The following is a speech that I gave to my matric class on Starbucks. I titled the article “Capitalism in a cup”. I am sure this blog post will make is clear as to why I called it this. It has been published on;

- noelharrison.net
- sweetbru.com

Enjoy!

This December I was reading one of Taylor Clarks books. The title of this book is Starbucked. Its sub title is a double tall tale of caffeine, commerce and culture. If you have not yet worked out what this is about – its about Starbucks – the global coffee giant.

I think that it is important to understand  exactly how large Starbucks is to fully understand the power that Starbucks has over consumers and competitors. In 1987, Howard Shultz bought Starbucks. At this point there were only eleven Starbucks stores, within three years, Shultz had grown the number of stores to 85. Now, every year, Starbucks opens approximately two thousands stores world wide, that is an average of six new stores every single day around the globe.

At this point in time they have around thirteen thousand stores. In 1989 (two years after Shultz bought Starbucks), the United States only had 585 coffee shops. That is around 4.5% of the total number of stores that Starbucks had in 2007. That is However, they do not believe that they have yet hit the point of market saturation and they plan to have approximately 40 000 stores in the future of which 50% will be outside the borders of Northern America. This will make Starbucks the largest chain on the face of the planet.

Scientists have identified caffeine in lakes, bays and rivers in the United States of America which is an indication of the amount of coffee (or other caffeinated drinks) Americans consume daily. Starbucks has a habit of building stores within very close proximity to each other. A mall in Portland, Oregon is an example of this. There are two Starbucks stores within twelve feet of each other.

This is however not the first time Starbucks has done something of the sort. When Starbucks was still a small company, one of their stores in Vancouver was serving ten thousand customers a week and that was only customers that were able to make it into the doors of the shops. The lines were so long that they began to look for a location to place a second store. According to Shultz, as long as their are lines, it means that they need more stores, in the end they opened a store right across the road from another Starbucks. When questioned about this acquisition, The CEO who was Howard Shultz at the time said that this would get people talking about Starbucks – the shop that opens stores right across the road from each other. At the time, due to the size of the company, it helped to have any free advertising.

The interesting thing was that the new store did not cause any financial damage to the older one and in time these two stores became the top two preforming Starbucks stores.

Today Starbucks’ annual revenue is sitting around $7.8 billion. Starbucks serves an average of forty million customers every week. It has become more like a production line than a personal service. Due to the rapid expansion, shops come in a “mold” which make it easy to setup within a few days. The baristas need no experience as the machines do all the work now. All they have to do is know the menu, know the right questions to ask and the right buttons to press. As far as the stores go, they are designed to get people in and out. They need to be turning customers out at a every growing pace.

The question may be, why is Starbucks so appealing to people? According to the British Economic and Social Research Council, coffee houses are comforting and welcoming places which are suitable for groups or individuals. Other things that attract the masses to Starbucks is the carefully selected music for the different times of the day, the selection of tables and chairs. So the British Economic and Social Research Council concluded by stating that coffee houses appeal to a deeper level than it may appear. Another aspect which is true with just about all large chains is the fact that the products taste the same in the United States as they taste in Japan and China. Taylor Clark attributes the love for coffee on the fact that Americans now work approximately one hundred and twenty hours more a year then they did thirty five years ago. Americans are also getting around 20% less sleep per night than Americans a century ago. This leads to the feeling of the need of Caffeine and coffee is this in its most popular form.

As far as marketing goes, Starbucks has a brilliant setup. Every single cup of take away coffee that they sell is a piece of walking marketing. It holds the Starbucks design and logo on. The extent of this marketing is demonstrated when a women who had never drank Starbucks coffee said that Starbucks has really good coffee – the best you can get. The answer is simple, No, Starbucks does not have the best coffee, in fact they are making use of the cheap robusta beans. They then burn the beans to such an extent and that is why Starbucks is often referred to as Charbucks. In short their roast is very dark which makes the coffee very bitter.

However, one of the things that Starbucks does not advertise or market, is the way in which they treat the coffee bean farmers in Brazil, Ethiopia and Vietnam to name a few locations. Due to the American war on Communism in Vietnam, the Americans thought it necessary to pay of the moral debt. They did this by funding agriculture. The Vietnamese were encouraged to farm robusta trees. They were a lot cheaper to maintain and were really low quality. The Vietnamese market was so over loaded with bad quality beans that the large America companies – such as Starbucks were willing to pay very low prices to buy the beans cheap. This basically means that the large coffee companies are becoming richer while keeping the Vietnamese in poverty. Vietnam is now the worlds second largest producer behind Brazil.

Some of America’s plantations are bad, but Brazil has swiftly risen as the market leader, not only in the amounts produced, but also in the brutality towards the plantation workers. Starbucks very seldom voluntarily does much to help the struggling coffee farmers, but on rare occasions they have taken steps to try to help improve the lives of coffee farmers, but only when consumer groups begin to prepare for boycotts and protests.

According to one of the former Starbucks CEO’s, Orin Smith said, and I quote “We changed the way people live their lives, what they do when they get up in the morning, how the reward themselves, and where they meet”. Starbucks continues to grow exponentially according to Shultz and he says that they see no slow down in this as it is growing faster than ever before.

Starbucks often uses the “avalanche” effect in order to scare competitors. What this basically means is that Starbucks might open five new stores in a city in the period of one day in order to show their power to competitors.

There is a general misconception that big stores such as Starbucks put smaller family businesses out of business. This is however not true and according to the research and reports, they in fact stimulate growth.
Starbucks fights and they dont like to loose. This is evident when they approached a small Los Angeles coffee house owner and said flat out that if he did not sell out to Starbucks, that they would surround all of his stores. This coffee shop owner declined and refused to sell out. He says that Starbucks moving in next door to his shop was the best thing that could of happened to his business.  Starbucks creates a buzz which brings people from all over to the area of the shop. This boosted the small privately owned coffee houses sales dramatically.

Here’s an interesting statistic considering the Starbucks empire in the United States, 57% of American coffee houses are family owned.

Coffee is the worlds second most traded commodity. However when you add the Starbucks brand, experience and feeling, Coffee is no longer just a commodity. The United States, Starbucks’ largest market consumes approximately one third of the worlds supply of coffee (thats around 110 billion cups a year).

In closing, I would like to share a question that was asked in the Starbucked book; and it goes; which of the following locations does not have a Starbucks; a. Guantanamo Bay Naval Base in Cuba, b. A Christian church in Indiana,  c. Beirut, Lebanon,  d. The town of Starbuck in Washington or e. The Great Wall of China

The answer is the town of Starbuck in Washington. It is in fact a location. It is a tiny eastern town in Washington which lies 40 miles away from the closest Starbucks.

Noel Harrison