With more than 32,000 stores across more than 80 markets, Starbucks is the world’s largest coffeehouse chain. In 50 years of business, the company grew from a single coffee shop in Seattle to a booming $80 billion business that holds a 57 percent share of the U.S. café market. Zev Siegl, Jerry Baldwin, and Gordon Bowker opened the first Starbucks location in Seattle’s historic Pike Place Market in 1971 under the guidance of Alfred Peet, the founder of Peet’s Coffee. Starbucks faced many challenges on its way to the top, including overexpansion and shifting consumer preferences.
Interestingly, the first Starbucks locations didn’t serve coffee, selling whole and ground beans exclusively. At the time, Starbucks enticed consumers who were more accustomed to instant or canned coffee by offering high-quality beans. It wasn’t until Howard Schultz joined Starbucks in the 1980s as director of retail operations and marketing that Starbucks evolved. After visiting Italy, Schultz had a vision of recreating the Italian coffeehouse concept in the United States. In 1984, the company opened its first downtown Seattle café and served the first Starbucks Caffè Latte.
The concept proved to be a success. Schultz worked with investors in 1987 to buy Starbucks for $3.8 million and pursued an aggressive expansion strategy. When the company went public in 1992, it had 265 stores. By the time Schultz left Starbucks in 2000, it had more than 2,000 locations, a number that quadrupled by 2007. At the height of its growth, it seemed there was a Starbucks on nearly every corner in densely populated urban areas. This clustering strategy proved to be a misstep that resulted in fewer transactions at individual locations. After the Great Recession began in 2007, Starbucks realized its mistake. Though people loved their daily Starbucks fix, the financial crisis caused consumers to tighten their purse strings.
With Starbucks’ stock price plummeting, Schultz returned to the helm. He slowed expansion in the United States, closing redundant locations and focusing more on international growth and enhancing the customer experience. For one day, Schultz closed all U.S. stores to retrain baristas in the art of espresso to improve quality. The stores reintroduced in-house coffee grinding to bring back the café ambiance. Schultz’s strategy worked, and same-store sales rebounded. It wasn’t until 2012 that the company set its sights on domestic expansion once again.
Now, Starbucks is focusing on adjusting its product mix to accommodate changing consumer preferences. The Frappuccino, for example, was one of the company’s most popular beverages, but a sharp drop in sales reflected the fact that consumers have become more health-conscious, moving away from sugary drinks. Starbucks has since focused on drinks such as its Refreshers and cold brew to adapt to changing consumer preferences.
Starbucks is also investing in delivery as an avenue for growth, entering into partnerships in the United States with Brightloom and Uber Eats. Online orders, especially delivery orders, tend to result in higher checks, which could be good news for Starbucks. Another major undertaking is the opening of upscale Starbucks Reserve Roastery stores.
These 20,000-square foot stores, located in Shanghai, Tokyo, Manhattan, Chicago, Seattle, New York, and Milan, are designed to be tourist destinations. The roasteries serve a wide array of coffee and experiment with coffee beverages.
The high-end experiential stores contribute to the socalled halo effect, which elevates Starbucks in the minds of consumers.
Under the leadership of Starbucks’ current CEO Kevin Johnson, the company opened a 20,000-square foot facility called the Tryer Center at its headquarters in Seattle where employees test new concepts using rapid prototyping.
Employees quickly test new concepts and deploy ideas in just a matter of months. For example, a single-cup brewing prototype was created with the lab’s 3D printer and deployed a month later. Starbucks employees from every level of the business submit ideas. The innovation lab makes Starbucks more agile in developing, testing, and releasing new products and systems.
Starbucks has tackled challenges head-on on its path to the top, demonstrating its ability to identify and adapt to changes in the market. With a heightened focus on innovation, Starbucks can refine the customer experience, improve its systems and processes, and introduce new, relevant products.

 Questions
1. Discuss the result of Starbucks’ aggressive expansion strategy.
2. In what ways has Starbucks created products that satisfy consumer wants and needs?
3. How does Starbucks support innovation?