, where he met a soul mate. In the following years, Howell convinced McAlpin to seek out, improve, and sell special coffees from Guatemala and Colombia as well.
Uncommon Grounds: The History of Coffee and How It Transformed Our World Page 41