Starbucks opened in Seattle in 1971, when coffee consumption in the United States had been declining for a decade and rival brands used cheaper beans to compete on price. The company’s founders decided to try a new concept: selling only the finest imported coffee beans and coffee-brewing equipment. (The original store didn’t sell coffee by the cup, only beans.)
Howard Schultz came to Starbucks in 1982. While in Milan on business, he had walked into an Italian coffee bar and had an epiphany: “There was nothing like this in America. It was an extension of people’s front porch. It was an emotional experience.” To bring this concept to the United States, Schultz set about creating an environment that would blend Italian elegance with U.S. informality. He envisioned Starbucks as a “personal treat” for its customers, a comfortable, sociable gathering spot bridging the workplace and home.
Starbucks’ expansion throughout the United States was carefully planned. All stores were company-owned and operated, ensuring complete control over the product and an unparalleled image of quality. Starbucks used a “hub” strategy; coffeehouses entered a new market in a clustered group. Although this deliberate saturation often cannibalized 30 percent of one store’s sales, any drop in revenue was offset by efficiencies in marketing and distribution costs and the enhanced image of convenience. A typical customer stopped by Starbucks 18 times a month. No U.S. retailer had a higher frequency rate of customer visits.
Starbucks’ success is often attributed to its high-quality products and services and its relentless commitment to providing consumers the richest possible sensory experience. However, another critical component is its commitment to social responsibility.
Community: Starbucks gives back to its community in many ways starting with employees, called partners. Schultz believed that to exceed customers’ expectations, the company must first exceed those of employees. Since 1990, it has provided comprehensive health care to all employees, including part-timers. (Health insurance now costs the company more each year than coffee.) A stock option plan allows employees to participate in the firm’s financial success, and the company has committed to hiring 10,000 veterans and military spouses over the next five years. In 2013, employees donated 630,000 hours of community service; the company hopes to top 1 million hours by the end of 2015.
Starbucks created The Starbucks Foundation in 1997 to “create hope, discovery, and opportunity in communities,” mainly by supporting literacy programs for children and families in the United States and Canada and charities worldwide. In 2013, the foundation gave $8.7 million to 144 nonprofit organizations around the world. Starbucks has donated more than $11 million to the Global Fund through its partnership with PRODUCT(RED), a global initiative to help stop the spread of HIV in Africa.
Ethical Sourcing: Starbucks collaborates with Conservation International (CI), a nongovernmental organization, and follows Coffee and Farmer Equity (C.A.F.E.) Practices, a comprehensive coffee-buying program, to purchase high-quality coffee from farmers who meet social, economic, and environmental standards. Of 396 million pounds of coffee Starbucks purchased in 2013, 95 percent was ethically sourced. The company also works continuously with farmers to improve responsible methods of farming, such as by planting trees along rivers and using shade-growing techniques to help preserve forests. Over the years, Starbucks has invested more than $70 million in collaborative farmer programs and activities.
Environment: Starbucks is considered a leader in green initiatives, building new LEED-certified green buildings, reducing waste, and improving water conservation. The world’s first recycled beverage cup made of 10 percent postconsumer fiber, 10 years in the making, and a new hot-cup paper sleeve that requires fewer materials to make conserve approximately 100,000 trees a year. Now the team is working to ensure that customers recycle. Jim Hanna, Starbucks’s director of environmental impact, explained, “[Starbucks] defines a recyclable cup not by what the cup is made out of but by our customers actually having access to recycling services.” Starbucks’s goal: to make 100 percent of its cups recycled or reused by 2015.
Howard Schultz stepped down as CEO in 2000 but returned as CEO, president, and chairman in 2008 to help restore growth and excitement to the powerhouse chain. Today, more than 3 billion customers visit Starbucks’ 20,000 stores in 65 countries annually. The company has more than 200,000 employees and brought in $14.9 billion in revenue in 2013. To achieve its international growth goals, Schultz believes Starbucks must retain a passion for coffee and a sense of humanity and continue to prove that the company “stands for something more than just profitability.”
Source: Kotler Philip T., Keller Kevin Lane (2015), Marketing Management, Pearson; 15th Edition.