The Starbucks Fiasco - What Does The Future Hold for The World’s Largest Coffee Chain? (Part 1)

The seattle-based, globally renowned chain has had a tumultuous past, full of controversial decisions that have led to declining sales, falling profits and consumer boycott which have shed bad light on the company. But the question is how did Starbucks take over the coffee drinks market globally and what pitfalls has the company faced in its fairly short history? 

Starbucks’ story begins in the heart of Seattle at the Pike Place Market, where three partners, Jerry Baldwin, Zev Siegl and Gordon Bowker opened a small shop in 1971 to sell the finest roasted coffee beans and spices to coffee lovers visiting the market. The name “Starbucks” was chosen for its association with the famous novel ‘Moby Dick’ and its ties to the seafaring history of coffee trading — reflecting the founders' vision of authenticity, craft, and heritage. In fact, the now leading global coffee chain only opened a few stores in Seattle within its first decade of operation, as a deliberate aim to stay small and focus on education-based coffee sales; those who genuinely had a love and interest in the craft of brewing coffee would be regular customers at the Seattle stores. 

This all changed in 1981 however, when an innovative New York businessman named Howard Schultz decided to pay the original Starbucks store in Seattle a visit and instantly fell in love with the aromatic smell of the dark roast arabica beans that were on offer. The very next year, Schultz became a part of the Starbucks team as Director of Retail Operations and Marketing. He went on a trip to Milan, Italy in 1983 and discovered the way Italian coffee bars were operated, falling in love with the country's vibrant espresso culture and the café concept: people would be invited into the shop due to the irresistible aroma that drifted through the air, sit down to sip on an espresso with their friends and create a community over a cup of coffee. To Schultz, this was the missing piece in the jigsaw: Starbucks needed to sell not just beans, but experience.

However, the 3 founders were initially quite skeptical and showed resistance to the prospect of turning their coffee beans and spices stores into cafés such as the one Schultz had been inspired by from visiting Milan. This led to him leaving the company in 1985 to launch his own coffee bar chain, Il Giornale, which embodied his Italian café vision. The venture proved successful, validating his belief that American consumers were ready for an elevated, communal coffee-drinking culture. 

Schultz’s early progress meant that he became inspired to take his venture even further and turn it into a multinational success. In 1985, he returned to Starbucks as a buyer, and eventually walked away with a $3.8 million deal for the company so he decided to merge the brand with Il Giornale by adopting it under the ‘Starbucks’ name. Schultz pioneered the early coffee store model in the United States, and did this by blending together elements of the Italian espresso café with the fast paced contemporary life that Americans had become so used to. He called this ‘third place’, a welcoming environment that is distinct from home or work, allowing customers to relax, connect, or focus. 

The new Starbucks did not compete on price or speed but on atmosphere, quality, and emotional connection. Schultz ensured that from early on the Starbucks brand emphasized store aesthetics, barista-customer rapport, and the consistency of the experience across all their locations. Unlike fast-food outlets, Starbucks stores encouraged customers to linger, and their niche and unique ambiance helped justify the premium for their coffee. The company also prioritized vertical integration, maintaining control over most/all aspects of its supply chain — from sourcing and roasting beans to store-level operations — ensuring that the customer experience was tightly managed and consistently delivered.

Over the next seven years, Starbucks embarked on an aggressive domestic expansion strategy. The company opened new locations at a staggering pace, reaching 2500 stores by 1999, and often clustering outlets within the same cities to dominate their market and imprint the brand image into new or potential customers. Schultz’s strategy defied conventional logic, but it worked: even with stores in close proximity, each location remained profitable due to the rising demand and loyalty-driven consumption. Meanwhile, their regular product innovations and menu enhancements helped add fuel to the already large fire. The introduction of the Frappuccino in 1995, for example — a sweet, blended beverage that has a variety of customisable flavours to choose from — became a nationwide bestseller, appealing mainly to the younger generation and non-coffee drinkers alike. Starbucks also leveraged seasonal marketing with limited-time offerings like the Pumpkin Spice Latte, transforming coffee into a cultural event and driving repeat foot traffic. 

Today, Starbucks is a well established, internationally recognized coffee brand, with close to 40,000 stores in over 80 countries not only making it the largest coffee chain in the world but also a leading multinational that has become a household name when it comes to coffee at the workplace. But does the story end there? What does the future hold for Starbucks? Read part 2 on the Econbrew website to find out!