The decline of the empire of Starbucks

26 July 2008

Matthew Lynn says coffee is the pure brew of capitalism — as the credit crunch bites, no wonder the world’s most ubiquitous coffee-house chain is heading for trouble

Economic historians have occasionally noted the connections between coffee and capitalism. Stock markets were, of course, originally coffee houses. One of the first futures markets, started in New York in 1882, traded coffee contracts. As industrialisation spread, so did coffee drinking. ‘Caffeine underpinned the dramatic rise of capitalism and its most successful offspring, globalisation,’ notes the historian Anthony Wild in Coffee: A Dark History. Indeed, with its ingredients of commodity trading, industrial process and global branding, it is the capitalist drink par excellence. So it probably shouldn’t come as any great surprise that the rampant quarter-century bull market from 1982 to 2007 should have a coffee company as one of its most emblematic successes.

Starbucks certainly seems to have been aware of that. The original company was founded way back in 1971, its name borrowed from Moby-Dick (Starbuck was Captain Ahab’s first mate). But it remained no more than a popular local coffee shop in Seattle until the entrepreneur Howard Schultz climbed on board in 1982 armed with a Big Idea.

Coming back from Italy, he figured Americans might like a Mediterranean-style coffee house. Just as McDonald’s had taken a traditional German food item — the hamburger — and re-packaged it for the US before selling it back to the rest of the world, so Schultz would take European-style café culture, re-invent it for the American market, then roll the format out worldwide. It worked a treat.

A fairly simple idea was wrapped up in the kind of messianic hyperbole in which American business specialises. ‘I wanted to blend coffee with romance, to dare to achieve what others said was impossible, to defy the odds with innovative ideas, and to do all this with elegance and style,’ wrote Schultz in his own book about the company, Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time.