Uncommon Grounds Part 15

When Starbucks opened a sixth store in April 1984, Baldwin let Schultz test a small espres...o...b..r. It proved an immediate hit, but Baldwin didn't want customers to think of Starbucks as a place to grab a quick cup of coffee to go. Schultz decided to branch out on his own, starting Il Giornale, a coffeehouse named after Italy's biggest newspaper, meaning "daily."

Schultz, who grew up in a Brooklyn housing project, had the aggressive drive of a street kid determined to make it. Baldwin showed his goodwill and confidence by investing $150,000 of Starbucks money in Il Giornale, and Schultz convinced other Seattle businessmen to kick in seed money. He hired Dawn Pinaud, who had run the first test espres...o...b..r, to train staff and supervise the retail stores. Then Dave Olsen joined the team. In 1975 Olsen had opened the funky Cafe Allegro in Seattle's university district, where he roasted Starbucks beans to a dark finish for his espresso drinks. "I had been running my place for ten years by 1985, and I was beginning to think I should do more. Howard's dream matched mine."

The first Il Giornale opened in April 1986. Within six months, a thousand people a day were buying espresso drinks there. A few gulped the concentrated beverage straight like the Italians, but most opted for the cappuccino (a little more espresso than steamed milk) and latte (a lot more milk). Italians drank such dilute beverages only in the morning but Schultz adapted to American preferences. In Italy, most customers stand for their brief shot. Americans wanted to linger, so Schultz added chairs. Customers complained about the incessant opera, so he modified it to background jazz.

The essential elements worked, though. Dawn Pinaud and her staff created their own lingo. Although Il Giornale was essentially a fast-food outlet, the service people weren't soda jerks or flunkies. They were baristas baristas, spotlighted as though on stage. A drink wasn't small, medium, or large. It was short short, tall, tall, or or grande grande. A double espresso with a splash of milk was christened a doppio macchiato doppio macchiato. "It's amazing to me that these terms have become part of the language," Pinaud said. "A few of us sat in a conference room and just made them up." Eventually, after Starbucks caved in to customer requests and offered skim milk and flavors, ordering became a poetic art form. A large decaf espresso with lots of milk and no foam was an unleaded grande latte without an unleaded grande latte without. A small iced hazelnut coffee with one shot of regular and one of decaf, skim milk, and a fair amount of foam, to go, was an iced short schizo skinny hazelnut cappuccino with wings an iced short schizo skinny hazelnut cappuccino with wings.

Then, in March 1987, Howard Schultz learned that Starbucks was for sale. Gordon Bowker wanted to cash out to start a microbrewery. Baldwin sold off Caravali, the company's wholesale subsidiary, and was looking to spin off Starbucks itself. He and his chief roaster, Jim Reynolds, would move to San Francisco to concentrate solely on Peet's. Within weeks, Schultz convinced his investors to contribute $3.8 million to buy the six Starbucks retail outlets and roasting plant. Schultz, then thirty-four, announced plans to open 125 outlets in the next five years. He abandoned the esoteric Il Giornale name in favor of Starbucks. He sanitized the logo's bare-breasted mermaid, reducing her to a wavy-locked G.o.ddess figure, while company brochures now proclaimed that Starbuck was the "coffee-loving first mate" in Moby-d.i.c.k Moby-d.i.c.k, although no one in the book drank coffee.

Schultz attracted a core group of devoted coffee people. Among them was Kevin Knox, the "coffee specialist" who supervised everything that happened from the time the beans tumbled from the roaster until the first sip. In October 1987 Schultz sent Pinaud to open a Chicago Starbucks. "A consultant later said that I was parachuted into enemy territory with a Boy Scout knife and told to survive," Pinaud recalled. Over the next two years, she opened fifteen stores. Chicagoans, weaned on Hills Brothers and Folgers, did not take to the strong, dark-roasted Starbucks blend immediately. Still, the cappuccinos and lattes were tasty, and gradually the stores developed a loyal clientele.

In 1987 Starbucks lost $330,000. The next year, $764,000, and by 1989 the firm dropped $1.2 million. There were then fifty-five Starbucks locations in the Pacific Northwest and Chicago. Investors simply had to have faith, delivering repeated infusions of venture capital. In 1990 the company turned the corner, building a new roasting plant and showing a small profit. The following year, Pinaud took Starbucks into Los Angeles, where many feared the warm weather would deter hot coffee sales, but it was an immediate hit. "Almost overnight, Starbucks became chic," Schultz remembered. "Word of mouth, we discovered, is far more powerful than advertising."

Schultz began to hire MBAs and corporate executives with experience running chain franchises, creating complex computer systems, and training employees nationwide to deliver standardized consumer goods. He recruited many of them in the early 1990s from fast-food companies, and they brought professional management to the preexisting coffee idealism, though the two did not always coexist comfortably. By the end of 1991, there were just over one hundred stores with $57 million in sales, and Schultz was preparing to take Starbucks public to finance more rapid expansion.

Latte Land "I became increasingly afraid of waking up the sleeping giants," Schultz admitted, referring to Maxwell House, Folgers, and Nestle. "If they had begun to sell specialty coffee early on, they could have wiped us out." Yet they never made a move into small retail stores. Several other regional specialty coffee outlets were expanding.122 Gloria Jean's Coffee Bean, owned by Ed Kvetko, loomed as Starbucks' major compet.i.tion. In 1985, when Kvetko owned eleven stores in the Chicago area, he began franchising, primarily in malls. While Starbucks projected a highbrow Italian image, Gloria Jean's was thoroughly middle-cla.s.s, featuring a huge variety, including plenty of flavored beans and, eventually, a variety of coffee beverages. By 1991 Kvetko's wife's name graced 124 stores in over a hundred cities, considerably more than Starbucks'. Gloria Jean's Coffee Bean, owned by Ed Kvetko, loomed as Starbucks' major compet.i.tion. In 1985, when Kvetko owned eleven stores in the Chicago area, he began franchising, primarily in malls. While Starbucks projected a highbrow Italian image, Gloria Jean's was thoroughly middle-cla.s.s, featuring a huge variety, including plenty of flavored beans and, eventually, a variety of coffee beverages. By 1991 Kvetko's wife's name graced 124 stores in over a hundred cities, considerably more than Starbucks'.

Sales of gourmet beans tripled in only six years, accounting for 20 percent of home purchases. Consumers were confronted with "beans from countries that college graduates cannot find on a map," one journalist groused. Once they settled on a nationality, they still had to decide on a flavor: "chocolate, amaretto, vanilla, Irish cream, sambuca, orange, cinnamon, hazelnut, macadamia, raspberry, even chocolate raspberry. Will it be French, American or Italian roast? Decaffeinated or regular? Which grind?" In the 1991 movie LA Story LA Story, comedian Steve Martin ordered a "half double decaffeinated half caf with a twist of lemon."

The health concerns of the previous decade were mostly tossed aside as the nation crested on a caffeine high. Coffee lover Joan Frank described "a quivering bunch of quasi-homicidal crackpots" standing in line at Peet's in San Francisco. "Don't mess with us," their eyes seemed to warn. "We haven't had our coffee." But who cared? "Bless every drop and granule of the stuff," Frank wrote. "Coffee's the vital juice that flows through the nation's veins, and on which floats its fragile morale." Baby boomers had come full circle, back to the drink of their parents, after a childhood of c.o.kes and coming-of-age with cocaine.

If this java nation had a capital, it was Seattle, the home of Starbucks and many other coffee companies. "It is hard to go anywhere," one visitor observed in 1991, "whether it be the local hardware store or shopping downtown, without coming across a sidewalk espresso cart, or pa.s.sing the doorway of a sleek cafe with a gleaming espresso machine behind the bar." Truck drivers sipped lattes from drive-throughs. The television show Frasier Frasier placed the pretentious psychiatrist in Seattle, where he and his friends drank cappuccinos at the Cafe Nervosa. placed the pretentious psychiatrist in Seattle, where he and his friends drank cappuccinos at the Cafe Nervosa.

Starbucks: The (Very) Public Years On June 26, 1992, Starbucks launched its initial public offering (IPO) at $17 a share with a market capitalization (the value of all shares) of $273 million. Howard Schultz had paid less than $4 million for the company only five years earlier. Within three months, the stock price had reached $33, making Starbucks worth $420 million. Schultz, Dave Olsen, and other executives were overnight millionaires. Schultz personally held 1.1 million shares, or 8.5 percent of the stock.123 Starbucks employees were indoctrinated in twenty-five hours of course work that imprinted company rules. Among them: thou shalt brew a double espresso shot between eighteen and twenty-three seconds and serve within ten seconds of brewing it, or throw it out. The courses, called Coffee Knowledge 101, Retail Skills, Brewing the Perfect Cup, and Customer Service, were taught by ultra-earnest, peppy young instructors. "Lovely! Fabulous foam!" they would burble as students created lattes. Hip young Generation Xers had to remove studs and rings from nose, lip, or tongue, nor could any employee wear fragrance that might interfere with the roast aroma.

Though Schultz could have quadrupled his rate of expansion by franchising Starbucks, he chose to open only company-owned stores, except in airports, bookstores, or other odd spots that demanded licensure. This way he could maintain strict control over quality and training.

The chain paid slightly above minimum wage and provided an innovative benefits package that included part-time employees who worked twenty hours a week or more. As a result, employee turnover at Starbucks was only 60 percent a year, compared to the industry average of 200 percent or more. In 1991 Schultz introduced his "Bean Stock" program, in which employees-now called "partners"-received stock options worth 12 percent of their annual base pay, to be vested in one-fifth increments over a five-year period. Every year, new options would be issued. Theoretically, each employee had a stake in the company's success. Since the average employee left after a year and a half, however, most options expired worthless. Still, for those who stayed with the company for several years, Bean Stock could provide a nice little nest egg if the stock kept climbing.

Starbucks became the largest U.S. corporate donor to CARE, specifying that its contributions go to help coffee-producing countries such as Indonesia, Guatemala, Kenya, and Ethiopia, pledging $500,000 a year by mid-decade. The company sold a coffee selection package called a "CARE sampler," donating a portion of the proceeds. The grateful charity responded by giving Starbucks its International Humanitarian award.

Indeed, Schultz appeared to be a master image builder. As he himself has said, "My story is as much one of perseverance and drive as it is of talent and luck. I willed it to happen. I took my life in my hands, learned from anyone I could, grabbed what opportunity I could, and molded my success step by step."

In 1989 the sociologist Ray Oldenburg published The Great, Good Place The Great, Good Place, a lament over the pa.s.sing of community meeting places like the old country store or soda fountain. The book contained an entire chapter on coffeehouses, concluding: "The survival of the coffeehouse depends upon its ability to meet present day needs and not those of a romanticized past." Schultz loved the book and adopted Oldenburg's academic term, christening Starbucks as a "third place" beyond home or work, "an extension of people's front porch," where people could gather informally. Modern coffeehouses such as Starbucks do do provide a much-needed s.p.a.ce for friends and strangers to meet, especially as our cultural ethos becomes more paranoid and fragmented. provide a much-needed s.p.a.ce for friends and strangers to meet, especially as our cultural ethos becomes more paranoid and fragmented.

Following the initial public offering, Starbucks grew to 165 stores in 1992, 272 in 1993, and 425 in 1994. By mid-decade, the company was opening an average of a store every business day, targeting appropriate locations by studying the demographics of mail-order customers. Schultz monitored the daily sales and profit numbers for each store, calling managers to congratulate or berate them.

In 1993 Starbucks established a beachhead on the East Coast in Was.h.i.+ngton, D.C. On National Public Radio, Susan Stamberg doubted whether the concept would work there: "I've lived in this town for thirty years. You are in workaholic central here. I mean, this is not a town where people want to hang out and take their time." Stamberg was wrong. Was.h.i.+ngtonians flocked to Starbucks. Fortune Fortune featured Schultz on its cover as the CEO of one of America's one hundred fastest-growing companies. "Howard Schultz's Starbucks grinds coffee into gold," the magazine noted. featured Schultz on its cover as the CEO of one of America's one hundred fastest-growing companies. "Howard Schultz's Starbucks grinds coffee into gold," the magazine noted.

Starbucks announced its intention of rolling into Minneapolis, Boston, New York, Atlanta, Dallas, and Houston in 1994. In Boston, Coffee Connection founder George Howell had feared such a move. In 1990 Schultz had sought to buy him out. The answer was no. Schultz repeated the offer over the next few years. Howell despised the dark Starbucks roast. He prided himself on nuanced roasting to bring out the delicate flavor of each bean. He didn't want to see the work of two decades destroyed, so he opened new Coffee Connections, beginning in 1992. By 1994, Howell had opened twenty-one outlets, with plans for six more that year.

The Boston Globe Boston Globe reported on the looming battle. "We don't like to get in coffee wars," Starbucks marketer George Reynolds told the reported on the looming battle. "We don't like to get in coffee wars," Starbucks marketer George Reynolds told the Globe Globe. But he added, "We want to dominate." Howell responded by calling his rival "Charbucks," referring to its roast style. Then, in March 1994, Howell shocked the specialty coffee world by agreeing to sell out to Starbucks for $23 million. He realized that he would have lost some quality control in the rapid expansion. He didn't enjoy financial management. The business wasn't fun anymore. "Howard Schultz promised that the Coffee Connection would remain in business, that they would keep the concept and product unaltered," Howell recalled ruefully.

Within two years, all Coffee Connections were converted to Starbucks, and the roast profile s.h.i.+fted toward the dark end of the spectrum. Requiring a centralized roasting plant on the East Coast, Starbucks opened a facility in York, Pennsylvania, shutting down the Boston Coffee Connection plant.

The enterprise moved at "warp speed," as Business Week Business Week observed, swiftly conquering New York City. In 1995 Starbucks opened in Pittsburgh, Las Vegas, San Antonio, Philadelphia, Cincinnati, Baltimore, and Austin for a total of 676 stores by year's end. The following year Starbucks grew to a thousand, one of which was an outlet in Tokyo. Howard Schultz was there, witnessing j.a.panese lined up in 95-degree weather for the "Starbucks experience." He cried. observed, swiftly conquering New York City. In 1995 Starbucks opened in Pittsburgh, Las Vegas, San Antonio, Philadelphia, Cincinnati, Baltimore, and Austin for a total of 676 stores by year's end. The following year Starbucks grew to a thousand, one of which was an outlet in Tokyo. Howard Schultz was there, witnessing j.a.panese lined up in 95-degree weather for the "Starbucks experience." He cried.

Through shrewd joint partners.h.i.+ps, Starbucks spread its fame and logo while making even more money. With Pepsi, it created Mazagran, a carbonated coffee drink, its first flop, but followed that with Frappuccino, a cold, milky coffee that took off in supermarkets. Teaming with Redhook Ale Brewery, the company came out with Double Black Stout, a coffee-flavored beer. Dreyer's produced a Starbucks coffee ice cream that swiftly became the best-selling brand of that flavor. Starbucks even issued its own music, Blue Note Blend Blue Note Blend, a jazz CD for easy listening and coffee sipping, and Songs of the Siren Songs of the Siren, a collection of female singers. In Barnes & n.o.ble superstores in the United States and in Chapters bookstores in Canada, customers could sip Starbucks coffee while reading in a comfortable cafe.

Starbucks opened stores in Singapore, Hawaii, the Philippines, Taiwan, and Korea. It was in the air with United Airlines and Canadian Airlines, partnered with Oprah Winfrey to promote literacy, entered into deals with hotel chains and cruise lines, became part-owner of a bagel chain, and tested supermarket sales. Starbucks Starbucks became a household word without mounting a national advertising campaign. Indeed, the company spent less than $10 million on advertising in its first twenty-five years. It was a veritable "word-of-mouth wonder," as an became a household word without mounting a national advertising campaign. Indeed, the company spent less than $10 million on advertising in its first twenty-five years. It was a veritable "word-of-mouth wonder," as an Advertising Age Advertising Age reporter put it. Not only that, it reporter put it. Not only that, it made made money while advertising itself, selling mugs, thermoses, and canisters with the emblazoned logo. In 1994 Dave Olsen wrote money while advertising itself, selling mugs, thermoses, and canisters with the emblazoned logo. In 1994 Dave Olsen wrote Starbucks Pa.s.sion for Coffee Starbucks Pa.s.sion for Coffee, a coffee primer with recipes that was sold by Sunset Books, followed by Starbucks Pleasures of Summer Starbucks Pleasures of Summer the following year. the following year.

Two years later, Howard Schultz told his story (cowritten with a Business Week Business Week reporter) in reporter) in Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time, donating the proceeds to the newly formed Starbucks Foundation. On April 1, 1996, National Public Radio's All Things Considered All Things Considered reported: "Starbucks will soon announce their plans to build a pipeline costing more than a billion dollars, a pipeline thousands of miles long from Seattle to the East Coast, with branches to Boston and New York and Was.h.i.+ngton, a pipeline that will carry freshly roasted coffee beans." It's a testament to Starbucks' ubiquity that many people initially believed that this April Fool's hoax was a real news story. reported: "Starbucks will soon announce their plans to build a pipeline costing more than a billion dollars, a pipeline thousands of miles long from Seattle to the East Coast, with branches to Boston and New York and Was.h.i.+ngton, a pipeline that will carry freshly roasted coffee beans." It's a testament to Starbucks' ubiquity that many people initially believed that this April Fool's hoax was a real news story.

Deflecting the Critics Starbucks' overwhelming success, with its aggressive tactics, inevitably brought criticism. Specialty compet.i.tors complained that Starbucks used predatory retail tactics, frequently opening outlets directly across the street from their stores. "It has never been Starbucks' intention to put anyone out of business, and we adhere to standard real estate practices when obtaining new locations," a public relations spokesman said. The company simply looked for optimal locations. Besides, "having compet.i.tors nearby does nothing but increase the awareness of coffee in general."

Despite complaints, it was clear that Starbucks was doing something right. The average customer visited Starbucks eighteen times a month, and 10 percent came twice a day. "If you walk into any Starbucks store," Howard Schultz said, "you see little vignettes. Of business people having meetings. A mother and her child in a stroller. You see single people actually meeting there." He was right, though far more frequently people came there seeking communal solitude. "The coffeehouse is the ideal place," as Viennese wit Alfred Poger once put it, "for people who want to be alone but need company for it."

Owing to its ubiquity, Starbucks perhaps attracted an unwarranted amount of criticism. "It always has baffled me," Schultz commented in 1997, "that in America for some reason, there are people who pa.s.sionately root for the underdog to succeed, and when the underdog reaches a level of success, some of those same people find a need to tear it down." Specialty coffee veteran Dan c.o.x called for an end to "Starbucks bas.h.i.+ng," pointing out that the brand had excellent management, provided consistent quality, treated its employees well, gave back to the community, and had been innovative within the industry.

Within a few years, Schultz built a $1 billion-a-year business with only the earth's boundaries as a limit. "Starbucks is going to be a global brand," Schultz predicted. Comedian Jay Leno suggested it might go even farther, showing his audience a satellite picture of Mars-where there was already a Starbucks.

A Maturing Market By mid-decade, there were signs that the specialty revolution had reached a plateau. Though coffeehouses were still popping up-even a Mocha Joe's in Peoria-the number of espresso carts in Seattle declined, and a.n.a.lysts began to talk about "saturation." In reb.u.t.tal, the Specialty Coffee a.s.sociation of America estimated that, though over 4,000 specialty outlets existed in 1995, there would be 10,000 by the turn of the twenty-first century.

From fewer than a hundred in 1985, SCAA members.h.i.+p had swelled into the thousands a decade later. Its annual convention turned into a gigantic marketing opportunity for suppliers of roasters, brewers, flavors, T-s.h.i.+rts with coffee messages, mugs, books, and every other device having anything remotely to do with coffee. Members listened not only to coffee experts but to slick motivational speakers. Veterans complained that neophytes had dollar signs in their eyes instead of coffee beans. Since it cost around $250,000 to open a coffee bar, perhaps that was understandable.

A new round of coffee books for the would-be connoisseur flooded bookstores. Magazines devoted to coffee-Coffee Journal, Cups Cups, Cafe Ole Cafe Ole, Coffee Culture Coffee Culture, Fresh Cup Fresh Cup, Literal Latte Literal Latte, and others-appeared in the 1990s. Most vanished as quickly as the morning cup of coffee, but a few survived with loyal readers.h.i.+ps.

Dunkin' Donuts didn't have the upscale panache or special drink jargon of Starbucks, but since its inception in 1948 as the Open Kettle, it had served excellent coffee. In 1983 it began to sell whole beans and by 1995, with over 3,000 franchised outlets, it was actually a "coffee company disguised as a donut company," as one coffee expert described it. So was Tim Hortons, a similar Canadian chain.

The battle over whole beans in the supermarket was another sign of maturity. In the 1980s grocers were overjoyed to stock little-known specialty whole beans, since they offered a much larger profit margin than canned coffee. But as the compet.i.tion mounted, the supermarkets began to demand discounts in the form of slotting allowances, gate fees, promotions, and free first-time bin fills-all trade practices that charged coffee roasters simply to get their beans onto shelves.

By the mid-1990s business consultants were taking note of the specialty trend. Procter & Gamble bought Millstone in December 1995 for an undisclosed sum.124 By that time, founder Phil Johnson had grown Millstone to a seminational brand with roasting plants in Was.h.i.+ngton and Kentucky and its own truck fleet, selling 1.5 million pounds per month and grossing over $40 million annually. By that time, founder Phil Johnson had grown Millstone to a seminational brand with roasting plants in Was.h.i.+ngton and Kentucky and its own truck fleet, selling 1.5 million pounds per month and grossing over $40 million annually.

It appeared that another business cycle was beginning. Just as the traditional coffee industry had gone through fragmented growth and merger, the specialty movement would, in its maturity, consolidate. In the process, would it also lose its soul?

19.

Final Grounds Coffee is turning out to be quite a cosmic issue-and the way it's grown, marketed, and consumed has implications for the environmental health of the world.

-Russell Greenberg, director, Smithsonian Migratory Bird Center, 1996

"These are Coffee People. They pick coffee to buy food. They say the coffee price is bad. So the pay is too low to buy food. This village is f.u.c.ked."

-Men With Guns, film by John Sayles (1997)

Like many fine beans, those that made my cup of Kopi Luwak were processed by the wet method, but in this case, removal of the pulp, mucilage, and parchment was performed as the cherry progressed through the gut of the palm civet, paradoxorus hermaphroditus paradoxorus hermaphroditus (in Indonesian parlance, (in Indonesian parlance, luwak luwak), also known as a civet cat. I figured that at $300 a pound, the cup was worth more than $7. As I prepared to try it, I caught a sweet, tantalizing aroma. Then I took a sip. A full-bodied coffee, it had an unusual taste-earthy? pungent? gutsy?-that lingered in my mouth long after my final sip. But I wouldn't pay $300 a pound for the beans.

That's one of the things I have learned through my coffee research: one consumer's poison is another's nectar. Harsh, fermented Rioy Brazilian beans, despised by most connoisseurs, are prized by the Greeks. The French love their coffee adulterated with chicory. Then there's the psychological factor. The rarer the bean, the more expensive and desirable. Hence, Hawaiian Kona and Jamaican Blue Mountain command premium prices, even though most coffee experts consider them bland in comparison to Guatemalan Antigua or Kenya AA. Why the higher price, then? In a good year, the Hawaiians and Jamaicans produce balanced, aromatic brews that appeal to just about any coffee lover. Primarily, however, the beans are scarce, and j.a.panese buyers have made them scarcer by buying most of the small production.

Many specialty coffee roasters offer fine, unblended estate coffees, likening them to wine. Indeed, the taste of coffee grown on a particular estate varies depending on the type of tree, soil, atmospheric conditions, and processing. "Some coffees bring with them the smells of the forests they grew near," rhapsodized coffee expert Tim Castle, "the taste of the water that soaked their roots, the flavors of the fruits that grew near them."

La Minita: A Coffee City-State Bill McAlpin grows coffee at La Minita, his showplace Costa Rican farm. An imposing man of six foot three whose considerable girth adds to his air of authority, McAlpin has built a reputation for delivering quality coffee. Though McAlpin is a U.S. citizen, he grew up in Latin America and began to grow coffee in Costa Rica in 1974.

In 1987 McAlpin, then thirty-six, culled the best of the best beans, s.h.i.+pped two hundred bags to Virginia, rented a U-Haul truck, and took to the road. With wife Carole Kurtz, he toured eastern U.S. specialty roasters to introduce them to his superb beans. His most important new customer was George Howell at Boston's Coffee Connection, where he met a soul mate. In the following years, Howell convinced McAlpin to seek out, improve, and sell special coffees from Guatemala and Colombia as well.

La Minita Tarrazu beans command a constant premium of $3.99 a pound, regardless of the gyrations of the price on the exchange. Only about 15 percent of the beans grown on the farm qualify. The rest are pegged to the market, albeit well above the regular price. Customers are invited to visit La Minita, where they see the model farm in action, eat wonderful food along with their coffee, admire the two hundred-foot waterfall, visit the farm's medical clinic, and meet some of the apparently contented laborers. They can also take their own turn at harvesting.

I got off to a rocky start at La Minita. When McAlpin discovered I had picked up a few coffee beans from other countries along the way, he insisted that I conduct a strip search of myself and go through my luggage. Broca Broca, little black bugs that eat coffee beans, had not reached Costa Rica.

Once at the farm, though, all cares fell away in the mountain paradise of the Tarrazu region, where I stayed in a guest house at 5,000 feet above sea level.

I awoke at 6:00 A.M. to the sounds of workers laughing on the way to work. When I got up, the sunrise was just lighting the 9,500-foot mountain across the valley. After breakfast, the other guests and I hiked to the river that forms one border of the plantation, pa.s.sing the heavily laden coffee trees and the occasional orange tree, planted for the workers' refreshment. Then we took a turn at harvesting on the steeply terraced slopes. In an hour, I earned enough to buy two bags of peanuts at the commissary.

Then we joined the real real harvesters, who were done by 2:00 P.M. I talked to Angel Martin Granados, a young man who told me he had picked 122 harvesters, who were done by 2:00 P.M. I talked to Angel Martin Granados, a young man who told me he had picked 122 cajuelas cajuelas (66 gallons) that day, earning him around $15. After working at La Minita for three years, he had saved enough to buy a house and plant his own small coffee plot. (66 gallons) that day, earning him around $15. After working at La Minita for three years, he had saved enough to buy a house and plant his own small coffee plot.

Bill McAlpin presided over his domain as a benign dictator, demanding obsessive attention to quality and detail. In a speech to his workers, McAlpin described La Minita as "a single living organism" where he tried to provide "a secure working and social habitat." Food, shelter, health, security, liberty, and spiritual activity were what the farm offered, he said.

McAlpin's idealism extended to his coffee. Rather than use herbicides, his workers weeded the eight hundred acres of coffee with machetes. Except in extraordinary circ.u.mstances, he avoided insecticides. Instead, the trees were regularly sprayed with a "coffee aphrodisiac" of boron, zinc, and copper. The soil was tested twice a year. Shade trees helped by fixing nitrogen and shedding leaves for mulch, but fertilizer was also dispensed regularly.

Despite McAlpin's concern for social and environmental issues, he insisted that he was simply being pragmatic. He treated his workers well because it was good business. He scorned Fair Trade coffee, which he believed asked people to purchase coffee out of guilt. "I don't want anyone to buy La Minita because of the way we grew it. I want them to buy it because it is superior coffee." He accused the well-intentioned folks who sell Fair Trade coffee of "cultural imperialism," blasting those who blend "suffering, pain, and humiliation" into the beans they sell to "the affluent but guilt-ridden, Birkenstock-shod, politically correct, myopically naive creature known as the 'huppie'"-whom he defined as a combination hippie-yuppie.

McAlpin built a vertically integrated coffee empire under the name Distant Lands Trading Company. He owned thirteen coffee farms and three processing mills in Costa Rica and another processing mill in Colombia. He had joint ventures and quality control employees in Sumatra, Guatemala, Brazil, Honduras, and Ethiopia, along with roasting plants in Tyler, Texas, and Seattle.

"As the industry has matured and expanded and use of fine coffee has increased, it has changed from boutique to more of a mainstream business," McAlpin told me in 2009. "The challenge we've met really well has been to keep the focus on the quality. But we're not just a few guys in a room anymore. We have two hundred employees in the U.S. and many more than that at origin."

Bill McAlpin wishes that all all coffee growers could command the same premium as La Minita. Then the social inequities built into the system could solve themselves. Unfortunately, the realities of the marketplace make this almost impossible for most growers. When I visited Betty Hannstein Adams at her coffee growers could command the same premium as La Minita. Then the social inequities built into the system could solve themselves. Unfortunately, the realities of the marketplace make this almost impossible for most growers. When I visited Betty Hannstein Adams at her Finca Oriflama Finca Oriflama in western Guatemala, we discussed social issues at length. in western Guatemala, we discussed social issues at length.

Yes, it was true that she paid her laborers about $5 a day. She couldn't pay them much more than other coffee farmers without pricing her beans out of the market. The profit margin was narrow, and the volatile price swings made planning difficult. "Coffee doesn't yield enough profit to pay anyone one cent more than we are paying nor to put one ounce more of fertilizer or buy one vehicle to replace a worn-out one, or to give the owner a salary," Adams said. "To top it off, the certifiers and roasters demand more from us every year-more soil conservation, more hand cleaning with machetes and less herbicide use, and so on."

As Adams figured it, coffee would have to fetch about $8 more per pound to enable farmers to pay their workers the current U.S. minimum wage of $7.25 an hour. That wouldn't be unreasonable. Even at $20 a pound for roasted specialty beans, consumers could enjoy a cup of properly brewed coffee for about 50 cents-not much when you consider the cost of a soft drink.

Fat chance, though. Throughout most of our history, U.S. citizens and politicians have made it clear that they consider inexpensive coffee a birthright. A few Good Samaritans don't mind paying extra for Fair Trade beans every now and then, or even more for the highest quality coffee, but even they might squawk if all coffee provided a decent living for those who produce the crop.125 The Coffee Crisis During the 1990s, Vietnam surged from nowhere to become a major producer of cheap robusta beans. Most were grown in the Central Highlands, where the indigenous tribes were dispossessed of their land. Many of these Montagnards (the French name for the tribes living there-the Rhade, Jarai, Bahnar, Stieng, Koho, and Mnong, among others) worked for pathetic wages on coffee farms owned by the government or Vietnamese who had moved to the mountains to make their fortunes. Other Montagnards eked out an existence on inadequate plots of land. By the end of the decade, Vietnam had surpa.s.sed Colombia to become the second largest coffee producer in the world, after Brazil. The world was glutted with cheap coffee.

In 1999, coffee prices dropped below $1 a pound for green beans, then sank to 50 cents a pound by 2001-far below the cost of production. Throughout the coffee-growing world, desperate coffee farmers abandoned their trees to look for work elsewhere. Starvation loomed. Families lived under plastic tarps by the roadside. Some daughters resorted to prost.i.tution to support their families. Other former coffee workers made the news when they suffocated in a truck smuggling them into the United States, where they hoped to find work.

The retail price for roasted coffee remained relatively stable, and pressure mounted on enriched roasters and retailers to help the coffee farmers. Procter & Gamble, which owned Folgers (since spun off to Smuckers), contributed $1.5 million to the nonprofit TechnoServe in an effort to aid coffee-growing areas. Starbucks gave $1 million to the Calvert Social Investment Foundations to help coffee farmers improve quality and acquire credit at fair rates. Then, in 2004, Starbucks initiated its own internal verification system, C.A.F.E. Practices (Coffee and Farmer Equity), paying high prices to farms that met environmental, social, and quality measures for its beans.

Fair Trade prices-then pegged at $1.26 a pound for green beans-became a life-saver during the worst bust yet in the ongoing boom-bust coffee cycle. But by definition, Fair Trade coffee only covers smallholders who have joined democratically run cooperatives and who have paid for the certification process. It does not help workers on larger farms. TransFair USA President Paul Rice floated the idea of expanding the Fair Trade certification to estate coffees, but he met vehement objections from cooperatives that felt the market was already too small. On average they could sell only 25 percent of their beans for Fair Trade prices.

The coffee crisis inspired other worthy efforts. In 2001, Steve Gliessman, an environmental studies professor at the University of California in Santa Cruz, and his wife, Robbie Jaffe, an environmental educator, founded the Community Agroecology Network (CAN) to connect coffee cooperatives, researchers, and consumers. Among other things, they promoted direct sales of coffee from Agua Buena, a cooperative in southern Costa Rica, paying the farmers more than Fair Trade prices.

George Howell, the pioneering specialty roaster, started the Cup of Excellence, which has been called the "Oscars for coffee." Along with Susie Spindler, who continued to run the program, Howell sponsored a cupping compet.i.tion in 2000 with international judges to highlight exceptional Brazilian beans. After the cupping and judging, the beans were auctioned on the Internet, often sold to the companies the judges worked for.

Over the ensuing decade, the Cup of Excellence program was held in countries throughout Latin America and then traveled to Africa. It resulted in some remarkable prices and discoveries, including Panama's La Esmerelda geisha geisha beans, grown on trees reputedly descended from a Gesha region of Ethiopia. beans, grown on trees reputedly descended from a Gesha region of Ethiopia.

"We now know that the program benefits more than just the winning farmers and that after several years the entire producing country sees economic development," Spindler said. "By focusing on quality and transparency and by rewarding the individual farmer for his/her hard work, the entire coffee infrastructure changes in support of premium coffees. In essence the coffee connoisseur has ended up developing a stronger personal relations.h.i.+p with the farmer."

The high-end espresso firm illycaffe, based in Trieste, Italy, had already established regional cupping contests for its suppliers, beginning in Brazil in 1991. The company paid up to $30,000 to top winners, while its agronomists helped farmers improve their beans and processing. In Brazil's humid Zona da Mata, that meant helping farmers prevent their beans from over-fermenting by having them processed differently. Instead of the traditional wet or dry methods, they found that by mechanically removing the skin and most of the mucilage, the partially denuded beans could be dried and the remaining mucilage flaked off, resulting in a superior cup. This is known as the semi-washed method, or cereja descascado cereja descascado (CD). (CD).

The coffee crisis that marked the first few years of the twenty-first century finally resolved when prices rose as abandoned or unpruned farms reduced production. Even Vietnamese farmers had cut back. Demand gradually caught up with supply. By the end of 2004, prices for green beans on the C market (the futures price for average arabica beans) finally broke above $1 a pound. But unless another quota system such as the International Coffee Agreement is implemented-an unlikely event-it is inevitable that another devastating price decline will occur.

Fair Trade and Starbucks Fortunately, the issues raised by the coffee crisis are being addressed in many ways. Fair Trade coffee sales (and awareness) have grown phenomenally, from 37 million pounds in 2001 to 200 million pounds worldwide in 2009. Much of that growth occurred in the United States, thanks in large part to TransFair USA. President and CEO Paul Rice, a relentless promoter and effective speaker, went to great pains not to make enemies and to work with anyone, including large corporations. Global Exchange served as an uneasy partner in promoting Fair Trade beans through boycotts and intimidation. It was a good cop-bad cop approach, in which Global Exchange encouraged consumers to pressure larger roasters.

In 1999, when the World Trade Organization met in Seattle, protestors singled out major corporations, including Starbucks. The company was made out to be a corporate villain for its failure to sell any Fair Trade- certified coffee. The company provided the perfect target-a high-profile, seemingly ubiquitous presence, with its Starbucks outlets and readily identifiable mermaid logo.

On national television in late 1999, viewers witnessed protestors throwing rocks through a Starbucks store window in Seattle, then tras.h.i.+ng the espresso machines. A few months later, the company signed a licensing agreement with TransFair USA to sell some Fair Trade beans, though the activists were convinced that the company's action represented a token effort to stave off criticism.

They were probably right. Starbucks already prided itself on paying well for the best beans it could find, and the farmers from whom it bought generally made a decent living and treated their workers relatively well. In 2001 the company introduced coffee-sourcing guidelines developed in partners.h.i.+p with Conservation International. Why should the company jump through all the Fair Trade hoops and pay 10 cents a pound on top of that for certified beans? Besides, at that time Fair Trade beans frequently didn't measure up to Starbucks' quality demands.

Ten years later, Starbucks had changed its att.i.tude. In 2009 it doubled its purchases of Fair Trade beans to 40 million pounds, making it the world's largest buyer of Fair Trade coffee. The company announced with TransFair USA and the Fair Trade Labeling Organization the beginning of a three-year pilot project to expand a small-scale farmer loan program to at least $20 million by 2015.

The three inst.i.tutions would also explore the creation of a single audit system to certify farms qualifying for Fair Trade status as well as the Starbucks C.A.F.E. Practices verification. According to Paul Rice, "C.A.F.E. Practices is a serious, legitimate sustainability standard." Yet few socially conscious coffee drinkers believed that. Many were sure that any private verification scheme must be a form of greenwas.h.i.+ng, an attempt to look good while lacking in meaningful criteria.

There was considerable overlap between C.A.F.E. Practices and Fair Trade criteria (between the two of them, there were some four hundred indicators). Small farmers who qualified for both labels complained that it was a waste of their time and money to do audits twice each year. Now, by combining both into one somewhat longer audit, farmers could save about 30 percent in time and money.

It appeared to be a win-win-win situation for all concerned, beginning with the farmers. For Starbucks, it provided the independent Fair Trade stamp of approval, recognized widely by the general public as a trusted label that meant that 100 percent of the beans were grown and traded ethically. For TransFair, it provided a potentially huge market.

Starbucks examined its sources in 2009 and discovered that 85 percent of the farmers supplying their beans owned family farms with less than twelve hectares of land (about thirty acres). I had always thought that Fair Trade was limited to smallholders that grow their coffee on five hectares or less, but Rice told me that there was some flexibility. "Fair Trade standards don't impose a hard and fast ceiling on land holdings. In our model, it is more about poverty and the relation to hired labor. If you farm twelve hectares with your family and five sons, that's okay."

If a group of small farmers who sold to Starbucks didn't belong to a democratically run cooperative, might the company help them to form one? This was perhaps the most attractive opportunity for the Fair Traders: the chance to extend their movement to millions of unorganized smallholders.

Starbucks also agreed to have its agronomists help launch the Small Farmer Sustainability Initiative to help Fair Trade cooperatives gain better access to working capital, technical a.s.sistance, and training. The technical a.s.sistance component grew out of Starbucks Farmer Support Centers, first opened in San Jose, Costa Rica, in 2004. The company realized that it needed to teach farmers to cup their own roasted beans and to figure out how to modify their growing and processing practices to produce higher quality coffee.

Yet Starbucks still had a long way to go in communicating the importance of Fair Trade. By 2009 Starbucks stores in the United States featured only one blend, Cafe Estima, with the Fair Trade logo. In the fall of 2009, Starbucks in the United Kingdom switched all of its espres...o...b..verages to Fair Trade beans and made the commitment to do so in Europe by March 2010. (The UK had over 90 percent consumer awareness of the Fair Trade label, while only 35 percent of U.S. consumers recognized the label.) Too many certifications and labels were confusing-Rainforest Alliance, Organic, Utz Kapeh Good Inside, Bird-Friendly Shade-Grown, and more-and the different certifications had different objectives and standards. Rainforest Alliance allowed its logo to appear on packages containing only 30 percent of its beans, for instance. Utz Kapeh specialized in larger farms, requiring transparency along with environmental, quality, and social improvements, but without promising any greater price for the beans. Some critics dismissed Utz, which was originally sponsored by Ahold, a large Dutch coffee firm, as an ineffective corporate fig leaf. Yet it really did make a difference in the lives of coffee workers who would never be covered by the Fair Trade certification.

Howard to the Rescue?

In 2001 Howard Schultz stepped aside as Starbucks' CEO, though he continued to monitor the business closely. Under the new head, Orin Smith, Starbucks continued to expand. In 2003 the company bought Seattle's Best Coffee and Torrefazione Italia. In 2005 a new CEO, Jim Donald, continued the expansion by acquiring most of Diedrich Coffee's company-owned stores, which included Coffee People in Oregon. The stock split two-for-one in October 2005 when it hit $56 a share. From $28, the stock reached $40 a share in 2006. At year's end, the company owned 12,400 outlets worldwide, with 8,836 in the United States.

During 2007, however, sales slowed in North America, and the share price began to drift downward. That February, Schultz wrote a memo to Jim Donald and other executives that somehow became public. "Over the past ten years," wrote Schultz, "in order to achieve the growth, development, and scale necessary to go from less than 1,000 stores to 13,000 stores and beyond, we have had to make a series of decisions that, in retrospect, have lead to the watering down of the Starbucks experience." He complained that automatic espresso machines had eliminated "much of the romance and theater." Streamlined store designs "no longer have the soul of the past and reflect a chain of stores vs. the warm feeling of a neighborhood store."

As shares. .h.i.t $17 in January 2008, Schultz took back the reins as president and CEO. On February 23, 2008, Starbucks closed all outlets for over four hours to retrain baristas in proper (and more theatrical) espresso, latte, and cappuccino technique, using new semiautomated machines.

At the March shareholders' meeting, Schultz announced that beans would be ground in-store again to bring back aroma. Starbucks also purchased the company that made the $11,000-per-machine Clover, a gizmo that purportedly brewed a superior individual cup of coffee-the regular coffee equivalent to the creation of espresso. The next month, the company introduced its lighter-roasted Pike Place blend to appeal to those who complained about burnt beans. In May, Starbucks introduced a Loyalty Card offering free refills and Wi-Fi.

The stock price fell anyway, in the midst of the worst financial crisis to hit the United States since the Great Depression, to $13 in July, the month the company announced that it was closing 600 U.S. stores and cutting 1,000 non-retail jobs. At the same time, it closed most of its Australian outlets.

In October 2008, 10,000 Starbucks employees descended on New Orleans for a pep rally and ma.s.sive volunteer clean-up effort for Hurricane Katrina survivors. But the hemorrhaging continued, with the share price dipping below $8 in December 2008. In January 2009 Schultz announced that he was closing three hundred more stores, slas.h.i.+ng 7,000 positions, and himself taking a cut in pay. The stock began a slow climb back up toward the $24 level by April 2010.

In 2009 the company introduced Starbucks VIA, an instant coffee prepared in a unique way that, the company claimed, approximated the taste of its regular coffee. Schultz clearly had his eye on the huge soluble coffee market of England and j.a.pan, as well as compet.i.tion with single-servers such as the K-Cup, Nespresso, Ta.s.simo, or iperEspresso. In a move that appeared to admit that Starbucks was in real trouble, he opened three Seattle stores named for their street location, such as 15th Avenue Coffee and Tea. They sold wine and beer, offered live music, and were designed to look like local coffeehouses.

Despite its problems, Starbucks remained a global behemoth, with plenty of room to expand internationally. As it was cutting stores in the United States, it opened a net seven hundred new outlets overseas. It had stores in fifty countries. The familiar mermaid logo was not about to dive under the waves and disappear.

Who's on Second?

Though there appeared to be no real specialty coffee challenger to Starbucks-Caribou was a distant second in the United States, Second Cup in Canada-there was a ready-made compet.i.tor with 31,000-plus franchises worldwide: McDonald's. The first McCafe opened in Australia in 2003, and the hamburger fast food chain introduced its espresso drinks in the United States in 2009, opening over 14,000 stores to challenge Starbucks. The beans were sourced by Bill McAlpin's La Minita/Distant Lands team to create a specialty all-arabica blend. The same year, Dunkin' Donuts, which had always prided itself on its coffee, conducted blind taste tests supposedly showing that consumers preferred its coffee to Starbucks. It had over 6,000 stores, mostly in the Northeast.

Starbucks spokesmen insisted that there was little to worry about. The demographics and image of the upscale coffeehouse chain didn't appeal to the middle-cla.s.s/blue-collar McDonald's and Dunkin' Donuts consumers, and vice versa. If Starbucks was losing sales, it appeared to be due primarily to people cutting back on their luxuries during the recession.