Where Did Starbucks Start And How Can You Profit From It? [Case Study]

Where did Starbucks start its journey to the world’s biggest coffeehouse chain, and how can you profit from Howard Schultz’s recipe for success?

Reading time 5 min

To unravel the secret of Starbucks‘ success and to answer the question „Where did Starbucks start?“, one must look at the life of Howard Schultz and the founding of Il Giornale – but all in sequence.

How Howard found his way to Starbucks

Howard was born in Brooklyn, New York, in 1953 to an immigrant family. Howard’s father was a World War II veteran struggling with unemployment and money problems due to a severe injury. Howard grew up in a low-income family and, from a young age, cherished the American dream. To compensate for his difficult youth, he liked to escape into dreams and did sports like basketball and soccer. In 1975 Howard graduated from college and went on to work as an office supplies seller. It was in the course of his work that Howard met Starbucks in 1982 because it was one of their customers. Howard was impressed with Starbucks, applied to work, and began managing its marketing in September 1982. Still wondering „where did Starbucks start“. We now get to the heart of the matter.

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Howard’s experience in Italy

In 1983 Howard made a business trip to Italy, which would have a massive impact on his life. In Italy, he visited several Italian cafes and was deeply impressed by the atmosphere there. He drank an authentic espresso for the first time, he experienced the work of a barista, and he inhaled the romantic atmosphere of Italian coffee houses. Howard was enthusiastic and wanted to bring this kind of coffee house culture to America and realize it at Starbucks. Starbucks only sold whole coffee beans up until that point and had no seats in the office. Howard had the idea for a unique coffee house, which should combine the romance of espresso and a feeling of community. Back in America, Howard presented his idea to the then owners of Starbucks, who rejected his concept.

Howard founds Il Giornale

Howard could not be dissuaded from his dream and decided to implement his coffee house concept himself. In April 1986, Howard left Starbucks and started looking for investors because he lacked the capital to start up. The beginning was not easy for Howard, as he had to accept over 200 rejections. However, Howard managed to convince some investors, and he was able to implement his coffee house concept under the name Il Giornale, based on the Italian daily newspaper, in 1987 with 2 locations in Seattle and one in Vancouver, Canada.

Howard takes over Starbucks

Just 16 months after Howard founded Il Giornale, Starbucks ran into financial difficulties. Howard immediately recognized his opportunity and wanted to take over Starbucks and the coffee roasting company to merge it with Il Giornale into one company. With the help of investors, Howard acquired Starbucks for $ 3.8 million in 1987. From then on, Il Giornale was also run under the Starbucks brand, and at the end of 1987, there were eleven locations, one hundred employees, and the dream of creating a national brand.

The company has grown tremendously since then. As of September 27, 2020, there were 16,023 Starbucks stores, and annual sales were more than $ 23,518 billion. Operating income was $ 1.561 billion for a return on sales (RoS) of 6.64%.

Sources:
Howardschultz.com
Onward, Howard Schultz
Starbucks Annual Report Fiscal 2020, Form 10-K

The question „Where did Starbucks start?“ should be answered. Now let’s take a closer look at Howard Schultz’s concept.

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What is the reason for Starbucks‘ extraordinary success?

During his trip to Italy, Howard Schultz recognized the advantages of the Italian coffee house concept and particularly noticed three features. Firstly, the central product espresso, secondly the appearance of the exceptionally qualified barista, and thirdly the particularly cozy and communication-promoting atmosphere of an Italian coffee house.

This concept had been established and highly successful in Italy for many decades but practically nonexistent in America. Howard didn’t want to leave anything to chance with his concept and clearly emphasize the three elements product, employee, and atmosphere.

With his Il Giornale concept, which is the forerunner of today’s Starbucks concept, Howard Schulz created a story that the guest could experience. For Howard Schultz, the focus was not on a drink or a meal but the overall experience he created for the guest. A visitor to Il Giornale not only got a cup of espresso, but for the price of a coffee, he could practically spend a short vacation in Italy and soak up the atmosphere of an Italian coffee house.

Howard Schultz’s approach goes far beyond selling espresso, as it is not just the product itself but also the employees and incorporates the atmosphere of the place.

Without wanting to diminish Howard Schultz’s outstanding performance, I think that Howard Schultz did not invent a new concept but took up an already working concept and established it in the United States, a country with a large number of solvent customers.

What can you learn from this?

What Howard Schultz has achieved, you can, in principle, perform the same – even if it may not be the largest coffee house chain in the world. But developing a successful gastronomy concept and realizing it at one location is feasible even without extraordinary luck. Of course, starting a company is always a great challenge and involves risks. But you can achieve this goal with a solid business plan.

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  6. Story

Just like Howard Schultz, your concept should go beyond the actual product, e.g., the coffee or burger, and create an experience. You should address the guest emotionally to provide a value that goes beyond a cup of coffee.

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