Why did Starbucks REALLY become so popular?

for every single one of us there are a handful of defining moments in your life for Howard Schultz The Mastermind behind Starbuck's Empire one of those moments came at just 7 years old his father had just been fired from his delivery job after falling on ice and breaking his hip and Ankle the family had no medical insurance no savings and in that moment no hope Flash Forward to today and Howard shortz is a multi-billionaire and is responsible not just for transforming the coffee industry but several other Industries most people might not realize but to understand

how a simple coffee store can become a global Empire we need to look at the four stages of Starbucks and it all begins way back in the' 60s [Music] this is Gordon Bala whilst traveling across Europe he ordered a cappuccino from a small Cafe in Rome and it tasted different better much better you see at the time most Americans only drank cheap instant coffee or lowquality coffee from diners when he returned from his trip Gordon told two friends about this experience and they decided to try and bring higher quality coffee to the American Market this

is the original Starbucks bucks a small store with no big plans it opened in 1971 on Seattle seafront however it wasn't like you're Imagining the original Starbucks store sold bags of high quality coffee beans along with the equipment needed to make coffee at home but they didn't actually make or serve drinks in the actual store with this business model growth was slow but steady by 1981 they had four stores all based in Seattle and the coffee was selling well so well in fact that they caught the attention of Howard Schultz now despite growing up very

poor and with the difficulties with his father losing his job through hard work Howard had managed to build a career for himself it hadn't been easy he'd even had to sell his blood to afford to get through college but by 1981 Howard was the vice president of a company and that company just happened to be one of Starbucks's suppliers this is how Howard Schultz first heard about Starbucks he was intrigued by the amount of orders this little coffee company was making and went down to one of their Seattle stores one day to check it out

for himself he tried their coffee and was immediately hooked so much so that he decided he wanted to be a part of Starbucks and reached out to the three guys who'd founded the company to see if they'd hire him but the only person who thought Howard joining Starbucks was a good idea was Howard himself the three founders of Starbucks were reluctant to let someone else join and even Howard's own mom told him you're doing well you have a future don't give it up for some small company nobody's ever heard of despite this Howard was persistent

he was unfulfilled in his current job and could see the huge potential for Starbucks so he kept writing to the Starbucks Founders and after over a year of convincing Howard joined the Starbucks team little did anyone know that decision would change everything and when people say you're an evil empire bent on world domination you say I hate that I hate [Music] [Music] that now it was Howard's turn to visit Italy and very similarly to Gordon the original Starbucks founder he loved the way the Italians did things but whereas Gordon had loved the taste of the

coffee and the way it was brewed Howard fell in love with something different the experience during his trip Howard noticed in Italy that with many coffee shops the staff seemed to know the customers and called them by name when their drink was ready he also noticed that people would go to these coffee shops not just to grab a quick drink but to relax to chat to people some even to get work done for example someone ordered a cafe latte and when he tried the drink for himself he thought no one in America knows about this

I've got to take it back with me and I was uh captured emotionally uh by the Italian coffee bar the sense of community the third place between home and work and I race back to America thinking this is what I'd like to try and do and transform the Italian coffee experience uh into the American society that trip to Italy was a revelation for Howard he later wrote in his Memoirs that originally Starbucks had sold great coffee beans but they didn't sell it by the cup they treated coffee as produce something to be bagged and sent

home with the groceries but to Howard he felt they were missing the heart and soul of what coffee was really about he felt that just like Italy they needed to make coffee not a product but an experience Howard was excited Ro up until the moment he told the Starbucks Founders about this idea who quickly shot him down they argued Starbucks was a retailer not a restaurant or bar and they couldn't just completely switch up their business model and start making drinks in the actual store they felt things were going quite well as they were so

why risk all that to try and become a cafe Howard became increasingly depressed eventually he realized that his vision of bringing the full coffee experience to America just wasn't going to happen with Starbucks and so in 1985 Howard left Starbucks to start his own company IL jali the Italian word for newspaper he wanted the high quality coffee of Starbucks but with the atmosphere of the Italian cafes he loved once again pretty much everyone told him it was a bad idea and a stupid move to leave a promising company like Starbucks over the next year Howard

spoke to 242 people about his idea and 200 17 said no the most common problem with his idea that he heard was that Americans would never spend that much money on coffee Howard's business plan revolved around him selling coffee at $3 per cup and at this time coffee generally sold for around cents per cup you want people to pay six times more just for the experience yeah right if I came to you in 1987 and I said to you I want to build a company with Italian words that no one could pronounce for $3 a

cup of coffee would you invest absolutely not okay but if there's one thing you should have picked up on by now it's that Howard Schultz is a very persistent man and after speaking with hundreds of investors he finally raised enough Capital to launch his own Italian style coffee shop but hold up a second I thought this was meant to be the story of Starbucks what's going on here well you see Within 2 years of Howard starting his own coffee shop the Starbucks Founders decided they wanted to sell up and because they were still on great

terms with Howard they told him if he could get the money together he could buy Starbucks I was thrilled and the purchase price was $3.8 Million for six stores but I had no money no nothing so Howard once again sat out on a mission to raise money from investors of course after trying to raise money for his own coffee shop he had a lot of investor contacts and he went to all of them to tell them about this opportunity with Starbucks and then disaster strikes one of those investors liked the idea of buying Starbucks so

much that he tried to cut Howard out of the deal completely and told the Starbucks owners he'd buy it from them directly Howard was devastated he was so close to finally owning Starbucks himself and it was snatched away at the last second deflated and depressed he told one of his friends about the situation and he says to me come to our office tomorrow morning and meet our senior partner and I I said okay who who is it and he said Bill Gates Senior and I walk into his office and he says we're going to go

for a walk and I I said where are we going and he said we're going to go see the man and we walked in I don't know if he called him I don't know if there was an appointment I don't know anything Bill Gates all 6' 7 6'8 to TOS over his desk and says you should be ashamed of yourself this is not going to go down you you are going to stand down and this kid is going to realize his dream and it worked thanks to Bill Gates's dad the other investor back down and

Howard Schultz raised the $3.8 million needed to buy Starbucks himself once he was CEO Howard immediately transformed Starbucks from being just a shop to buy coffee beans to a place where they actually made and served you the drinks in store he also rebranded his IL jali cafes as Starbucks stores so everything was United under one name finally Howard's vision of bringing the Italian coffee shop experience to America was a reality and when you zoom out and look at the Timeline you realize what a few years it had been in 1981 Howard discovered Starbucks a year

later he joined the team by 1985 he left the team to start his own coffee company and now in 1987 Howard was back at Starbucks this time as the CEO he was finally The Man In Charge ready to shape Starbucks's future and trust me things were about to get crazy but before we get to the next chapter have you thought about how to grow your business well that's where today's awesome sponsor Shopify comes in Shopify gives you all the tools you need to sell your products both online or in person for example even if you

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the backing of investors it was easy to keep replicating it Starbucks began rapidly opening more and more stores everywhere and not just in the US Howard wanted to take Starbucks Global and by 1998 Starbucks had opened stores in Japan the Philippines the UK and More in fact in the year 2000 Howard stepped down as CEO to focus specifically on global domination we're opening five new stores a day that's a new store every 5 hours 24/7 yeah at its peak over seven new Starbucks stores were opened every day and by 2008 Starbucks had almost 177,000 stores

worldwide with Howard leading things they' grown the store number by almost 10,000% Starbucks was seemingly everywhere Starbucks one day every house in America will have their own private Plumbing to Starbucks can I help you I'd like to get my ear pierced well better make it quick kiddo in 5 minutes this place is becoming a Starbucks who would have believed that Americans would line up by the millions to pay four bucks for a cup of coffee however when the financial crisis hit that rapid growth came to a sharp halt Starbucks's stock price dropped 50% as consumers

ditch their expensive coffee habits but honestly the financial crisis was far from Starbucks's only problem that rapid expansion over the last two decades had been covering a Sinister problem bubbling under the surface the growth and success of the company in many ways covered up mistakes in a company email that got leaked to the public Howard identified several issues with the company including customer dissatisfaction he mentioned that the quick expansion had led to a watering down of the Starbucks experience basically Starbucks was in a bad State and the company found itself in tremendous financial trouble in

less than a year people didn't realize it of facing insolvency so Starbucks decided to reappoint Howard as CEO he'd spent so many years focused on expansion and now his strategy was to stop expansion completely instead he wanted to restore Starbucks to its founding principes he wanted to make the stores an experience again unlike most consumer Brands the brand was really built by The Experience so firstly he removed automatic espresso machines they made the service faster but removed the romance and theater of watching a barista craft the coffee he also brought back things like the in-house

grinding of coffee beans which gave the stores that coffee Aroma a lot of the decisions he made didn't make a lot of business sense on the surface but again it was all about focusing on the user experience and one of the biggest unorthodox decisions we made at the height of our problems is we decided to close every store in America to retrain over a 100,000 people at a cost of $7 million many were shocked by this and it generated a lot of media headlines and discussion but Howard felt it was vital to retrain Baristas how

to perfectly craft their signature drinks and in a weird way the decision was actually good marketing it helped announce to the world Starbucks was returning to its roots and focusing on quality and it worked company growth rocketed up by 143% in 2009 and it's no secret that Starbucks have now continued to thrive and expand again in fact at the time of this video they have over 32,000 worldwide stores but again let's just hold up a second the store of Starbucks is undeniably a success story and Howard's rise from poverty to billionaire is remarkable he saw

an idea brought it to a new market and through hard work and great business strategy built an Empire however what's possibly even more remarkable is where Starbucks is heading [Music] I have a question for you what business is Starbucks actually in if you just said coffee I'd say that's debatable if you've ever seen the movie the founder you may be familiar with this scene you're not in the burger business you're in the real estate business and with Starbucks it's kind of similar there are several different Industries they're arguably competing in which can tell us a

lot about the future of Starbucks firstly in real estate there is something called the Frappuccino effect which refers to where there's a significant increase in nearby property value because a new Starbucks opens nearby seriously according to quarts the average American Home Rose in value 65% between 1997 and 2014 whereas the average home within a quarter mile of a Starbucks Rose in value by 96% and whilst there's a number of reasons for this one is that Starbucks has had great ability to select upand cominging neighborhoods for their stores they managed to buy the location before the

neighborhood prices shoot up in fact Starbucks has a team dedicated to selecting new locations for stores based on a wide range of demographic and property data and this analytical approach has helped Starbucks consistently find profitable locations but this is also a self-fulfilling prophecy because Starbucks moving to a neighborhood in itself encourages other restaurants and bars to pop up in the same area thus making it busier and more popular in other words a huge key to Starbucks's success comes from their location choices an ability to gentrify an area and increase its perceived value of course a

lot of people hate this and think Starbucks are responsible for homogenizing cities making every town look the same and ripping out the culture tradition and soul of the place they've even had protests and riots against them on many occasions Starbucks there is a bit of a Starbucks blowback sure rolling into town crushing the life out of the mom and pop coffee shop but that hasn't stopped Starbucks and this will likely continue to be an important part of their future there is already a Starbucks in pretty much every affluent area you can think of but they'll

be looking to further expand into new locations they haven't yet reached however there is also a second industry Starbucks is in that's rarely talked about that can perhaps reveal even more about why Starbucks has been successful and why they will continue to thrive and whilst I've seen this idea presented in a couple of places one of the best explanations came from a video by poly matter titled why Starbucks is actually a bank you see instead of paying with cash or card customers can add money to their Starbucks account on the Starbucks app and use that

to pay doing this gives you more Reward Points so you can more free drinks now Starbucks is the most popular restaurant Rewards app there is and because of its size and loyalty people aren't afraid to keep money in the app in fact there's an estimated $1.5 billion right now in people's Starbucks balances which is more than 85% of US Banks of course that money will eventually be used to buy coffee but in the meantime it provides Starbucks with an interest free loan now here's where it gets crazier a normal Bank storing people's money has to

keep a huge amount of cash on hand in case of withdrawals but since Starbucks's money can't be withdrawn from the app they don't have to do that meaning they can heavily invest in growth in a way other companies can't because they literally have billions from customers just sitting in their accounts that Starbucks can spend to grow and expand their business Starbucks now gets 26% of its revenue from products other than Beverages and of that 74% that is from beverages a huge chunk is from drinks other than coffee so as you can see the reason Starbucks

has done so well since how it took over is that the original Founders were focused on the wrong thing they were focused on the coffee and the success of Starbucks and its future plans are not just about coffee at all from the moment Howard Schultz became CEO the first time around the real product Starbucks sold was the experience Starbucks have even started triing their Reserve roasteries massive 20 ,000 ft mes designed to be tourist attractions where Baristas experiment with different Brewing methods and crafting new Innovative drinks so if you've ever wondered why Starbucks became a

coffee Behemoth was coffee shops with even nicer taste in coffee didn't succeed the answer is simple it was never really about the coffee