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The Origins of Cult-Favorite Fast Food Restaurants: Starbucks


Brew coffee on the premises? Not us, said the Liberal Arts students who launched the original Pike Place shop.

From a single Seattle coffee supply store opened in 1971 by two teachers and a writer to the worldwide barista-populated behemoth of today, the story of Starbucks' rise to become the biggest coffee purveyor in the world isn't without its setbacks.

The shop was originally opened by three men: Jerry Baldwin, Gordon Bowker and Zev Siegl. Their intention was to sell the finest packaged coffee beans. They named their shop Starbucks (SBUX) after the first mate in Moby Dick, and as an homage to 18th-century seafaring coffee traders. The trio had no plans to sell roasted coffee or become a cafe.

Business had been steady for nearly a decade when Howard Schultz, a small appliance salesman from Brooklyn, noticed his company was selling a number of percolators to the Seattle store. The "charming, fast-talking man," as one journalist described Schultz, found his way to Seattle and began poking around. Impressed with what he saw, Schultz persuaded the partners to take him on as marketing manager.

The following year, during a trip to Milan, the Brooklyn businessman had an a-ha moment. Seeing the way cafes were central to Italian life, he decided that Starbucks needed to sell brewed coffee and specialty drinks. In his autobiography, Pour Your Heart Into It, Schultz writes: 'It was like an epiphany. It was so immediate and physical that I was shaking."

There was a parting of the ways between Schultz and the three founders. Baldwin and his pal Bowker, a writer, went on to purchase Peet's Coffee & Tea from mentor Alfred Peet in 1984. Bowker also launched Redhook Ale Brewery and the Seattle Weekly. Siegl, once a history teacher and the company's first employee, sold his part of the company once it had four stores.

With Schultz now in charge, the Starbucks that we know and may-or-may-not love today started to take shape.

Along with Schultz's paycheck, America's enthusiasm for Starbucks coffee only grew, despite the annoyance of having to order an oh-so cosmopolitan "venti" instead of just saying "extra large." (Yes, venti is Italian for 20, as in 20 ounces, we get it already). By 2007, it had 15,011 stores around the world, and, it seemed, one on every street corner, two in every airport, and three in every mall.

But 2008 was Starbucks' annus horribilis. The company had the first quarterly loss in its history; sales and stock took a dive, closing at $7.97 on November 19. Schultz, who had left the position of CEO in 2000, was asked by the board to return. He blamed Starbucks' fall on the financial crisis, but critics contend that the company's stores had lost their caché as high-end, sophisticated neighborhood hangouts. Schultz closed 600 stores, laid-off 1,000 employees, and switched the company's focus from domestic to international expansion.

Which isn't to say that the company's march to world domination hasn't hit a few road blocks, too.

The group closed all of its stores in Israel in 2003, its Forbidden City café in 2007, and a raft of outlets in Australia the following year. An article in the newspaper The Australian blamed the company's "poor coffee, poor business strategies and poor locations." Ouch. On the other hand, the familiar mermaid can now be found around the world from Bahrain to the Bahamas.

And what a difference a year makes. Starbucks stock was trading at $30 as of mid November, and earlier in the year the company announced its first cash dividend. It fourth quarter (fiscal year ending October 3) results report a net revenue increase of 17.2% to $2.8 billion, and $10.7 billion net revenue for the year.

According to Forbes magazine, which ranked Schultz number 14 on its 2010 executive compensation list, the coffee king raked in $29.21 million last year, which would buy six whole venti white mocha lattes. Kidding. That would actually buy 5.4 million venti white mocha lattes. Without the extra shot of espresso.

In 2011, the company is looking to gain back some square footage by opening 400 new stores internationally and 100 domestically.The challenge will be to find 100 storefronts that aren't within venti distance of each other.
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