Everything but the Coffee (6 page)

Sports—that classic leveler of class distinctions—delivered Schultz from Brooklyn. During his senior year of high school, the University of Western Michigan awarded the six-foot, broad-shouldered quarterback a football scholarship. After cracking his jaw in an early practice, he didn’t take many college snaps, but he did get a degree and then a job with IBM. He had found his métier. More than most people, Schultz believed in himself and believed that others would listen to him and follow what he said. That made him a natural salesman and business success. At Big Blue, he quickly advanced through the corporate order. Pay hikes and bonuses followed, and with them an apartment in Manhattan and summer weekends in the Hamptons. Following several promotions at IBM, he landed a job with the Swedish conglomerate Perstorp. Although he had yet to reach his thirtieth birthday, the company put him in charge of setting up a U.S. branch of its Hammarplast homewares division.

A few years into the job, Schultz was poring over the company’s sales sheets, and something stood out to him. A tiny Seattle firm he had never heard of was buying more plastic cones that fit on thermos tops than the department store giant Macy’s. Schultz decided to check things out for himself with a visit to the Pacific Northwest. The trip turned into something of a conversion experience—at least according to Schultz. As he approached the Pike Place Market Starbucks store, a violinist played Mozart. “A heady aroma of coffee,” he writes, “reached out and drew me in.” The setting captivated him. “I loved the market at once. . . . It’s so handcrafted, so authentic, so Old World.”
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On the plane going back east, Schultz told himself he had to work for Starbucks and help the company expand. At first, Baldwin and his partners
resisted. They didn’t want to get bigger, nor did they have the money to pay a marketing guy. Perhaps doing so seemed too inauthentic to them. Eventually, however, Schultz did talk his way into the company. In 1982, he took a pay cut and moved to Seattle. From day one, he pushed for expansion. More stores. More outlets. More, more, more. Maybe as a bonus or as a way to get a break from Schultz’s big dreams, the company sent him on a business to trip to Milan in 1983. Schultz had never been to Italy, and he had never tasted Italian espresso.

Schultz came back from Italy, the story goes, convinced that an authentic Italian coffee bar serving real espresso could work in the United States. Baldwin wasn’t so sure. Again, he didn’t want to go into the restaurant business. Schultz kept pushing. “Howard was really into the idea of selling drinks by the cup,” Baldwin told me. And he isn’t someone who takes no for an answer. Finally, Baldwin (by then Siegl had sold his interest in the company) gave him the corner of the 4th and Spring streets Starbucks store for his espresso machine.

“The response,” writes Schultz, “was overwhelming.” Within a couple of months, he estimated that business tripled at the location as the store churned out eight hundred drinks a day. Customers came up to Schultz, he recalled, “to share their enthusiasm.” Baldwin still wasn’t sold on the idea; he didn’t want anything to dilute the coffeeness of his company—the idea of educating customers about the taste of whole bean coffee. Drinks, he worried, might do that.
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Convinced of his vision, Schultz left Starbucks in 1985 and opened Il Giornale, named after an Italian newspaper. The store was an attempt, almost note for note, to re-create the Italian espresso bar. Schultz dressed up his servers in black pants, white shirts, and black bow ties. He played opera in the background. And he sold Italian coffee drinks only. The espresso came in tiny porcelain cups resting on small saucers. Cappuccino came with whole milk, no skim, and in short six-to eight-ounce servings. The store did well, and Schultz opened another and then another. With each one, he explained, the “primary mission was to be authentic.” We didn’t want, he elaborated
in his memoir, “to dilute the integrity of the espresso and the Italian coffee bar experience.”
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Like Baldwin, Schultz clearly understood the appeal of authenticity and the potential of marketing antimarket, countercultural values. While he invoked the real and talked about it, it never, however, became his guiding principle. It was always more of a performance for him. That’s because Schultz had little interest in niche markets or protests against blandness. Unlike Baldwin, he didn’t want out of mainstream— he wanted in. That impulse, however, only revealed itself over time.

Schultz’s moment started to take shape before he even knew it. In 1979, Alfred Peet decided to sell Peet’s. Things didn’t go well for the initial buyers, and they put the company up for sale again in 1983. This time Jerry Baldwin couldn’t resist. For him, Peet’s
was
coffee, the real thing. Borrowing heavily, he bought the Bay Area company. Soon the debt bogged down both businesses. Baldwin had to sell one of them, and he picked Starbucks. Now Schultz had his chance. He took to the streets, boardrooms, and law offices of Seattle looking for investors. With the clock running out, as he tells it, he finally got the money together and bought Starbucks (with, interestingly enough, financial help from Baldwin’s personal coffers).

Schultz took over Starbucks and its handful of outlets on August 18, 1987. He promised investors to open 125 new stores over the next five years. Within six months, he launched the first international Starbucks, in Vancouver. Perhaps even riskier, he tried to crack the midwestern, middlebrow market of Chicago. If he could make it there, he wanted his financial backers to see, he could make it anywhere. At the same time, Schultz had a much more focused yet harder-to-see strategy he put into play.

•  •  •

Business watchers and academics have written stacks of papers and articles about Starbucks’ growth. They have marveled at its branding acumen, customer service regime, and shrewd and early acquisition of key managerial talent.
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But they have glossed over its cagiest moves. From
the beginning, the company strategically managed its growth, picking its earliest locations with class appeal above all else in mind. Howard Schultz and his advisers knew if they could get socially respected and admired early adopters on board, just like Baldwin had done with the Pike Place Market store, others would follow. In a sense, they were taking their cues from some of the oldest theories about consumption available.

In
The Theory of the Leisure Class
, first published in 1899, Thorstein Veblen spotlighted the emergence of what he famously called
conspicuous consumption
.
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In the turn-of-the-century world of industrial-driven, new urban plenty, he argued, people began to draw social distinctions through the purchase and then display of ostentatious consumer objects. In particular, he talked about—and disparaged—the over-the-top buying of the wealthy, how the rich used very public consumption to distinguish themselves from the people below them. Perhaps even more central to subsequent buying patterns, Veblen also noted a trickle-down effect of emulation. Once an object got associated with the successful, he explained, those below them bought these goods, unleashing an endless, uphill game of chasing those on top. Once the wannabes came on board, Veblen elaborated, the upper classes moved on to another showy item and new ways of making distinctions.

Maybe Howard Schultz read Veblen in college or on the plane back from his visit to the first Starbucks. Even if he didn’t, he tried to set up his own corporate process of trickle-down consumption. When he took over Starbucks, he started to move it out of the Pacific Northwest. But his expansion revolved as much around status acquisition as it did geography. At first, he made sure to put his stores in the direct paths of lawyers and doctors, artists on trust funds and writers with day jobs as junk bond traders. In those early years of the 1990s, Schultz made it hard for anyone with an Ivy League degree, a passport filled with stamps from foreign countries, and annual incomes over $80,000 not to trip over one of his logoed outlets. Unlike an owner of one of the beat coffee shops of the 1950s, he didn’t set up in transitional neighborhoods or in fringe places like, for instance, Chicago’s neobohemian Wicker Park,
where residents wore T-shirts with this community’s name on it saying, “Small, Medium, and Large.” Starbucks went to places like nearby and upscale Lincoln Park or the business-heavy Loop area.
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Beyond Chicago, Starbucks went right to the center of worlds of wealth, higher education, and creative professional work. There were a lot of these places during the Reagan boom of the 1980s and the dot-com surge of the 1990s. Throughout these two decades, the incomes of the richest Americans soared and spending rose. During these same years, the successful held off getting married and waited to have kids, and big-box retailers, exploiting the global glut of cheap labor and limited regulation, drove down the cost of basic goods. All of these factors freed up money for women and men already drawing the highest salaries to spend on high-end items packaged with clever narratives that allowed them to draw new distinctions between themselves and others.

In its first wave of targeted expansion, Starbucks opened, as it had in Chicago, under banks and brokerage houses, next to courthouses and universities, and near downtown Nordstroms and Marshallses. When the company left the city, it headed for older, tree-lined suburbs and well-heeled hamlets. In the mid-1990s, for example, Starbucks opened an outlet in Millbrook, New York, the Dutchess County home to Mary Tyler Moore and Katie Couric, sometimes referred to as the rural Hamptons. A
New York Times
reporter described the village, as it liked to be called, as “exclusively . . . elite and affluent” and quoted a developer who said that the members of this community possessed “a little bit of self-indulgence.”
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A few years before opening in Millbrook, Starbucks looked for other ways to expand the brand in the right directions with the right people. When it first started to grow, Starbucks sold
USA Today
. But the McDonald’s-bright, news-lite paper couldn’t make the right connections for the company. The educated class—the people with money and cultural capital and the ideal early adopters for high-end products in the 1990s—read the
New York Times
. Starbucks wanted these people in its stores, walking down the street holding its cups, and talking about
its drinks at brokerage house and architecture firm water coolers. So the company dumped the McPaper and signed on with the
Times
. Around the same time, Starbucks struck a deal with United Airlines to serve its coffee on all flights. Relentlessly focused throughout the 1990s on high-income, well-educated consumers, Starbucks also entered into licensing agreements with airport vendors. After that it teamed up with Barnes and Noble to sell coffee in that chain’s bookstore cafés.

“Talk about your target audience!” exclaimed Denny Post, a woman I interviewed who was then a marketing bigwig with Burger King. (She would later go on to work for Starbucks.) Businesspeople, frequent travelers, and book buyers—“these are people with decent incomes,” she noted. They are the people Starbucks wanted to make a connection with first. But this growth wasn’t just about Starbucks. When the company started to expand, the well-heeled and educated—mainstream tastemakers and standard-bearers for the behavior of others—were rethinking their ideas about the standardized and the real, about status and consumption. They were ready to make a move that would kick-start a new Veblenian cycle of emulation.

For much of the postwar era, the broad, somewhat undifferentiated American middle class found itself sandwiched between the rich on top and the working-class below them, with the poor even further below them. Most of these accountants and account executives, furniture store-owners and doctors shared a common commitment to modesty and thrift. The rich might show off and spend wildly, but the middle class demonstrated its sensible frugality by buying convenient and useful items. That didn’t mean that they didn’t occasionally splurge on a chrome-trimmed car or a cashmere sweater with a mink collar or chicken cordon bleu at a French restaurant.
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But these weren’t everyday things.

Perhaps no company embodied the consumer ideals of the staid organization men and steady housewives of Muncie more than Sears. The Chicago retail giant offered reliable products at reasonable prices. Good stuff and good value attracted the cautious middle class who cared
more about how long things lasted or how convenient they were than how they looked. (Cars and boats were for showing off, but again, they were not everyday things.) In many middling social circles, the ability to sniff out a deal translated into social standing and respect. But the same deals that brought the middle classes to Sears, and then to McDonald’s, and later to Wal-Mart, also attracted working people and the poor. Laborers and the even less well-off went to these places because they had to; saving a few dollars on cereal, batteries, and paper towels left more money for clothes, carpeting, and cars. Yet at the upper edges of the middle class, people with no financial worries didn’t want to look, act, or consume like the poor or the ordinary.
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Looking for ways to distinguish themselves—to broadcast their wealth, know-how, and sophistication, all key markers of status as the twentieth century drew to a close—the upper reaches of the middle class developed new consumption patterns in the 1980s, as Starbucks started to take off. Mostly they looked for luxuries, indulgences big and small, that the poor, the working classes, the middle of the middle, and the least refined of the rich could not afford or appreciate. Cultural critic James Twitchell has called this trend “living it up.” Others have talked about the era’s “affluenza” and “luxurification.” Whatever the name, beginning in the 1980s, Twitchell writes, Americans staged a “revolution” not of “necessity but of wants.” Products from Prada, Gucci, Lexus, and Evian became a “virtual fifth food group,” as the United States, Twitchell announced, became “one nation under luxury.”
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