People flocked to different coffee shops, revenue dangerously dropped and seemingly all hope was lost, a downward spiral that made many people ask, “How did Starbucks recover from such a deafening blow?”
Starbucks first opened its doors in Seattle on March 31, 1971. The company’s founders were University of San Francisco graduates who met while they were students. Jerry Baldwin, an English teacher, Zev Siegl, a history teacher, and Gordon Bowker, a writer, found inspiration for high-quality coffee beans and equipment in the teachings of Alfred Peet, who had a specific style of roasting beans.
Originally, Bowker owned an advertising agency with Terry Heckler, a man who believed words including “st” were exceptionally powerful. This prompted brainstorming and discovery of a mining town near the Cascade Range called “Starbo.” The research reminded Bowker of “Starbuck,” the first mate in Herman Melville’s classic American novel “Moby Dick,” which discusses the whaling industry. Of course, the name origin is appropriate considering its stores import coffee to the people of Seattle. The name stuck, and the business grew shortly after.
The first version of the famous logo, displaying a twin-tailed siren from Greek mythology, was inspired by the sea. They really began to put the “sea” back in Seattle. The logo has faced various changes throughout the years. The first version illustrated a completely topless mermaid with a double fishtail. The topless nature faced much controversy and eventually sparked the creation of the second version. This version showed her long, flowy mermaid hair covering her breasts, but with her belly button still visible. This time, the tail was cropped and green in color rather than brown. The third version hid both the belly button and breasts and showed very little of the original fish tails.
The original logo was moved to the Starbucks’ Headquarters in Seattle. Starbucks, for a short period of time, placed it on hot-drink cups as an attempt to show the company’s heritage from the Pacific Northwest in celebration of the it reaching 35 years. However, the logo was still quite controversial due to the siren’s exposed chest, but not enough to cause a huge deal. Years later, small changes were made, such as removing the Starbucks mark around the siren, making the image bigger and changing the color.
The original Starbucks is located at 1912 Pike Place. At the beginnings of the company, it sold roasted whole coffee beans and did not yet brew coffee to sell; brewed coffee came only in free samples, and things needed to change. After purchasing green coffee beans from Peet’s for the whole first year of business, Starbucks began buying directly from growers. In the 1990’s, Starbucks expanded beyond Seattle throughout the U.S. then eventually worldwide and became one of the first companies to offer sock to part-time employees. In this time frame, it also became a publicly traded company.
Howard Schultz served as a driving force behind the success of Starbucks from when it had only four outlets. He grew what started as a tiny beansprout to a strong, ever-growing beanstalk. The company owed most everything to his nurturing actions as CEO from 1987 to 2000. Before dedicating his time, energy and passion, Schultz first walked into a Starbucks store in 1981 and was instantly drawn to the excellent and different taste from his first cup of Sumatra.
It was not until he ventured on business endeavors in Italy that he discovered and was extremely impressed by Milan’s espresso bars. He saw the romantic, inviting nature of the Italian coffee experience, and its popularity and culture inspired him to develop the company in Seattle; he saw great success in selling cups of coffee as well as beans. He envisioned a place for conversation and a feeling of community, simply a place somewhere between home and work. After starting his own coffee shop for a bit, Schultz, along with the help of local investors, purchased Starbucks in August of 1987. He grew Starbucks from a regional coffee chain to a global company over a period of 18 years.
When he left after these 18 years, things took a drastic turn.
Companies around the country began severely struggling simultaneously with the economy during the financial crisis of 2008, and Starbucks was not one to be spared. Shutting down 900 stores by 2009, laying off 6,700 employees, and dropping 42 percent in stock, the company reached an all time low. Net income in the first quarter fell to $64.3 million from $208.1 million. Further, revenue fell 5.5 percent and sales at stores that had been opened for a year minimum fell 9 percent also during the first quarter.
However, problems arose before the recession hit; the company just failed to recognize them. The main problem was that people simply stopped going to Starbucks. Over the last three months that ended Dec. 28, the number of people visiting stores decreased 5 percent along with the amount of money people spent when they did visit the stores. People began deeming Starbucks products as too expensive in comparison to other domestic coffee houses and opted for cheapter coffee. In 2008, there was a 3 percent drop in same-store sales. The recession did, in fact, plunge Starbucks into an existential crisis, but much of the damage had already been done.
Jim Donald, who Schultz appointed as CEO after his aforementioned resignation, took the blame for the fall of Starbucks, a result of him opening too many stores in the United States, eradicating the home-like experience of stores and allowing a too drastic explanation. Something monumental needed to be done
On January 8, 2008, Schultz finally returned after an eight year hiatus, during which he served as a chairman, to help dig the company out of a deep hole. Starbucks faced many other problems that only added to its unfortunate financial crisis. First, as it focused more and more on expansion, it began to stray further from guaranteeing its stores as inviting places with frequent new products. The coffee remained, but the warm, inviting nature had vanished.
Starbucks also failed to acknowledge arising competitors and the impact they could have on its own business. McDonald’s, for example, became a competitive force as it began selling espresso. Dunkin Donuts also became a popular place for coffee-lovers. Though they were focused on beating smaller premiere coffee outlets, they ignored big-machine, already established companies that were beginning to jump on the coffee grind.
Schultz returned with a fire under his feet. Almost immediately, he emailed the employees about his concerns regarding losing touch with customers. He wrote with a clear objective towards reigniting the emotional attachment with customers in mind. Refusing to blame the economy and the higher cost of dairy like the leadership he replaced, Schultz recognized Starbucks’ overlooked problems. They used external problems as excuses for raising prices and wrongly exchanged investment in its employees and customers for expansion. The store experience strayed far from how Schultz demanded and wanted it to feel.
“The company shouldn’t just blame the economy; Starbucks’s heavy spending to accommodate its expansion has created a bureaucracy that masked its problems,” Schultz argues. The company had grown from approximately 5,000 stores to 15,000 during his hiatus.
Could it continue to expand while simultaneously preserving its culture and values? Starbucks needed to do one thing: remain true to its core values.
And so the company completely redesigned its stores and created an environment that felt like community rather than corporation, delivering personalized customer service, down to little details like appealing music throughout its stores. Employees were encouraged to think freely and contribute ideas towards how to foster this feeling alongside customers through a program named “My Starbucks Idea.”
Essentially, the program called for opinions on all Starbucks related matters and products and allowed users to personalize drinks through an interactive experience. Fortunately, it was a great success, exceeding 93,000 ideas shared by about 1.3 million users on social media and raising monthly page views to 5.5 million. Coffee-lovers finally began to feel as if their voice mattered, instead of being swallowed by a demand for expansion and profit.
This was the first step towards rebuilding the company’s relationship with its customers. Choosing casual and informal conversation made it easier to capture actual moods and understand the customer experience through real feedback. If the company did not understand its audience, including both their negative and positive thoughts, it could never reach the true level of success that is so desperately desired. Instead, it would fall deeper and deeper into a black hole of separation between corporation and customer. Starbucks knew what it had to do; it just needed actual execution of its plans.
Schultz unveiled a seven-step transformation agenda. The steps were the following:
- Be the undisputed coffee authority.
- Engage and inspire our partners.
- Ignite the emotional attachment with our customers.
- Expand our global presence—while making each store the heart of a local neighborhood.
- Be a leader in ethical sourcing and environmental impact.
- Creative innovation growth platforms worthy of our coffee.
- Deliver a sustainable economic model.
“We desperately need to look into the mirror and realize it’s time to get back to the core and make the changes necessary to evoke the heritage, the tradition, and the passion that we all have for the true Starbucks Experience,” Schultz says.
The company began to mold a platform where customers could speak and headquarters would listen, a huge turn from the previous separation. Customers also engaged with each other by creating groups. Through this, Starbucks implemented over 100 ideas and began to reestablish brand trust despite aforementioned difficulties. Starbucks began utilizing technology like this more and more. It wanted to be as innovative as possible. In addition, it had a lot to prove in terms of its quality and consistency, as the company had been questioned for its high prices. It was the focus on relationship building that worked wonders.
The Starbucks mobile app, for example, was implemented before many other competitors began embracing applications and linked to the already existent social media tactics. With a foot in the technology race early on, the company had the chance to become a trendsetter. Other companies later followed suit.
The company launched the Pike Place Roast and the loyalty program, closed stores as it saw fit, and reconstructed its manufacturing and supply operations. In addition, it focused on motivating its partners and store managers, closing more than 7,000 of its stores across the country for “Espresso Excellence Training,” during which they ensured 135,000 baristas could efficiently pour a perfect espresso shot and steam milk.
Starbucks also began considering its employees its partners, offering them stock options and health insurance.
The crisis that plagued Starbucks went far beyond effects of the recession, but through strong efforts to reconnect via social media, the company reclaimed its throne at the top. It proved the power of engagement between customers and products or brands.
Now, Starbucks is back and better than ever. Opening 603 new stores just last year and bringing the total count across 75 countries to over 28,000 stores, Starbucks has grown from much more than just a one store, unknown Seattle-based company. Starbucks can be found anywhere and everywhere and has plans to continue expansion in whatever areas are deemed fit.
Starbucks has grown by an average of at least two stores every day for the past 27 years, yet maintained the comfortable, home-like experience it desperately needed during the crisis. There are 36,000 possible frappuccino combinations, and the company reported a record-setting $19.2 billion in sales last year. While there is seemingly not a place lacking a Starbucks, the company has managed to continue expansion while not straying from its core values like before.
Kevin Johnson served as the president and chief operating officer for two years, leading the company’s global operating businesses across all geographies, as well as the core support functions of Starbucks supply chain, marketing, human resources, technology and mobile and digital platforms. Now serving as the president and chief executive officer, Johnson continues to make Starbucks a leading corporate force.
Product wise, Starbucks offers a range of customer favorites in its stores, at home, and on the go. There are more handcrafted beverages, including more than 30 blends and single-origin premium coffees as well as Starbucks Refreshers beverages, smoothies and teas. In addition, the company has merchandise, including brewing equipment, mugs and accessories, and packaged goods and gifts, as well as fresh food like baked pastries, sandwiches, salads, protein boxes and bowls, oatmeal, yogurt parfaits and fruit cups.
Moreover, the previous Starbucks app was widely successful, furthering both the technology and customer-focus paths. Mobile payment held a significant impact on financial success, with the mobile system reaching 20 percent of U.S. transactions. People could place their orders before even stepping foot in the store so that it would be ready when they arrived.
Starbucks has also established a College Achievement Plan in collaboration with Arizona State University (ASU). In fact, 70 percent of its U.S. employees are students or aspiring students. Because a large sum of college students struggle with remaining in school due to financial difficulties, the company believed investing in its employees and education is one of the very best investments it could make.
This offers part- and full-time employees full tuition coverage for the completion of a bachelor’s degree. The program is fostered online and allows students to choose from over 60 undergraduate degrees at ASU. It is a beneficial, interesting program that provides paid work opportunity alongside funded education. When employees give to Starbucks, the company does whatever it can to give back. It fosters a wholesome, two-sided relationship.
Also through ASU, Starbucks employees can qualify for admission. The Pathway to Admission Program, effective Feb. 7, 2017, expands the already established college plan. Those interested who do not have a college degree or previously gain admission are offered the help they need to become an ASU student. Experts from the college assist employees in filling academic history gaps by completing up to 10 freshman-level courses.
Starbucks is extremely committed to creating opportunities in any and all ways possible, including creating pathways to employment for veterans, military spouses, youth and refugees. Some of its future opportunity-creating goals are the following include employing 100,00 young adults who are disconnected from work and school known as Opportunity Youth by the year 2020. By 2022, it plans to hire 10,000 refugees searching for employment, and by 2025, it plans to hire 25,000 veterans and military spouses, as well as 25,000 graduates.
Removing itself from the brink of financial failure through persistent and strategic efforts, Starbucks pushed itself towards untested innovative areas that make the company what it is today. Starbucks created a place where people can feel welcomed as they enjoy a cup of coffee, a place between home and work. Bothered by the past troubles with disconnectedness, it plans to never return to such a dark area of company history.
Starbucks is excited about the future and welcomes everyone on its journey. It hopes to make an even stronger impact in terms of social responsibility. Since 2002, when it launched its first social responsibility report, it has surely developed a green thumb. Years ago, Schultz even changed the Starbucks logo color from brown to green because he found it to be a more affirming color. Employees can be seen wearing stand-out green aprons.
The company has reached milestones that would have before been deemed impossible, ranging from categories such as community engagement, coffee sustainability and greener retail. This has been achieved through acts of creating worldwide farmer support centers and dedicating millions of hours to community service by engaging employees in environmental leadership in more than 25,000 stores.
Working with Conservation International, Starbucks helps provide healthy trees to farmers in coffee-growing regions. Through this, they transform existing lands to be more productive rather than expanding into forests and leaving a deadly environmental footprint. Love for coffee does not supersede a vibrant and healthy natural world. Starbucks could not rightfully display green aprons of change without also having a desire to better the world.
Starbucks invests in coffee communities, sharing technical coffee knowledge and new agricultural approaches. Further goals included planting trees and utilizing renewable energy, enacting food rescue programs and reducing the environmental impact of its cups. By 2020, it plans to double the recycled content, recyclability and reusability of the cups, crafting its stores in ways that minimize its overall environmental footprint.
Also within this time frame, it plans to invest in 100 percent renewable energy for powering company operations and bring renewable projects to other countries around the world. Through a program called Partners for Sustainability, Starbucks intends to empower 10,000 employees to be sustainability champions. With a comprehensive approach to reducing impact through analyzing all aspects of the businesses as a whole, Starbucks consistently develops and implements new solutions to evoke significant change.
It is true that Starbucks would be nothing without a strong sense of community, which is why it aims to strengthen every community it serves. For example, by 2020 the company plans to rescue 100 percent of food available to donate in U.S. company-owned stores and have 100 percent of stores participate in community service. Starbucks is committed to standing as a place for public conversation and encouraging anyone and everyone to be civically engaged through service projects and promotion of voter registration.
Through setting ambitious goals and both acknowledging and resolving the pressing challenges, the company saved and proved itself to the masses. People flock to Starbucks to do things like complete homework and meet up and chat with other people. For many, visiting a Starbucks store is an integral part of their daily routine. Ultimately, Starbucks wishes for people to be able to share great coffee and for the world to become a little better.
At the end of the day, Starbucks is much more than just what it brews.
