A Strategic Analysis of Starbucks: Company Background and History

Company Background

Starbucks opened its first location in Seattle’s Pike Place Market in 1971, selling quality ground beans over a small counter in an open-air market. It was started more or less as a hobby for three good friends, strong on ideas but not very profit-oriented entrepreneurs. Eleven years later, Howard Schultz joined Starbucks as a director of retail operations and marketing. Starbucks began providing coffee to fine restaurants and espresso bars in Seattle. In 1983 Schultz traveled to Italy, where he became impressed with the popularity of espresso bars in Milan. Seeing the potential to develop a similar coffee bar culture in Seattle, he convinced the founders of Starbucks to test the coffee bar concept in a new location in downtown Seattle. This successful experiment was the genesis for a company that Schultz founded in 1985 called Il Giornale, offering brewed coffee and espresso beverages made from premium Arabica coffee beans. With the backing of local investors Il Giornale acquired Starbucks Corporation in 1987 (Starbuck Company) and began building their global empire.

In the early 1990s, Starbucks started their rapid expansion throughout the United States. They expanded their headquarters in Seattle, built new roasting plants, and started opening new stores in major cities nationwide. They took steps to grow the business by negotiating contracts to serve Starbucks coffee with United Airlines, Nordstrom, Barnes & Noble, and Sheraton Hotel. They also made efforts to expand beyond the continental U.S., opening locations in Hawaii, Great Britain, Japan and Southeast Asia. They continued to be aggressive in the domestic market when the strategy known as “a Starbucks on every corner” was developed, saturating downtowns with shops sometimes only one block away from each other. Despite their insistent growth strategy, Starbucks has historically spent very little on advertising, depending on word-of-mouth promotion. At the beginning of the new millennium, Starbucks seemed to be everywhere. As the world’s number one specialty coffee retailer, Starbucks operated and licensed more than 14,000 coffee shops in over 40 countries (Starbucks Corporation).

The shops offered a variety of premium coffee drinks, food, and Starbucks brand merchandise. The strategic notion was that the coffeehouses would be destination points, where people could get away from their homes and offices to meet with friends, drink coffee, read, or do homework. Starbucks was one of the first businesses to jump on the Wi-Fi bandwagon, teaming up with Hewlett-Packard and Deutsche Telecom’s T-Mobile unit to offer high-speed internet across its locations. In March of 2004, Starbucks and HP unveiled their Hear Music service that allowed Starbucks’s customer to download songs and create custom music CDs in the shop. The company offered loyal patrons its Starbucks Card, which allowed customers to prepay up to $500 on a store card. The program’s success enticed Visa to team up with Starbucks to offer Visa cards for the same purpose (Starbucks Corporation ).The company also leveraged its popularity to extend its brand beyond coffee to a host of home goods and lifestyle products. It partnered with Amazon.com to sell branded kitchenware and coffee supplies. Starbucks also marketed its coffee through grocery stores and licensed its brand for other foods and beverage products.