When it comes to American-style coffee, Starbucks will usually be the first brand one would think of. With a market cap of over $83 billion, it is the second-largest company in its category after Walmart (NYSE:WMT). But what makes Starbucks so synonymous with coffee, and what can we learn about the stock? What makes Starbucks, well... Starbucks?
What brought three Seattleites (an English teacher, a history teacher, and a writer) to create a coffee brand that would take the world by storm? The answer is that they never meant to start a coffeehouse at all. The three founders were inspired to start a company after being taught how to roast coffee beans by the famous coffee entrepreneur - Alfred Peet, and opened up the first Starbucks store on March 31st, 1971, at 2000 Western Avenue, Seattle.
It may come as a surprise, but for the first 15 years of its existence, Starbucks only sold roasted coffee beans, tea leaves, and spices. In fact, the only fresh coffee served in the shops was in the free samples. In 1982, Howard Schultz joined the company as the director of marketing. Schultz was a big fan of the Italian coffee culture, which he tried to introduce to Starbucks by suggesting they offer fresh espresso in the stores. Despite a successful pilot in one location, the founders refused to expand it to other locations. Schultz’s frustration began brewing and in 1985 he left the company to start his own chain of coffee bars called Il Giornale.
In 1988, Starbucks management decided to sell its Starbucks retail unit and Schultz jumped on the opportunity, buying it for $3.8 million. Schultz rebranded all of the Il Giornale shops into Starbucks Coffee shops and started offering fresh espresso drinks in all original Starbucks stores. The company then launched an aggressive expansion plan, and by 1990 there were 46 Starbucks stores around the U.S. Northeast and Midwest. The company’s rapid expansion was a success and Schultz decided to take Starbucks public, and in June of 1992, the company IPO’d at $17 a share. If you bought 100 shares upon the initial IPO (for $1,700), and accounting for 6 2-for-1 stock splits, you would now own 6,400 shares that are worth approximately $429,000 at the time of this writing.
