Original Starbucks store. Source: Starbucks.
No matter where you are, it's hard to go far without seeing a Starbucks (SBUX 0.65%) selling coffee to large crowds, with lines running outside buildings during peak times. Yet like every other big business in America, Starbucks rose from modest roots, with the company going from a single store location near Seattle's Pike Place Market in 1971 to building up a global empire of more than 21,000 stores in over 65 countries around the world.
The story of Starbucks' growth mimics the experience that many other American businesses have seen, with a combination of entrepreneurial effort, smart marketing, and plain old good luck helping to lift the coffeehouse giant to its leadership position in the $80 billion coffee industry. Let's take a closer look at some of the key elements that made Starbucks what it is today.
Howard Schultz: Selling the experience
Source: Starbucks.
For the first decade of its existence, Starbucks didn't look much like it does today. For the most part, Starbucks focused on treating coffee as a commodity, selling high-quality coffee beans. But when Howard Schultz joined the company, he quickly saw the potential of having customers not just take their beans home for their own coffee-making purposes, but also enjoy specialty coffee on the spot. In essence, Schultz wanted to duplicate the Italian coffeehouse experience, building a comfortable environment for coffee lovers to savor their beverages in a way that would make them want to come back for more.
Schultz was so moved by that prospect that he opened his own Il Giornale line of coffeehouses that used Starbucks as a supplier. Yet just a couple years later, Schultz made the deal that would start the next phase of Starbucks' evolution, buying out the company and beginning an expansion that would eventually take the coffee giant to unprecedented heights.
Smart growth
The pace of Starbucks' growth has been impressive, with the company's 1992 initial public offering helping to finance the rapid expansion of the chain throughout the decade. From 1990 to 2000, Starbucks went from 84 stores to more than 3,500 locations, fleshing out its U.S. coffeehouse network and also opening stores in Japan, England, China, Australia, and more than a dozen other countries across the globe.
Yet Starbucks didn't just grow in terms of its store footprint. The company also sought to diversify its offerings into other beverages and food items. The acquisition of Tazo in 1999 started a trend of adding companies, which would later include Ethos Water, juice-maker Evolution Fresh, bakery company La Boulange, and tea giant Teavana in 2012, acquisitions which have redoubled Starbucks' efforts to give customers every opportunity to enjoy the company's restaurant atmosphere even if they don't like coffee.
Source: Starbucks.
Along the way, Starbucks has carefully crafted its strategy to keep as many options open as possible. For instance, many investors believed that when the company came out with its Verismo single-cup espresso machine concept, it meant that Starbucks would go head-to-head against Keurig Green Mountain (GMCR.DL) and its rival Keurig brewing system. Yet it came as a surprise to many investors when Starbucks announced a partnership with Keurig Green Mountain, ensuring that Starbucks would continue to have access to Keurig users through its K-Cup system while still offering Verismo as an alternative to interested customers.
Treating employees well
The growth of Starbucks' popularity has depended on customer loyalty, but the efforts that the company made to treat its workforce well have also generated positive attention. In 1988, Starbucks offered full health-insurance benefits -- and not just to full-time employees, but also to eligible part-time workers as well -- standing out from a crowd of stingier companies that considered the costs of making benefits available to such a wide employee base prohibitive.
Source: Starbucks.
Moreover, Starbucks gave its part-time workers a chance to participate in the stratospheric rise of the company's stock. As early as 1991 -- before the company went public -- part-time Starbucks employees were able to participate in a corporate stock-option program. Given that the stock rose 20-fold between its 1992 IPO and 2000, employees who took advantage of the program built up impressive riches. And unlike their Seattle peers in the Internet industry, those employees saw their Starbucks stakes keep climbing well beyond the tech bust, with only the financial crisis in 2008 bringing the shares' upward trajectory to a temporary halt. That's consistent with the vision that Schultz had for the company, noting his desire for "employees to have authorship and integrity in their accomplishments as well as sharing in the financial rewards" of their work.
With 182,000 employees as of its most recent annual report, Starbucks has plenty of people relying on its success. Fortunately, the coffee giant has fired on all cylinders lately, and appears poised for continued growth and expansion in the years to come.
What's to come for Starbucks?
Starbucks still has a world of expansion opportunities available. Even though it has done a good job gaining a presence in many key locations around the world, Starbucks still has well over 100 countries to consider as future targets for growth. Moreover, even in the U.S., Starbucks hasn't yet reached its saturation point.
Countless companies, from Dunkin' Brands (DNKN) to American icons like McDonald's (MCD 1.32%), have seen the success of Starbucks as a chance to try to ride its coattails and take advantage of the sea change in American attitudes that the company's history has inspired. Nevertheless, Starbucks still has the loyalty of millions of customers, and investors should be confident in Starbucks' continued ability to keep moving forward aggressively and in a manner that's consistent with the company's values and past history.
