"It tends to broaden your view of what Starbucks can be. I think in some ways, Starbucks can be almost anything we want it to be. I mean, Starbucks could be an entertainment company, or a media company. If Starbucks in the morning is a bustling, busy place where people are lined up to the door waiting to get a cup of coffee, it can be a place in the evening where people can be sitting with a rich chocolate dessert listening to a guitar.
"The connections are just so many when you get people to talk about what coffee is to them. Some people will say, 'This coffee's like a nice, soft cotton, and this one's like a rich velvet.' Of course, some people here just scratch their heads--I mean, it's coffee! At first I thought it could all be evaluated technically, that you could understand everything there was to know about coffee and make sense of it. Then I realized it was something just to enjoy."
As purists left, Kern watched as the company began offering nonfat milk--eschewed in the past as detrimental to coffee flavor and not as foamable--and then, one by one, flavored syrups, earning knocks from coffee fanatics. Starbucks, though, has steadfastly held the line against introducing flavored coffees, the fastest-growing segment of the specialty coffee industry.
"In the old days, we treated coffee better than we treated people. Then Howard Behar [currently heading the company's international expansion] got here and he said, 'You people are out of your minds to tell your customers you won't do what they want.' I remember as a store manager, the nonfat milk thing bothered me. I thought we were going to put a drink over the counter that was less than as good as it could be. But once they give you the money, it's their coffee, right?"
But the shift has gone both ways. Starbucks has adjusted the way it serves coffee to fit its customers. And its customers have transformed the way they drink coffee, thanks largely to Starbucks and to other small specialty brewers across the country that make up the fastest-growing segment of the $13-billion-a-year coffee market.
"I believe that what substantially has been done is Americans have traded one kind of coffee, buying it in one kind of place, for another," says Baldwin, one of the Starbucks founders who now runs Peet's Coffee & Tea in the Bay Area--the dark roast company that provided the original inspiration for Starbucks' distinctive roast.
"If you ever worked in a downtown office building in the old days, there was a guy who had a candy stand and a pot of coffee on a burner under the stairs. It was cheap. It was burned. There used to be diners and drive-ins, doughnut shops and pie shops where you could go in and get a doughnut and a cup of coffee and go to work. All those have gradually disappeared, and Starbucks and its imitators have accelerated the decline of those kinds of businesses," Baldwin says.
The genius that Schultz brought to the enterprise was the "idea of espresso and drinks, and featuring the espresso machine in the store. The stores were designed to focus on the espresso machine and maybe even add what might be thought of as theater," Baldwin says. "Howard liked merchandising and marketing and kind of sees the world through that lens. Their focus on the beverage, together with the unseen, at least by me and others, demand for this kind of stuff, collided in this big opportunity that they were smart enough to exploit."
Baldwin has been the target of the other long arm of the Starbucks machine, the massive real estate department that has landed a store in most of the best locations across America--often in a spot a competitor had hoped to rent, or right across the street from the competitor.
"The typical approach has been, why don't you sell out to us, or we'll crush you," Baldwin says, recalling Starbucks' movement into San Francisco, Oakland and Berkeley, Peet's own backyard, as soon as the non-compete agreement the former partners signed had expired.
"I knew they were coming. When I sold the company, I knew they would be here. Our strategy was to elevate the competition by focusing on coffee quality and knowledgeability and service levels of our staff," Baldwin says. "We have built up incredible loyalty, and I knew that for Starbucks to get customers, they would have to take them one at a time."
One of the first opening salvos was fired in 1992 on Chestnut Street in San Francisco, four doors down from Peet's. Schultz began by sending a letter, offering to buy Peet's out. "It was, 'Do you want to talk about it?' Some of the people who read the letter were just infuriated by its threatening tone. The implied threat was, 'We'll crush you,' " Baldwin says.
According to Baldwin, Peet's lost as much as 12% of its beverage business to Starbucks but he says they have not lost a single coffee bean sale, the heart of Peet's empire, to the guys from Seattle. And it has returned the favor, opening a new Peet's across from a Starbucks store in San Francisco.