Part 14 (2/2)

Having raised $4 million, the fair trade groups were prepared to launch their own brand when a group of smaller roasters-compet.i.tors of Douwe Egberts-approached Beekman. ”Why don't we cut a deal? You create a certification label, and we we will launch your coffee.” Beekman agreed, and in November 1988 Max Havelaar Quality Mark coffee was introduced, taking its name from the 1860 Dutch novel that protested the inhumane treatment of Javanese coffee growers. The fair trade coffee garnered enormous publicity and a 1.6 percent market share during its first year, subsequently achieving a steady 2.5 percent level. Within a few years, the Max Havelaar seal appeared in Switzerland, Belgium, Denmark, and France. In Germany and Austria, where the Dutch name did not resonate, it became Transfair Coffee, and Fair Trade became an officially certified trademark. will launch your coffee.” Beekman agreed, and in November 1988 Max Havelaar Quality Mark coffee was introduced, taking its name from the 1860 Dutch novel that protested the inhumane treatment of Javanese coffee growers. The fair trade coffee garnered enormous publicity and a 1.6 percent market share during its first year, subsequently achieving a steady 2.5 percent level. Within a few years, the Max Havelaar seal appeared in Switzerland, Belgium, Denmark, and France. In Germany and Austria, where the Dutch name did not resonate, it became Transfair Coffee, and Fair Trade became an officially certified trademark.

Blood in the Salvadoran Cups?

In the United States late in 1989, concern over coffee and human rights s.h.i.+fted to El Salvador, where Robbie Gamble (great-great-grandson of the founder of Procter & Gamble) had lived for two years. Deeply disturbed by the violence there, he felt personally implicated because Folgers purchased coffee beans from El Salvador. In protest, he gave away his inheritance. Then, in November 1989, six Jesuit priests and two female workers were slain by death squads in El Salvador. Neighbor to Neighbor, a San Francis...o...b..sed activist group, immediately launched its long-planned boycott. Nestle, which had endured a lengthy boycott because of its controversial infant formula sales in developing countries, quickly announced temporary suspension of purchases from the troubled Central American country. Robbie Gamble's younger brother, Jamie, announced his support of the boycott, and Neighbor to Neighbor narrowed its focus to Procter & Gamble.

When Procter & Gamble CEO Ed Artzt refused to meet with the activists, they sponsored an inflammatory television spot. ”Boycott Folgers Coffee,” actor Ed Asner ordered viewers in May 1990. ”What it brews is misery and death.” As he spoke, blood oozed from under an inverted coffee cup. When a Boston station aired the spot, Procter & Gamble yanked its advertising, worth $1 million a year to the station, restoring it only when the station declined to run the activists' spot again, saying that it made ”unsubstantiated claims.”

By this time the Specialty Coffee a.s.sociation of America had come of age. Ted Lingle had become its full-time executive director in Long Beach, California, and the SCAA was holding its second independent convention at the Claremont Hotel in Oakland. Neighbor to Neighbor protested the convention, even though few specialty roasters bought the mediocre Salvadoran coffee. Paul Katzeff led a march through the meeting with banging drums before dumping buckets of red-stained water on the steps.

Neighbor to Neighbor formed an alliance with the International Longsh.o.r.emen's and Warehous.e.m.e.n's Union (ILWU), whose dockworkers refused to unload Salvadoran coffee from a freighter when it docked in San Francisco, then Vancouver, Seattle, and Long Beach. Tipped off by the dockworkers, Neighbor to Neighbor organized impressive picket lines with signs denouncing ”Death Squad Coffee.” The freighter eventually turned back to El Salvador. Under intense pressure, Red Apple, New York City's largest supermarket chain, temporarily agreed to suspend Folgers purchases and then to display Neighbor to Neighbor literature. Pizzeria Uno stopped using Folgers. The Evangelical Lutheran Church and the Commission on Social Action for Reform Judaism supported the boycott.

The campaign, waged by an underfunded gra.s.sroots organization, garnered huge media coverage. El Salvador's President Alfredo Cristiani, himself a coffee grower, called Neighbor to Neighbor a Communist organization. The CEOs for the major coffee roasters-Procter & Gamble, Nestle, and Philip Morris (which had bought General Foods in 1985)-met with U.S. State Department officials, begging them to facilitate the Salvadoran peace process that the Bush administration had subverted. The U.S. coffee companies took out ads in Salvadoran papers favoring a negotiated settlement. Negotiations for a peace settlement began in New York in September 1991. Soon afterward, early in 1992, the twelve-year civil war that had killed 80,000 people and sent over a million into exile finally ended. As part of the settlement, about 20 percent of El Salvador's coffee lands were given to campesinos in areas already controlled by the guerrillas anyway, providing at least a modic.u.m of hope and reform.

The violence, social inequities, and land distribution problems of Central America were far from over, but at least for the time being, the worst of the atrocities had stopped. Coffee growers now could worry primarily about such mundane matters as producing quality beans and securing a decent price for them.

The Big Boys Try to Get Hip In 1984 General Foods introduced the Swedish whole-bean Gevalia Kaffee to the United States through an ingenious direct-mail program. The company had bought Victor Theodor Engwall & Company, which produced Gevalia, still the dominant Swedish coffee, in 1970. General Foods executive Art Trotman, with the help of direct-mail guru Lester Wunderman, supervised a marketing effort modeled after record clubs in which members were induced to join with a hefty premium gift, then automatically received new products on a regular basis. ”The plan relies on people's basic inertia,” Trotman observed. At first, Gevalia customers received a free canister. Then, in 1987, new members got an automatic electric drip coffeemaker. ”That's when sales doubled in two years,” Trotman recalled.

The advertis.e.m.e.nts for Gevalia, placed in upscale venues such as Vogue Vogue and and Bon Appet.i.t Bon Appet.i.t, emphasized the coffee's Swedish heritage, ”the magnificent obsession that produced coffee favored by kings,” and its preparation by a master roaster. Customers had no idea that they were buying a General Foods product, since that fact was carefully obscured. The all-arabica blend was roasted in Sweden, hand-packed in one-way valve bags, s.h.i.+pped to a fulfillment service in the United States, and mailed out. General Foods never touched it, other than to take a sweet profit.

In 1985 General Foods decided to launch gourmet whole beans in U.S. supermarkets. Mary Seggerman put together a five-person ”entrepreneurial attack team” that developed a line of seven whole-bean and ground coffees, including Kenya AA, Colombian, Breakfast Blend, French Roast, and several others. They wanted to set up kiosks in airports to sell espressos and cappuccinos, but that plan got nixed. Instead, they settled for gourmet beans sold in selected upscale supermarkets in one-way valve bags.

In the 1985-1986 Evanston, Indiana, test market, they named it the Maxwell House Master Collection and aired a television pitch featuring cla.s.sical music and references to Bach's Coffee Cantata Coffee Cantata, a.s.serting that this was ”coffee even finer than that which inspired Bach.” Focus groups showed that consumers confused it with Maxwell House Master Blend, the cheap, high-yield coffee. So they renamed it Maxwell House Private Collection and launched in high-income areas around the United States. The end-aisle display units featured shelves and a grinder.

Seggerman planned to have specialty food distributors deliver and supervise the beans. Just before the launch, however, General Foods hired an outside consultant, who concluded they should use ”direct distribution”-that is, the packaged beans would go to a supermarket chain's warehouse, where they would be treated like any other product.

”It was a big mistake,” Seggerman lamented. The French Roast and Colombian beans moved better than the Kenyan AA, which meant that grocers simply dropped the Kenyan product. With no one supervising the shelf s.p.a.ce, it looked disheveled. Worse, local specialty roasters-who distributed their own products-placed their beans on the empty shelves, right next to the Maxwell House Private Collection.

Even so, the program was a moderate success, grossing $45 million the first full year in 1986. ”But that wasn't enough for General Foods,” Seggerman said. ”Unless a new product garnered at least $200 million annually by the third year, they considered it too small to worry about.” After three years, General Foods killed Private Collection. Seggerman transferred out of coffee in 1989 and left the company the following year. ”If they had only let me do it properly, I really believe I could have saved the Maxwell House Coffee Company, which is deader than a doornail today,” she said. Others think that the name, not the distribution system, was the kiss of death. Few consumers believed that a true gourmet coffee product would have a ”Maxwell House” preface.

The A & P was more successful in introducing its Eight O'Clock Royale Gourmet Bean Coffee in one-way valve bags. While in London, Paul Gallant, who headed Compa.s.s Foods, an A & P subsidiary, dropped in on H. R. Higgins Ltd., British coffee purveyors to the royalty. Entranced with the sn.o.b appeal, Gallant copied Higgins's elegant script, cribbed Loewenbrau Beer's lions, and produced a stunning product in a gold one-way valve bag. ”I only steal from the best,” Gallant explained. The A & P specialty product took off.

In line with its strategy of extension-by-acquisition, in 1987 Nestle purchased California-based Sark's Gourmet Coffee and slowly began to expand that brand's whole-bean supermarket coverage.

Procter & Gamble ignored the upscale market while making other changes. Procter & Gamble mounted one of its most effective lifestyle image campaigns, with the tagline ”The Best Part of Waking Up Is Folgers in Your Cup.” The ads, which ran from 5:00 A.M. until noon, targeted both men and women.115 Procter & Gamble finally brought out Folgers Decaffeinated Instant Coffee, a long-overdue brand extension that quickly overtook its High Point Decaf. Procter & Gamble finally brought out Folgers Decaffeinated Instant Coffee, a long-overdue brand extension that quickly overtook its High Point Decaf.

As the specialty market swelled, Folgers played both ends of the quality spectrum. Procter & Gamble didn't go for whole beans, opting instead for Folgers Colombian Supreme, later changed to Folgers Gourmet Supreme. At the same time, however, it rolled out Folgers Special Roast Flaked Coffee, a new high-yield version that used even less less coffee in an 11.5-ounce can claiming to match a regular pound's brewing capacity. The company also came out with Folgers Singles, ”freeze concentrated” coffee in a bag, ready to brew in microwave ovens or boiling water in one minute, though marketers insisted it was not instant coffee. coffee in an 11.5-ounce can claiming to match a regular pound's brewing capacity. The company also came out with Folgers Singles, ”freeze concentrated” coffee in a bag, ready to brew in microwave ovens or boiling water in one minute, though marketers insisted it was not instant coffee.

Coffee and Cigarettes In fall 1985, Philip Morris, the multinational cigarette manufacturer, bought General Foods. By that time, it was clear that the U.S. tobacco business, while incredibly profitable, was a chancy proposition. The cigarette executives knew that their products contributed to lung cancer. Buying General Foods for $5.8 billion allowed Philip Morris to diversify while establis.h.i.+ng itself as the largest U.S. consumer products company. The savvy tobacco executives soon became disenchanted with General Foods, however-especially the Maxwell House division, which accounted for a third of General Foods sales. The General Foods managers were ”dead from their ankles up,” complained a Philip Morris man. ”Their arrogance was exceeded only by their sloth.”

Shortly after the purchase, Philip Morris CEO Hamish Maxwell visited the Maxwell House wing of General Foods, in White Plains, New York, and asked for a cup of coffee. Certainly. Did he want Gevalia or Yuban? No, he wanted a cup of Maxwell House. Since no one drank the stuff, none was brewed. It took some time for someone to find a can opener and make a cup. ”That was his first clue that there was a problem,” Seggerman recalled.

Philip Morris was unhappy with its 1986 results, in which General Foods accounted for 40 percent of the corporation's gross sales but only 20 percent of the profits. With Folgers eating into Maxwell House market share with its ”Wake Up” campaign, weren't they just pouring money down the drain with a $70 million annual coffee advertising budget? In April 1987 General Foods announced a 25 percent ad budget cut, lopping $17.5 million, then cut even more by year's end, putting more money into trade discounts and coupons than advertising. Bob Seelert, appointed senior vice president in charge of coffee and food service, focused strictly on the Maxwell House name, marketing all coffees as a brand extension. He saw no future in the whole-bean Private Collection.116 The slashed Maxwell House ad budget was a sure sign of troubled business in an era when the U.S. economy in general suffered from stagflation, soon to be followed by a recession and widespread unemployment. Maxwell House had to beat retail prices in 1988 when it restored its ad budget but still lost $440 million that year. Folgers countered by entirely replacing its regular pound cans with a thirteen-ounce ”fast roast,” insisting that it was not a high-yield coffee. ”The one-pound coffee container,” one journalist noted, ”is going the way of the Edsel.” By 1989 Procter & Gamble's regular ground coffees had overtaken General Foods to claim the number-one spot.117 In 1988, Phillip Morris anted up $13.1 billion for Kraft Inc., an Illinois food conglomerate with a sterling record, and folded its two acquisitions into one unit called Kraft General Foods, placing Kraft executive Michael Miles in charge.

As the decade drew to a close, Maxwell House was clearly flailing to find direction. In a last-ditch effort, Ogilvy & Mather hired former TV news anchor Linda Ellerbee and TV weatherman Willard Scott to s.h.i.+ll for Maxwell House. ”In a national test, people said they liked Maxwell House better than Folgers Coffee,” Ellerbee intoned at her news desk, then turned it over to Scott in the field, where a fireman told him he preferred Maxwell House for its ”rich taste.” In a scathing review, journalist Bob Garfield dismissed the ever-cheerful Willard Scott as a ”human squirting-boutonniere” and lambasted Ellerbee for disguising advertising as real news. ”It is misleading. It is cheap. It is wrong.”

The jinxed ad aired during a controversial NBC drama, Roe vs. Wade Roe vs. Wade, about the landmark court decision to legalize abortions. As a result, antiabortion advocates threatened to boycott Maxwell House. A few days later, Maxwell House dumped Ogilvy & Mather in favor of D'Arcy Masius Benton & Bowles-the descendant of the firm that had created the enormously successful radio show Maxwell House Show Boat Maxwell House Show Boat during the Depression. during the Depression.

The Collapse of the ICA In fall 1985, prices rose dramatically with news of a Brazilian drought that would affect the 1986 crop. Volatility was exacerbated by the growth of hedge funds that traded in commodity futures and options. Managers dramatically affected prices when buying or selling thousands of contracts. As green bean prices reached $2.30 a pound, Brazilian thieves began to hijack coffee trucks rather than robbing banks.

In February 1986 the ICA quota system was suspended automatically because the average price had stayed above $1.50 for forty-five market days. Coffee futures plunged in antic.i.p.ation that producers would dump surplus stocks onto the world market, then firmed up when Brazil restricted exports. Brazil announced that it would import import African robusta beans, supposedly to supply domestic consumption and release higher quality beans for export. The Brazilians in fact were trying to maintain high price levels. By the end of 1986, with 45 million surplus bags overhanging the market and world consumption slumping, the price fell below $1.40 a pound, then drifted toward $1.20 by February 1987. African robusta beans, supposedly to supply domestic consumption and release higher quality beans for export. The Brazilians in fact were trying to maintain high price levels. By the end of 1986, with 45 million surplus bags overhanging the market and world consumption slumping, the price fell below $1.40 a pound, then drifted toward $1.20 by February 1987.

Technically, prices below $1.35 were supposed to trigger quotas again, but reaching an agreement proved difficult. The United States was angry that Latin American producers had formed a mini-cartel to limit exports, outside the ICA. Furthermore, the United States wanted a quota reallocation that would favor higher quality arabica beans. After March negotiations in London failed, prices sank to around $1 a pound.

The United States agreed to a new International Coffee Agreement in October 1987, again for political reasons. With civil wars still raging in coffee-growing countries of Central America and Africa, the United States knew that economies devastated by low prices would exacerbate the misery and intensify the conflicts.

The new ICA left all of the old issues unresolved. Brazil took a minuscule quota cut, from 30.55 percent to 30.48 percent of the total. Prices rose, hovering around the $1.20 ICA bas.e.m.e.nt target. As tourist coffee reemerged in the two-tier market, the National Coffee a.s.sociation abandoned its support of the ICA in February 1988, calling for ”free and unrestricted trade in coffee.” In April, the head of the U.S. delegation to the ICA announced that the government had not yet decided whether it would renew members.h.i.+p in the agreement when it expired in September 1989.

Rumors of the ICA's possible demise, then hopeful reports that a new agreement was near, sent coffee prices reeling up and down throughout the rest of 1988 and early 1989, but they sank gradually as Brazil and the United States squared off over tourist coffee and selectivity. With reformer Mikhail Gorbachev in the Kremlin and the Sandinistas recently voted out of power in Nicaragua, cold war fears no longer provided a compelling reason for the United States to support the agreement. Brazil's economy now relied more on the export of soybeans, oranges, weapons, mahogany, and ballpoint pens than coffee. The deadlocked negotiations became so bitter that the ICA did not even survive until the September expiration date. When no coalition could summon the necessary votes to renew the quarterly quotas, the International Coffee Organization suspended all export limits on July 4, 1989.

By the end of July, prices had fallen to 85 cents a pound. Prices went down more steeply as panicked producers rushed to the market with beans, hoping to sell before the price dropped lower. In October, members voted to maintain minimal funding of the ICO, without quotas. With this news, prices dropped to 70 cents a pound. Only Maxwell House, Folgers, Nestle, and the men screaming themselves hoa.r.s.e in the futures pit were happy. The big roasters were slow to lower retail prices, taking a breather from the interminable price wars, while they built a gigantic stockpile of cheap beans.

The Coca-Coffee Connection and a Black Harvest Under pressure from the Bush administration to crack down on cocaine processing and smuggling, Colombian President Virgilio Barco Vargas complained that the drop in coffee prices imperiled his fight against drugs. In 1988 Colombia had earned $1.7 billion from coffee exports, just over the estimated $1.5 billion in illegal cocaine sales. Now Colombia stood to lose some $500 million from the coffee price decline, and many of its 3 million citizens who made a livelihood from coffee might well s.h.i.+ft to growing coca.118 In January the Colombian amba.s.sador testified before a U.S. Senate subcommittee chaired by Joseph Biden that the Andean nations had lost nearly $750 million in revenue because of the ICA collapse. ”How can we ask farmers in South America to grow coffee instead of coca leaves,” Biden asked, ”when the price they are getting for their coffee has been slashed in half over the past year?”

Despite the U.S. willingness to take another look, however, even the producers were ambivalent about another ICA. No one had been satisfied with the flawed system, which had limped through twenty-seven years from 1962 until 1989. In the new free-market atmosphere of the 1990s, government control boards either were disbanded or radically weakened, allowing some farmers to keep a greater percentage of the market price. In 1990 the Brazilian Coffee Inst.i.tute (IBC), with its staff of 3,500 and a $15 million annual budget, was summarily abolished.119 In Africa, the In Africa, the caisse de stabilisation caisse de stabilisation boards fell by the wayside. By late 1993 efforts to revive the ICA failed, and the United States officially withdrew from the lame-duck International Coffee Organization just as the growers in desperation created the a.s.sociation of Coffee Producing Countries (ACPC) to initiate a retention scheme to boost prices again. boards fell by the wayside. By late 1993 efforts to revive the ICA failed, and the United States officially withdrew from the lame-duck International Coffee Organization just as the growers in desperation created the a.s.sociation of Coffee Producing Countries (ACPC) to initiate a retention scheme to boost prices again.

Coffee growers had suffered through four years of bas.e.m.e.nt prices. Even for efficient plantations, prices remained below the cost of production. 120 120 As in previous bust cycles, many farmers stopped pruning or fertilizing. Others ripped up their trees to plant other crops. Although world coffee exports averaged 8.4 million bags a year more than in the late 1980s, average annual revenues As in previous bust cycles, many farmers stopped pruning or fertilizing. Others ripped up their trees to plant other crops. Although world coffee exports averaged 8.4 million bags a year more than in the late 1980s, average annual revenues fell fell from $10.7 billion to $6.6 billion-a staggering loss of over $4 billion a year. The dramatic price drop devastated small growers around the world. from $10.7 billion to $6.6 billion-a staggering loss of over $4 billion a year. The dramatic price drop devastated small growers around the world.

In the highlands of Papua New Guinea, for instance, the Ganiga tribe had staked its future on a new coffee plantation co-owned with Joe Leahy. In Black Harvest Black Harvest, a film doc.u.mentary, Leahy told tribal leader Popina, ”With good prices, you'll be up to your necks in money.” Instead, the bottom dropped out of the market. The bewildered Popina observed, ”I feel like selling my big pig and traveling to where they make these decisions. This affects all of us. We'll never be millionaires.” The Ganiga refused to harvest for lower wages, and the berries blackened and rotted on the trees. By the end of the film, the Ganiga had reverted in frustration to tribal warfare, and Leahy was considering a move to Australia.

Big Coffee: Ice Cold In the consuming countries, few roasters thought much about the plight of growers. They stockpiled cheap beans, even as the merger mania continued in the industrial coffee world. In 1990 Philip Morris bought Jacobs Suchard, the dominant European coffee-chocolate conglomerate, for $3.8 billion. At the same time, Maxwell House announced the closing of its Hoboken roasting plant due to declining sales. All roasting would be s.h.i.+fted to a Jacksonville, Florida, facility. Maxwell House switched ad agencies again, back to Ogilvy & Mather. In 1991 Kraft General Foods barely managed to regain a slight lead in the ground-roast segment, holding 33 percent of the market versus 32.7 percent for Procter & Gamble. Folgers as a brand still trounced Maxwell House.

In the first few years of the 1990s, the major roasters continued to battle one another without much to show for it, other than an innovative Taster's Choice campaign-and even that was cribbed from British commercials for Gold Blend, the Nestle brand of freeze-dried coffee in the UK.121 The commercials featured mini soap operas in which Tony, a soulful bachelor, met Sharon, his lovely British neighbor, when she knocked on his door to borrow Taster's Choice because of its ”sophisticated taste.” In serial episodes ranging over years, Tony and Sharon flirted over the freeze-dried coffee in commercials dripping with s.e.xual innuendo, sensuality, and intrigue. The advertis.e.m.e.nts catapulted the instant coffee to first place in market share by 1993, when Tony and Sharon finally kissed onscreen to great media hoopla. A romance novel based on the couple hit the best-seller list in England. The commercials featured mini soap operas in which Tony, a soulful bachelor, met Sharon, his lovely British neighbor, when she knocked on his door to borrow Taster's Choice because of its ”sophisticated taste.” In serial episodes ranging over years, Tony and Sharon flirted over the freeze-dried coffee in commercials dripping with s.e.xual innuendo, sensuality, and intrigue. The advertis.e.m.e.nts catapulted the instant coffee to first place in market share by 1993, when Tony and Sharon finally kissed onscreen to great media hoopla. A romance novel based on the couple hit the best-seller list in England.

Maxwell House came out with a refrigerated liquid coffee concentrate, then tried Maxwell House 1892, purportedly the original slow-roasted formula. Both bombed. Next it launched Cappio, one of many iced coffee drinks that were heralded as the new wave of caffeinated beverages; it didn't do well either. Coca-Cola and Nestle announced a joint worldwide venture to market cold coffee drinks-excluding j.a.pan, where c.o.ke already dominated the market with its Georgia Coffee. Nestle came out with a Nescafe Mocha Cooler, followed by Chock O'Cinno from Chock full o' Nuts and a number of smaller specialty entrees. None of the iced-coffee products caught on the way Snapple and other ”New Age” drinks did.

By the mid-1990s it was clear to industry observers that the major roasters had lost their way, while gourmet small-scale coffees were booming. In 1995 Forbes Forbes summarized the fate of the big coffee merchants in a one-word headline: ”Oversleeping.” The message the magazine conveyed to Maxwell House, Folgers, and Nestle: ”Wake up and smell the freshly ground coffee.” summarized the fate of the big coffee merchants in a one-word headline: ”Oversleeping.” The message the magazine conveyed to Maxwell House, Folgers, and Nestle: ”Wake up and smell the freshly ground coffee.”

18.

The Starbucks Experience According to legend, Merlin was born in the future and lived backward in time, moving toward the past. He must have often felt out of step with his time, moving toward the past. He must have often felt out of step with his contemporaries, filled as he was with unconventional notions of what might contemporaries, filled as he was with unconventional notions of what might be. I'm no sage, but sometimes I think I know how he must have felt. be. I'm no sage, but sometimes I think I know how he must have felt. My vision for the future, my aspirations for what kind of company Starbucks My vision for the future, my aspirations for what kind of company Starbucks should be, are so easily misunderstood. should be, are so easily misunderstood.

-Howard Schultz, 1997

By 1995 one specialty roaster had emerged as the definitive leader in the dynamic, fragmented market. Starbucks, the pioneering Seattle company begun in 1971 by Jerry Baldwin, Zev Siegl, and Gordon Bowker, had been transformed into a national phenomenon in an astonis.h.i.+ngly short period of time. Without paying for the publicity, Starbucks Starbucks had become synonymous with fine coffee, hip hangouts, and upscale image. had become synonymous with fine coffee, hip hangouts, and upscale image.

In 1980 Zev Siegl sold out to pursue other interests. By that time, Starbucks was the largest roaster in Was.h.i.+ngton, with six retail outlets. It also sold its beans to restaurants, other retailers, and supermarkets, and sold espresso machines, grinders, and brewers. Jerry Baldwin sold the Blue Anchor supermarket division to focus primarily on sales in his own stores. He also gave up the equipment accounts, but in 1982 he hired Howard Schultz, a New York salesman who had supplied the coffee firm with drip-brewing thermoses, as his new head of marketing. ”You've got a real jewel,” Schultz told Baldwin. ”Starbucks could be so much bigger.”

In 1983 Baldwin got a call from Sal Bonavita, who had bought Peet's in 1979. Bonavita wanted to sell. ”I was so excited I could hardly sit still,” Baldwin recalled. Here was his chance to own the store that started it all. ”I wanted to see Peet's and Starbucks together.” In 1984 Starbucks bought Peet's, putting the company deeply into debt. Baldwin found himself juggling two company cultures and commuting between Seattle and San Francisco.

Howard Schultz was agitating to take Starbucks in another direction. In spring 1983 Starbucks sent Schultz to an international housewares show in Milan, Italy. There, like Alice Foote MacDougall sixty years earlier, he found a vibrant coffee culture. Milan, a city the size of Philadelphia, supported 1,500 espres...o...b..rs, and there were 200,000 in all of Italy. ”Buon giorno! ” a barista (bartender) greeted Schultz one morning, as he handed a tiny demita.s.se of espresso to one customer, then deftly created a perfect cappuccino. ”The barista moved so gracefully that it looked as though he were grinding coffee beans, pulling shots of espresso, and steaming milk at the same time, all the while conversing merrily with his customers,” Schultz recalled. ”It was great theater.” In Verona, Schultz had his first caffe latte, a drink with more steamed milk than espresso. ” a barista (bartender) greeted Schultz one morning, as he handed a tiny demita.s.se of espresso to one customer, then deftly created a perfect cappuccino. ”The barista moved so gracefully that it looked as though he were grinding coffee beans, pulling shots of espresso, and steaming milk at the same time, all the while conversing merrily with his customers,” Schultz recalled. ”It was great theater.” In Verona, Schultz had his first caffe latte, a drink with more steamed milk than espresso.

Schultz was inspired. Why not take great Starbucks beans and brew such drinks? Why not create community gathering places like those in Italy? Back in Seattle, Schultz received a chilly reception. Jerry Baldwin didn't want to dilute his mission to sell whole beans.

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