Starbucks: Just Getting Started

According to the crude arithmetic on my Starbucks napkin next to my Starbucks cup on a perch next to the Starbucks coffee kiosk at the City Centre tower at Fifth and Pike (another Starbucks coffee bar is 60 steps away in the same building), by the time the young Starbucks barista finishes his eight-hour grind behind the automated, push-button, steam-and-shot-making espresso machine, one more new Starbucks store will be born. It will open somewhere in North America, Latin America, Europe, the Pacific Rim, or the Middle East (not Iraqyet).

From one coffee-bean store in 1971 (the outlet still in Pike Place Market), Starbucks now has 6,458, mostly in the U.S. and in all but one state (South Dakota)so far. That number will click relentlessly upward, as steady as an atomic clock, advancing at least once every eight hours, three times every day, 23 times in a week, 100 times a month. By the end of this year, during which Starbucks expects a record $4 billion in coffee, tea, and merchandise sales, the company will have opened at least 1,200 new stores, similar to the number opened last year and the year before. That will reconfirm the Seattle corporation's place as No. 1 specialty coffee chain, accounting for close to half of the globe's 15,000 specialty coffee stores and doing its part to make the world an even more jittery place to live.

"The success we have enjoyed as we have entered new international markets is a validation of the worldwide acceptance of the Starbucks brand," declares company public affairs director Audrey Lincoff, "and demonstrates that we are in the early days of our growth and development" (emphasis added). Chairman Howard Schultz, who was out of the country last week and unavailable for comment, told Fortune magazine earlier this month, "Those who talk about saturation obviously don't understand our business strategy." When Starbucks went public in 1992, it had 165 stores. By 2005, it hopes to have 15,000. Within a decade, the goal is 25,000. Observes Gordon Bowker, one of Starbucks' co-founders who sold the assets to Schultz and investors in 1987, "Somewhere there is a saturation point, but I don't think anyone knows where it is yet." Adds Tony Gioia, Tully's Coffee CEO, "I don't think we're even close to [saturation]. The American people are demanding more high-quality coffee, which we see as a huge opportunity for us."

At this rate, Starbucks likely will challenge ubiquitous McDonald's (currently 28,000 restaurants in 118 countries) for Most Annoying Expansion. Starbucks is likely too sophisticated to erect its version of McD's hamburger tote board Billions of Cups Servedand, besides, has lost exact count of how much coffee it has poured in the last 32 years. But the total must be inching toward a number like the national debt (6.4 trillion and counting) now that McBucks is filling 5 million cups a week. That's a whole lot of Starbucks Experience, as Schultz likes to call a cuppa joe.

FEEDING FRENZY
The company has also begun feeding on its modest competition. Two weeks back, Starbucks added 150 stores in one day by spending $72 million to buy out one of its competitors, Seattle Coffee Company, which operates the Seattle's Best Coffee and Torrefazione Italia coffee shops. That caused a round of griping here in the two companies' hometown, spreading concern that those who prefer the mellow SBC roast or hearty TI served in ceramic cups will be forced to drink "Charbucks." That's what the disenchanted call Starbucks' infamously bitter coffee, made, as the legend goes, from beans burned during the roasting process. (Starbucks says that's urban legend, although Schultz, in a company statement, concedes that consumers have "an affinity for the smooth flavors of SBC coffees.")

The sale also resurrected suspicions that the coffee imperialists from SoDo are conspiring to create a one-bean world, even though Seattle Coffee was itself part of a huge empire, AFC Enterprises, franchiser and operator of 4,071 restaurants, bakeries, and cafes. Some competitors are reluctant to talk publicly about the Seattle Coffee purchase. San Francisco publicist Julie Kim, spokesperson for 60-store chain Peet's Coffee & Tea of Berkeley, says "Peet's is unable to comment on another company's activities, nor can we provide comment on the public's perception of the sale." Bowker, the Starbucks co-founder who is now on Peet's board, says, "It's kind of improper to offer an opinion on a competitor . . . it's just that whatever their strategy is, we're not privy to it." But Tully's Coffee, the 100-store Seattle chain, professes to love the buyout. "We are more excited than everthat's one less competitor in the marketplace," says CEO Gioia. "We're focused on staying close to our conceptgreat coffee and great service." But could Tully's be next to be sucked into the Starbucks family? "We don't even think about those things," Gioia insists.

Of course, swallowing the competition is a tenet of Schultz's original business formula. After all, Starbucks is itself the product of a buyout, by Schultz and investors, 16 years ago. Though Starbucks Coffee, Tea, and Spices dates to 1971, the Starbucks Corporation of today wasn't born until August 1987, when new owner Schultz launched his marketing strategy: "More than retail, but not a restaurant," as he explains in his 1997 autobiography that details the birth of a company and an industryand his eureka moment when he suddenly realized that selling specialty coffee by the cup was a profitable entr饠to the land of steamed milk and honey. Until then, Starbucks was essentially a bean store.