The Humble Rise of Starbucks
- Giselle Yap (25-E3)
- 6 hours ago
- 4 min read
Written and designed by: Giselle (25-E3)
Early Years: The Foundational Shift from Beans to Experience
Starbucks was founded in 1971 in Seattle's Pike Place Market by Jerry Baldwin, Zev Siegl and Gordon Bowker. It initially focused strictly on selling high-quality roasted coffee beans and equipment, not brewed drinks. The pivotal change occurred after Howard Schultz joined the company in 1982. A trip to Milan in 1983 exposed him to the captivating Italian coffee bar culture, where cafés served as a vibrant social hub. Schultz envisioned replicating this experience in the U.S., creating a "third place" — one comforting, inviting space that is distinct from home and work.
The original founders were resistant to Schultz’s vision of a full-service coffee bar. This led him to briefly leave and start his own successful coffeehouse chain, Il Giornale. In 1987, Schultz seized the opportunity to purchase Starbucks for $3.8 million, merging it with his company. With this acquisition, the era of rapid expansion began. Starbucks quickly moved beyond Seattle, establishing a presence in major American cities before crossing international borders to Japan in 1996, the UK in 1998, and China in 1999.
Starbucks’s Pillars of Success
Starbucks’ rise was built on three strategic pillars, which enabled it to break through the coffee chain market and establish itself the dominant coffeehouse.
One major pillar is its established company culture and empowerment of employees. Schultz prioritized his employees, whom he calls "partners." He famously introduced the Bean Stock program in 1991, granting stock options to even part-time employees and allowing them to be shareholders without purchasing shares. This practice fostered a deep sense of ownership and loyalty, ensuring that customer-facing staff were invested in the company's success.
The second pillar is perhaps the most noticeable to its customers: Its product innovation . Beyond the standard latte, Starbucks continuously pushed the boundaries of what a coffee shop could offer. The introduction of the Frappuccino in 1995 created a new category of customizable, dessert-like coffee beverages, appealing to a broader market and becoming a summer staple.
If the above is apparent to its customers, the last pillar would be more so to even the layman and passerbys— its global presence. Starbucks operates over 38,000 stores in 80 countries as of 2023, making it visible everywhere. Interestingly, amidst its massive scale, it manages to localize its appeal, integrating regional design elements in stores and tailors its menu to specific cultural tastes (e.g., Mooncakes in China, unique pastries in Europe). Their care to local details provides a personalised experience for a warm, inviting place—a “third place”.
Starbucks Rewards
As always, I've saved the best for last. This section is my favourite as a broke student, and has certainly helped me earn some stars to save some bucks… right?
Most people would have recognised the iconic Starbucks app, and seen adverts heavily pushing for its downloads through attractive discounts of the usually overpriced drinks. In fact, the app may well be the centre to its business model in recent times.
The core of this financial strategy is the Stored Card Value system. As of recent filings, Starbucks holds over $1.8 billion in these customer deposits. This massive amount acts as an interest-free "float," providing Starbucks with working capital they can invest or use for operations, generating millions in interest income without paying customers a dime.
Moreover, having customers load money in larger chunks (the minimum being a $10 top up in Singapore), Starbucks minimizes the fixed fee per transaction that credit card processors charge, as they pay this fee once instead of repeatedly. Furthermore, it enables them to sneakily ‘steal’ a portion of your preloaded funds which can never be redeemed, known as breakage. This is pure profit for Starbucks, effectively allowing them to borrow money from customers at a negative interest rate.
But seriously, how did they convince us to buy into this? It all comes down to a brilliantly engineered system. Although there are several modes of payments, loading money directly into the account generates greater rewards, or ‘stars’, incentivising customers to utilise such modes of payment.
The reduced friction of reloading funds makes transactions "tap and go," speeding up checkout and boosting convenience. Additionally, the app encourages higher-frequency visits and higher spending per visit. The Rewards system is a progressive points system that allows users to redeem more valuable rewards with greater amounts of stars. As 1 star can be earned with $1 spent, Rewards members are shown to spend 2.5–3 times more than non-members.
As an avid Starbucks drinker especially during examination seasons, I questioned myself if patronising Starbucks was really that much of a necessity as I convinced myself to be. And the answer was absolutely not. I could brew myself a cup of instant coffee for a fraction of the price and for half the time. While Rewards was a major reason for my loyalty (although I was aware the saving money part was a scam), writing this article gave me a glimpse of my psyche that I previously did not think to explore. I realise, in a bigger part, that it was the experience: the friendliness of the barista, the thoughtful layout, scent of grounded coffee, and the social hub that thrived with conversations and diverse lives.
Starbucks didn’t just make coffee. It created a culture we all share — one of humanity.
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