Story of the world's largest Coffee Chain: Starbucks

Starbucks was founded in 1971 by Gordon Bowker, Jerry Baldwin and Zev Siegl in Washington, USA. It was acquired in 1987 by Howard Shultz for $3.8 Million, who to this day serves as the Interim CEO of the company until new CEO Laxman Narasimhan takes over in April 2023.

Although figures vary based on sources, the Starbucks brand is worth $116 Billion, has an annual revenue of $32 Billion, has more than 35,000 stores in 80 countries and employs more than 400,000 people! It is the largest coffeehouse chain in the world.

But like every great company we see today, Starbucks had humble beginnings, which we’ll take a look at now.

The 3 founders of Starbucks, Gordon Bowker, Jerry Baldwin and Zev Siegl, met by chance. Jerry Baldwin and Gordon Bowker met at the University of San Francisco. Neither had signed up in advance and went finding an apartment together because the dorm was full.

In 1962 Zen Siegl had posted a notice on a bulletin board that he would be driving to New York via San Francisco and was looking for passengers. Bowker, who was in Seattle, was planning to depart from New York to Europe and signed up for the ride. On their San Franciso stop, Siegl got acquainted with Baldwin too.

Several years later, they met again, and through a common passion all 3 shared in creativity and tried several partnerships. One day they were having lunch and a lousy cup of coffee, when Bowker flashed an idea. He had been driving to Vancouver B.C, to a tea and coffee company called Murchie’s. Many of his friends also got hooked and placed orders with him. He proposed starting a coffee company in Seattle, and Baldwin and Siegl liked the idea.

Siegl was the expert researcher in the group and discovered a gourmet coffee company in Berkeley called Peet’s. He phoned Alfred Peet and gathered information, and arranged a visit. Siegl later described Peet’s knowledge of coffee as unparalleled in the country. Later Baldwin and Bowker made trips to Berkeley to apprentice at Peet’s, and Peet agreed to supply fresh-roasted coffee beans to their new business.

The partners pooled $1,500 each as the initial investment and obtained a bank loan of $5,000. They found a location for their store, a corner storefront in the old Harbour Heights hotel at Western Avenue. The rent was $137.50.

At this time, Bowker had teamed up with designer Terry Heckler to form an advertising firm, Heckler Bowker. Bowker’s advertising partner Heckler suggested that names beginning with the letters ‘ST’ had a bold and memorable character. One day Bowker was looking at an old mining map and noticed a town called ‘Starbo’. He immediately connected it to the character in Moby Dick and said ‘Starbuck’. It was an easy sell to Baldwin and Siegl.

Heckler created the store logo: a voluptuous bare-breasted mermaid with 2 tails. This logo went through alterations in 1987, 1992 and 2011. When they had completed all the store work and prepared for the opening, their friend Daniel Jack Chasan stopped by the store and became its first customer.

Each founder had unique skills which didn’t overlap with each other and distinct responsibilities. Bowker strategized on ways to publicize the company. Baldwin, who had taken an accounting course, was the ‘money guy’ and was also in charge of tasting and buying. Siegl liked tea and was the company’s first paid employee.

The original Starbucks didn’t sell food and beverages like the current ones. Instead, they sold

• Bulk coffee beans
• Tea
• Spices
• Coffee Makers
• Grinders
• Teapots

Brewed Coffee was only given as samples to root customers in the store, increasing their chances of purchase. This also resulted in positive word of mouth for the company. Bowker, who comes from a background in advertising, knew how to get the attention of reporters. He would send the best coffee packages to select reporters like Don Duncan, a columnist at the Seattle Times who stopped by the store, got thoroughly caffeinated on free samples and wrote an enthusiastic story that served as great publicity in the early days of the brand.

The road was full of ups and downs, but the Founders stepped up to the plate to keep the business alive during the trying times. Once when their shipment was delayed due to non-payment to their supplier, they still got customer orders and personally delivered the orders to customers on their cars. In the 2nd year of business, they went on and opened their 2nd store. In 1975, when an extraordinary freeze devastated the Brazilian Coffee crops, spiking Coffee prices; they pivoted by not offering free samples and supplementing the business’ income by roasting barley for another company that sold it as a coffee substitute. Their business was further threatened when the Surgeon General issued a warning that drinking coffee might increase the risk of cancer. They had to move their company’s flagship when the building that housed their original store was to be torn down.

They once had to use a $95,000 credit at Rainier Bank to stay in business. But they recovered from these potential pitfalls and managed to turn things around for the better. In 1982 they hired ‘Howard Schultz’ as Director of Marketing for the company.

Howard Schultz was a New Yorker and a ‘go-getter’ and had a forceful presence that ramped the temperature up for everyone. In 1983, Schultz was sent to the coffee capital of the world ‘Italy’ for a trade show. There he had his first cup of Latte and was enthralled by the coffee culture.

Upon his return, he urged the founders that Starbucks should sell coffee by the cup. At this time, Starbucks was already selling coffee by the cup at its U District store. Baldwin had seen how the coffee bar at Peet’s only raked in 10% of its sales, and along with the other founders wasn’t too keen on Schutlz’s proposal.

In 1984 Starbucks opened a sixth store at 4th Avenue and Spring Street in downtown Seattle. At Schultz’s urging they included an espresso bar in this store. The espresso bar was extremely successful.

In 1986 Schultz resigned from Starbucks to start his own business ‘Il Gionarli Coffee Company’. Starbucks invested $150,000 in cash and services, plus a significant portion of Bowker’s time. They would also supply roasted Coffee beans to Il Gionarli. Starbucks received a 20% stake in this venture.

In 1987 Bowker, who had several other ventures, wanted to sell his stake in Starbucks. Baldwin, too decided the recently acquired Peet's was where he wanted to be. Howard Schultz and a group of investors raised $3.8 Million to purchase the company.

The Starbucks brand and business grew rapidly under Schutlz’s ownership. In 1992 the company went public with an opening price of $17 per share.

At the time of writing this blog, Starbucks has 35,000+ stores in over 80 countries and is rapidly expanding worldwide, especially in China. Laxman Narasimhan is set to take over as ‘Full-time CEO’ from April, 2023 and would provide leadership for the next phase of this iconic brand.