STARBUCKS INSIDE THE COFFEE CULT AMERICA'S RED-HOT CAFFEINE PEDDLER GIVES NEW MEANING TO "ADDICTION," "PRECISION," AND "BARISTA." IF YOU DOUBT THAT COFFEE MEANS BUSINESS, CONSIDER: A LATTE AND SCONE PER DAY IS A $1,400-A-YEAR HABIT.
(FORTUNE Magazine) – As Americans, we have grown up thinking of coffee primarily as a hot, tan liquid dispensed from fairly automatic appliances, then "doctored" as needed to make it drinkable. We open the three-pound "value" can, shovel the grounds into a paper filter, push a button, then go about our business. The opposite of this approach is to treat coffeemaking as a brand of cooking. You start with the best beans you can buy, making sure they are fresh. You use your favorite recipe. You grind the beans to the right consistency and add delicious, fresh-tasting water. To keep the coffee warm, you put it into a thermos. --Starbucks employee training manual
In the Starbucks generation there will be no more coffee cans. No more percolators, Sanka, or going about our business. Starbucks is spreading the gospel of plunger pot and steamed milk, and if this evangelical company has its way, we will all purify our noisome water with Brita filters and pour "earthy, unpredictable" Sumatra Boengie into stainless-steel Thermoses while Starbucks jazz wafts into the eaves.
The way things are going, this is no pipe dream. It's gotten to the point you can't escape Starbucks anywhere--even at 30,000 feet, where you'll find United stewardesses slinging the company's brew with a side of salted peanuts. Starbucks is in the freezer; it's in the office cafeteria; it's in Japan. On some level, the espresso craze mirrors the high-tech revolution, which after all runs on junk food, venture capital, and caffeine. Both have sprung from the innovation hotbeds of the San Francisco Bay Area and Seattle, and both have evolved their own languages, which most educated and affluent young people can now speak.
Not unlike the cultural blitz of personal computing, Starbucks has created one of the great marketing stories of recent history, and it's just getting started. The company manages to imprint its obsession with customer service on 20,000 milk-steaming, shot-pulling employees. It turns tattooed kids into managers of $800,000-a-year cafes. It successfully replicates a perfectly creamy caffe latte in stores from Seattle to St. Paul. There is some science involved, and one of the primary labs happens to be Starbucks' employee training program.
I'm attending the indoctrination seminars to learn about being a "barista," in addition to learning how a small Seattle specialty retailer has become a national phenomenon. Olivia, one of my instructors, kicks off "Brewing the Perfect Cup at Home" by having us read aloud the above-quoted history of coffee in America. Olivia's job today is to drum into our heads the need to educate customers in proper coffeemaking techniques. Customers must be reminded to purchase new beans weekly; to understand that their tap water might not do those beans justice ("You wouldn't want to make coffee with unpleasant-tasting water any more than you'd want to make a milk shake from sour milk," lectures the manual); and to never, ever let coffee sit on a hot plate for more than 20 minutes. In these ultra-earnest training sessions it is sometimes tempting to shout, "Good God, people, it's just coffee!" But this is Starbucks, and it's not just coffee: This is double-digit earnings growth and retail history in the making.
"Brewing the Perfect Cup" is one of five classes that all "partners," as employees are called, must complete during their first six weeks with the company. In San Francisco these days, Starbucks is running the classes back to back; it is bringing on 300 to 400 people nationally every month. You'd have to live in a pretty unchic place--say, the state of Utah--not to notice that there are Starbucks popping up all over. This year the company, which does not franchise, has opened a new store every business day, and it will unveil another 325 in fiscal 1997.
Olivia supervises a fluorescent-lit room set up to resemble a Starbucks store so that partners can practice "calling" (you know: "triple-tall nonfat mocha") and making drinks. I quickly learn that Starbucks is a company with a lot of rules, and all partners have to memorize them. Milk must be steamed to at least 150[degrees]F. but never more than 170[degrees]F. Every espresso shot must be pulled within 23 seconds--or tossed. Getting it all down is one goal of the training program. But it is far from the only one.
All the drink-making technicalities are dispensed with in "Retail Skills," an eight-hour marathon of lectures, demonstrations, and hands-on practice. David, our peppy instructor, demonstrates how to wipe oil from the coffee bin, open a giant bag of beans ("In a sanitary manner! You never put your hand in there!"), and clean the milk wand on the espresso machine ("It's like blowing a little boy's nose"). He shows us the proper way to fill one-pound sacks with coffee and how to affix a sticker exactly one-half inch over the Starbucks logo. He actually makes us practice this. "You never give a customer 0.9995 pound of coffee if they order a pound," he says, in what evolves into an endless, dizzying monologue. "You never give them 1.2 pounds. Why not? Because they ordered one pound." Later, we work on our lattes. "Lovely!" David cries out periodically. "Fabulous foam! It's okay to practice in your stores. Pull ten shots and dump 'em. And what does it taste like when the milk in your latte is 190[degrees]F.? Be a mad scientist behind the bar--if you taste something not up to standard and you say ooh!, you'll understand why customers complain."
There are other lessons. "Coffee Knowledge" ensures that every partner has a chance to slurp various coffees and ponder why Sanani is described as "winey" and Costa Rica as "tangy and bright." In "Customer Service," we learn how to explain Starbucks' Italian drink names to baffled customers. In "Brewing the Perfect Cup," we play-act selling espresso machines.
The training goes deeper. Throughout, partners are encouraged to share their feelings: about selling, about coffee, about working for Starbucks. Starbucks coffee school is also about learning relaxation techniques so you can focus on the cappuccinos; it's about taking personal responsibility for the cleanliness of the coffee bins--even when it's someone else's job; it's about treating your partners respectfully and doing the right thing when one of them spills a gallon of milk. "As you help him, you tell him not to worry, that you've done the same thing too," encourages the training manual.
If you can't stomach NutraSweet New Age philosophizing, you probably wouldn't make it very far in these courses. During orientation, we're introduced to the so-called Star Skills, three guidelines for on-the-job interpersonal relations:
(1) Maintain and enhance self-esteem. (2) Listen and acknowledge. (3) Ask for help.
These are maxims requiring, one would think, no elaboration. But Nan, yet another instructor, tries to start a discussion. "What is self-esteem? And why would we want to enhance that?" she asks.
A deadly silence falls.
"It's hard to do daily tasks if you're moping around," says a young man named Ryan, at last.
"Yeah," says Aaron, a recent graduate of the University of Massachusetts with degrees in French, communications, and film. "Generally, good attitudes are pretty contagious."
"And why might someone not ask for help?" asks Nan.
Silence again. And then comes this whiz-bang reply: "People might have had the experience of asking for help and not had someone there to listen and acknowledge and enhance their self-esteem."
Unbelievably, Nan runs with it: "You tend to bring those fears with you. But the partners at Starbucks, you'll find, are ready to help."
It's silly, soft-headed stuff, though basically, of course, it's true. Maybe some of it sinks in. Starbucks is a smashing success, thanks in large part to the people who come out of these therapy-like training programs. Annual barista turnover at the company is 60%, compared with 140% for hourly workers in the fast-food business. "I don't have a negative thing to say," says Kim Sigelman, who manages the store in Emeryville, California, of her four years with the company. She seems to mean it.
It has become boilerplate public relations for corporations to boast about how much they value their people. But Starbucks really does treat its partners astonishingly well. The pay--between $6 and $8 an hour--is better than that of most entry-level food service jobs. The company also offers health insurance to all employees, even part-timers. And then there are the stock options. The fact that most baristas leave before a single share vests makes it an affordable proposition, but still, it's an unusually generous policy. Yes, it's also self-serving: The temperature of every latte and the cachet of the "Starbucks experience" are entirely in the hands of these partners.
Walk into just about any Starbucks, and you'll see that these are fairly soft hands: Some 80% of the partners are white, 85% have some education beyond high school, and the average age is 26. Starbucks thinks it has a good psychological handle on its work force: "These are people who have said, 'I need balance in my life, and if I get that at the sacrifice of a few dollars or a few thousand dollars, that's okay,' " says senior vice president of human resources Sharon Elliott. "Therefore, what becomes important is the capacity to learn and grow professionally, as well as belief in the product."
Starbucks has instituted all sorts of mechanisms for its Gen X-ers to communicate with headquarters: E-mail, suggestion cards, regular forums. And it acts quickly on issues that are supposedly important to young kids today, like using recycling bins and improving living conditions in coffee-growing countries. To determine the extent to which Starbucks has truly identified and addressed the inner needs of twentysomethings would require several years and a doctorate. But anecdotally, the company appears to be right on the money.
Karen Hunsaker, 27, a barista in the Starbucks in Orinda, California, had been working for low pay and no benefits in small cafes and bars for years. Does she mind working for a $700-million-a-year corporate behemoth that could squash a quaint local cafe? Hunsaker, who sports black boots and bleached hair, has no illusions about the romance of small business. She knows too much about unstable little joints run by capricious entrepreneurs. "One reason a lot of youths don't find corporate America so attractive is because of the IBM image: I'll become a blue suit. Starbucks makes you feel like a partner," says Hunsaker, who has an associate's degree in auto mechanics and is hard to picture in a blue suit. "I'd never been told to clean the espresso machine before, much less the steaming wand," she says. "We literally take apart almost every machine in the store after closing. I have a 1969 Camaro that I keep in show condition, and I don't spend as much time detailing it as I do the espresso machine, but I will not stop until it is clean. I'm into it."
To look at Hunsaker, you wouldn't expect her to talk like a corporate true believer. Nor Sigelman, who at 22 has also found a niche in the Starbucks empire. "At first I felt the dress code was an affront to my personal being," she says. "But I took some time to evaluate where I wanted to be and realized there were sacrifices I'd need to make." She has permanently removed her tongue stud because it didn't conform to the dress code, and she covers her four tattoos before work. "It's people like my parents who spend $300 for an espresso machine, and they don't want to see my tattoos," says Sigelman. "I can understand that."
As the four million Americans who walked into a Starbucks any week in October could not have failed to learn, the company recently turned 25. The company's age often comes as a surprise, because until a few years ago, this in-your-face national chain was little known outside Seattle. Its history--emblazoned on psychedelic 25th-anniversary cups during its birthday month--goes something like this:
In 1971, in the heyday of Tang and Wonder Bread, three young men--Gerald Baldwin, Gordon Bowker, and Zev Siegl--decided to open a gourmet coffee store in Seattle's Pike Place Market. They raised $10,000 and approached Alfred Peet, a legendary Berkeley, California, coffee retailer, to supply them with beans. But before he would do business with them, Peet insisted they come down to his store to learn about the product.
Peet's was the quintessential university-town coffee boutique: eccentric, unassuming, aromatic. Peet roasted his beans very dark, resulting in a full-bodied drink, which is what you'll find at Starbucks to this day. Newcomers sometimes describe it as burnt (critics have dubbed the company Charbucks), but after a few cups, many people find that lighter roasts taste insipid and, as they say in the industry, "grassy."
The founders of Starbucks went back to Seattle and replicated everything, from the finish on Peet's coffee bins to the store's product mix. The name Starbucks was chosen because it was thought that words beginning with "st" were more memorable, not, as has often been reported, because of a link between coffee and the first mate in Moby Dick. (There is none.)
Starbucks turned a profit within a year and in 1973 began roasting its own beans. The focus was strictly on coffee and equipment: filters, grinders, pots. No scones, no cappuccinos. When Peet's came on the market in 1983, Starbucks bought the company. Four years later Baldwin decided to sell one of the businesses. "My wife and I had a 30-second conversation and decided to keep Peet's," he says. "It was the original, and it was better."
There was someone just as eager to buy Starbucks. In 1982 the company had hired a transplanted Brooklynite named Howard Schultz to do its marketing. On a trip to Verona the following year, he became enamored of the coffee bars he saw on every corner. He returned to Seattle and tried to persuade Starbucks to branch out into cafes. "I believed the relationship I saw between people and coffee in Italy was transferable to America in a big way," says Schultz. "The founders felt it was a diversion and was not going to add value."
When Baldwin opted for Peet's in 1987, Schultz raised $3.8 million and bought Starbucks' six stores. Peet's has since expanded modestly into a 30-store chain and distributes its coffee through the cafe-bakery chain Au Bon Pain; it retains its reputation as the industry's quality leader. To this day, both Peet's and Starbucks sell a dark coffee that betrays their common ancestry.
Schultz claims that from day one he knew he wanted to go national. "He's the most competitive person I've ever met," says Christopher Calkins, CEO of the San Francisco coffee chain Spinelli, who worked with Schultz in the Eighties. But the early days were not easy. Before he could raise serious capital, Schultz needed to prove the concept would fly outside Seattle. So in 1987 he took Starbucks to Chicago. "I thought Howard was nuts," says Howard Behar, president of Starbucks International, whose first job when he arrived at Starbucks in 1989 was to fix what quickly became the "Chicago problem." "It was really tough. People were selling coffee for 40 cents in Styrofoam cups. We were coming in with coffee for 80 or 90 cents." But after a few months working behind the counter there, Behar concluded that it was just a matter of time before Chicago caught on. He was right: In 1990 the company's business there started to take off. Starbucks went public in June 1992 at $17 a share. Within five months, the stock had doubled. Today there are more than 1,000 Starbucks in the land, annual profits have hit $34.9 million, and Howard Schultz's stock in the company is worth around $70 million (he has cashed out more than $20 million over the past two years).
It's not too much to say that Starbucks has changed everything, from our tastes to our language to the face of Main Street. Because of its reach, there is no way to get around the fact that Starbucks inspires dislike, ranging from derision to passionate resentment. And while the backlash is clearly limited to a vocal minority--a company can't post 50% annual sales growth if it is widely reviled--there are persistent charges that Starbucks rolls into town, identifies the thriving cafes, pulls out a wad of cash, and rents a prime space just down the street. "We had an unspoken agreement not to be in each other's faces," says Spinelli's Calkins of the polite relationship between San Francisco's coffee companies pre-Starbucks. Today it is rare to find a Spinelli or a Peet's without a spanking new Starbucks within a few hundred yards. "Starbucks has changed the game," he says. "But it's just business. There's no point whining about it." Barnie Philip Jones, CEO of Barnie's, an Orlando coffee chain, is more censorious: "Starbucks is what I call 'predatory' in its locations."
Starbucks certainly is aggressive and opportunistic, which is fine--except that the company resists being seen this way. A touch of the New Age mindset that pervades its training program is evident in Starbucks' irritation when anyone suggests it plays hardball. This might be the company's most annoying attribute: Starbucks insists it hasn't stepped on any toes in its rush to become the world's premier specialty-coffee brand. If you really want to offend--even wound--a Starbucks executive, compare the company with Wal-Mart, as Newsweek recently did. The similarities seem obvious: Wal-Mart and Starbucks are big, national retailers that have siphoned customers from local shops. But the party line at Starbucks is that it is some kind of public servant, heroically bringing the first decent brew to a thirsty population, while Wal-Mart is a cutthroat price warrior. "We're not in the business of undercutting the price of commonly available merchandise and putting existing retailers out of business," says senior vice president of marketing Scott Bedbury indignantly. "We're elevating the coffee experience."
Other coffee retailers argue that the coffee experience was plenty elevated when Starbucks showed up across the street in a pricey corner location with its impeccably trained baristas. The fact is, some of Starbucks' strongest markets have been those where the locals had already been introduced to the good stuff by someone else. Today the company is often depicted as the thousand-pound gorilla of specialty coffee, and the image isn't unfair: The company has deep pockets, shrewd management, and global ambitions. Its largest competitor--the Second Cup, a Toronto franchiser--is less than half its size. "If we're Coke, there's no Pepsi. If we're GM, there's no Ford," says Bedbury. "There's such a gap, it's unusual."
Plenty of companies would like to play Ford to Starbucks' GM. The Specialty Coffee Association estimates there are 8,000 coffee outlets in the U.S. today, up from 200 in 1989. Barnie's is opening a new store every two weeks, the Coffee Beanery in Flushing, Michigan, has plans for 50 in 1997, and just about all the coffee chains are scribbling ambitious new business plans. Most freely admit that the Starbucks tide is, for the moment, raising all boats. "Their marketing budget is so enormous it creates a buzz, and everyone benefits," says Andrew Resnick, an executive vice president of Timothy's World Coffee in New York City.
Probably the biggest concern about the future of Starbucks is that it won't be able to keep it up. The company plans to have 2,000 stores by 2000. Meanwhile, it's going overseas: Two Starbucks opened in Japan this summer, and the company steams into Singapore this month. Can a company growing this fast maintain its rigorous standards? Jean-Michel Valette, a stock analyst with Hambrecht & Quist says that a loss of discipline "is something you see over time, in terms of lowered quality of service, which results in fewer repeat customers. But we're not seeing that. The company has done a remarkable job." Same-store sales jumped 10% this summer, which suggests that, if anything, Starbucks is doing better than ever.
Take Starbucks' attempts at brand extension. The company has been hung up for several years on convincing Americans to take their coffee cold. After a few false starts, last year the company hit it big with Frappuccino, a frozen coffee drink that sent summer sales through the roof. There is nary a coffee chain in the country that does not now hawk a slushy coffee drink of its own. Even dignified Peet's succumbed. "We did it kind of reluctantly," says coffee buyer Jim Reynolds. "It's hard when customers ask for a drink like that and leave when you don't have it."
To capitalize on the Frappuccino bonanza, Starbucks recently started bottling a version of the stuff for sale in supermarkets. And the company had even bigger news this year: In eight months, Starbucks ice cream--produced with Dreyer's--has become the nation's top-selling coffee ice cream.
Other attempts at brand expansion look less promising. Take the United Airlines deal, which makes even love-struck stock analysts wince. Last year United approached Starbucks with a problem: It was inundated with complaints about its crummy coffee, and it blamed Starbucks for making disgusting something that was previously acceptable. Would Starbucks please help fix this? As Schultz tells it: "Here we had an opportunity to reach 80 million people a year in an environment where coffee has traditionally been bad. And we said: We're up for the challenge. We're going to have some rough roads, some criticism, but we're going to reach for it. That's the kind of company we are."
That's a very rousing display of can-do spirit. But while there's no trick to wholesaling high-quality bulk coffee, what Starbucks does uniquely well--market, prepare, and present coffee--has now become the job of flight attendants with frozen dinners to distribute. As Allan Hickok, managing director of Piper Jaffray in Minneapolis, puts it, "Leaving your concept in the hands of people who don't share your culture is a big risk."
Still, Hickok is optimistic--nay, bullish--about Starbucks. "It won't be anything terribly enlightening if I say we think they will be one of the biggest consumer brands, not just domestically but internationally," says Hickok. "They pay a lot of attention to detail, and everything the consumer touches drips with quality."
As with any overnight success story, it's sometimes tempting to wonder if Starbucks isn't a passing fancy. Some contrarians, like Morgan Stanley analyst Howard Penney, have long contended that Starbucks stock is overvalued and that the company isn't going to grow as fast as boosters predict. Frozen yogurt was once a growth industry, as were hula-hoops. People may ultimately cut back on the lattes as they realize that one-a-day-plus-scone adds up to a $1,400-a-year addiction. But specialty coffee isn't going away. Nor is Starbucks. While coffee consumption has dropped since the Sixties, 50% of the adult population drinks a cup or more every day. When they don't, they get a headache.
And once you start drinking coffee from Starbucks, it's hard to go back to Yuban. Try it sometime.