There are close to 34,000 Starbucks stores in the world today, and the story of Starbucks goes much deeper than most of us would like to think. This coffee giant has built themselves into a $100 billion empire. They actually topped McDonald's in total revenue for the year of 2021. So how does a coffee shop beat out the most profitable fast food chain in the world?
Well in this video I'm going to discuss how Starbucks began, what's helped them create and dominate their own market share in the restaurant industry, and what they stand to gain in the future. In order to understand how Starbucks is so successful today, we need to go back in the past for a brief moment. In the early 1970s, founders Jerry Baldwin, Gordon Boker, and Zev Siegel were all moderately successful businessmen, and they would periodically go out to lunch with one another in their hometown of Seattle. It was common for them to discuss different business ventures, as they were said to be not completely satisfied with their current jobs.
After their lunch one day, they had ordered some coffee and when the waiter brought it to their table, it was three cups of espresso. To quote Zev Siegel, it was so terrible it was like drinking paint remover. Interestingly enough, this would mark the beginning of the Starbucks idea.
However, the Starbucks that we are familiar with today is far from what the founders had in mind. In 1971, when the first Starbucks store was opened in Pike Place, Seattle, Washington, the concept of Starbucks was to sell coffee as a retailer. So we're talking bags of coffee, some tea, and equipment.
They didn't actually serve any coffee there. Why you might be wondering? Well, it wasn't a very common thing to do at that time. In 1982, a new employee would get involved and change Starbucks indefinitely. Howard Schultz.
Schultz was initially brought on as a marketing director, but he would quickly develop a different vision for the brand. One that the founders would not agree with at first. Schultz had traveled to Europe and had witnessed the encompassing cafe experience. He knew he had to take this back to America and turn Starbucks into something so much more.
Schultz had come to believe that Starbucks would do so much better if they started serving coffee as an experience instead of as a retailer. And despite Schultz's persistence, the idea was shut down by the founders. But I do think that word is key here, and it may be the sole reason behind the success of Starbucks. Persistence.
See, the founders eventually tested the concept of serving coffee in one of their six stores at the time, and this was solely due to Howard's persistence with the idea. However, after doing so, the founders were still not sold on the idea that this was the direction to go in. So in 1985, Howard Schultz decided to leave Starbucks and create his own coffee shop.
Il Giornale. This means newspaper in Italian. And this business was quickly a success, but he did have some extreme difficulties, convincing initial investors that Americans would pay more than 50 cents for a cup of coffee and do so in a takeout or dine-in fashion. This was a very foreign concept at the time. Over two years later in 1987, the founders of Starbucks were ready to sell, and Schultz was quick to take their offer, with the help of the investors who backed his Il Giornale coffeehouse.
Schultz purchased his Starbucks for $3.8 million and merged Del Jornal under the Starbucks Corporation and this is where things start to really take off. From when Schultz took over in 1987 to about the mid 2000s, Starbucks didn't really miss a beat. The concept of a coffeehouse started to become widely accepted in America.
In the year 2000, Howard Schultz stepped down as CEO to focus on the company's rapid expansion. He had a very aggressive and ambitious plan to open 5 new stores every day that year. It's basically a new store every 5 hours for an entire year.
After this continued expansion by 2008, there were nearly 17,000 Starbucks locations around the world. And the way Starbucks differentiated themselves has helped them stand out from the beginning. To quote Howard Schultz, we've never been in the coffee business serving people, we've always been in the people business serving coffee.
what that means no one knows what it means but it's provocative you know it's nice people going starbucks has a ton of subtle things that make it very sticky for customers to get away from and throughout this video i'm going to be diving deeper into those things one for instance is how they ask for your name when you order your beverage and they call out your name and you hope they pronounce it correctly but this is a way to make the experience more personal i could see how this one little thing could be overlooked by the average consumer but this personal touch is a concept more used in fine dining make customers feel more appreciated and more important. Of course, there's multiple aspects to the Starbucks business model that has helped its rise into the empire that it is today. And one of the most unique ones at its time was their policy that you could stay as long as you wanted. See, Starbucks knew most people would get their coffee for takeout, but the people who wanted to sit at their laptop or on their phones helped provide an environment in Starbucks that it was a place to be. You could start to be alone in public, so to speak.
It was viewed as a gift to the customer. Most people wouldn't take them up on the offer to stay as long as they wanted, but it was an option that they had, which helped make Starbucks come off as more Welcoming. This business model was all part of what some would call the Starbucks experience. It wasn't just about buying a cup of coffee, it was your entire time spent in the store from the moment you walked in.
Being greeted by friendly staff members and that amazing smell of fresh roasts enveloped in a cozy, welcoming environment. Not only you can just grab your coffee and go, or sit down with your favorite book and relax, even something as small as having round tables available is done with intention. See, roundtables are supposed to make you feel more at home when you're by yourself. This type of ambiance and atmosphere is what makes Starbucks such a special experience for so many. Schultz knew how important it was to ensure this customer experience was consistent across all Starbucks stores, so employee training was a huge focus for him.
Staff were not simply trained in just how to make a great cup of coffee, they were also trained on how to connect with people and focus on the experience of the customer. He wanted you to be able to go into any Starbucks in the world and receive that same welcoming service that you were used to even at your local store. But it wasn't just about the experience that was important to Schultz. He knew they wouldn't have any customers if they didn't have quality coffee.
A large part of his focus was on their overall quality control of their product. They would work closely with growers to ensure consistency and taste was of the highest standard. Leading to many of these standards becoming the norms throughout the industry today. And just like with the customer service, he wanted you to be able to visit absolutely any of their stores and be able to receive that same quality and taste that you were accustomed to back home.
Starbucks was not impervious to disaster. In 2008, at the height of the financial crisis, Starbucks'growth nearly halted and their stock price plummeted by 50%. This was in large part due to their customer base no longer being able to accommodate their expensive coffee habits they were so accustomed to.
Starbucks beverages were ultimately a luxury, not a necessity, and during this financial downfall around the world, it was evident that things were not going to be the same. During this period as well, Schultz began to notice that while he was away focusing on the rapid expansion, customer experience that was so important to him had begun to suffer. Due to so many new stores opening at once, the focus began to shift to more about quantity over quality. He described these shortcomings as a watering down of the Starbucks experience. Seeing this, Schultz decided to make a drastic, yet very important decision in an attempt to turn things around.
I mean Starbucks was almost at the brink of bankruptcy. He returned as the company's CEO and shockingly closed every Starbucks location in America for one day with the sole purpose of retraining all staff members, not only in just making coffee, but in customer interaction and service as well. That was well over 100,000 employees and it cost the company over $7 million. But that didn't matter to Schultz. He knew how important it was to get back to the roots of providing that untouchable coffeehouse experience he had come to admire so much.
In the end, this strategy paid off. Because in 2009, the company saw a 143% increase in growth and it practically never looked back since. Doubling their location count and predominantly maintaining that top-notch product and experience we all know about today. This leads us to the biggest question, where does Starbucks go from here?
Well, Schultz continued aggressively growing the company and brand until being succeeded as CEO by Kevin Johnson in 2017. However, it doesn't stop there. It can be said that Starbucks has become far more than just a coffee business. I mean, they quite literally affect real estate expansion and growth wherever their stores pop up through what has become to known as the Frappuccino effect. See, when a new Starbucks opens up, nearby property values tend to drastically increase. Some by as much as 96%.
Now this isn't solely because of a Starbucks location simply appearing, but rather because Starbucks has proven to have an innate ability to determine neighborhoods that are on the rise and secure property for a future location before that area takes off. They literally have an entire team and department dedicated to finding and selecting new lucrative properties like this. But there's one other aspect about Starbucks that I think is the most interesting.
Starbucks uses the seemingly standard yet brilliant idea of merging their gift card business with their mobile ordering app. And this means that rather than customers paying with cash or credit cards, they simply load money on gift cards directly onto the mobile app. Beyond just convenience, this is incentivized by receiving reward points that can be used towards future purchases, free drinks, etc. But just because of how insanely popular Starbucks is and the following that they've created, The use of the app is enormous and the users regularly keep large sums of money stored on their Starbucks app. So much so that it's estimated that there is upwards of $1.5 billion actively stored on the Starbucks app.
That's more money held than nearly 85% of banks in America. And Starbucks gets to keep this money and count it as revenue up front. Instead of having to take out bank loans loaded with interest payments, they can simply access their massive stores of future revenue. from the app's income, and they get that interest-free.
So where does this all lead us to, you ask? Well, with their trademark quality and experience soundly cemented in American and world culture, paired with their ingenious expansion and massive revenue streams from the mobile app, Starbucks seemingly has no intentions of stopping what some would call their world domination. Interestingly enough, during the making of this video, CEO Kevin Johnson stepped down from his position, only to be replaced by none other than Howard Schultz.
If you're interested in why McDonald's is so successful, I suggest you click on this video here. Thanks for watching.