Fast Growth Won't Hurt Quality, Starbucks Exec Vows

People are thirsty for a good cup of coffee, a fact of life that is fueling phenomenal growth at Seattle-based Starbucks.

Look at the reception granted Starbucks when it opened its first store in New York a few weeks ago. In a town known for cynical consumers, people showed up in such force the first day that you'd think it was Fabio in the store, not just a decent cuppa joe.

"We had to have crowd control at the door," recalls Starbucks Chairman Howard Schultz, 40, a New York native who knows how critical that city can be to success brewed elsewhere. "We couldn't let people in the store without letting people out."

Even more incredible, Schultz says, is that the assault on the Big Apple was accomplished without spending a penny on advertising.

Technically that's true, although Starbucks promoted its opening heavily by participating in gala benefits, by calling on the media and by sending out Mercury Man, a company mascot who meandered Manhattan's streets and subways, offering coffee from an insulated tank on his back.

In fact, Mercury may be an apt metaphor for Starbucks, now moving up the sales charts and into new markets with the speed of the winged messenger of Greek mythology. In its first ranking in The Seattle Times Northwest 100, the company earned the No. 10 position.

Starbucks' growth has been so rapid that store counts (now somewhere near 320) become obsolete almost instantly as the company adds an average of three stores a week.

Until the past few months, Starbucks never entered a new market until it dominated the ones in which it was already established. That is no longer the strategy. In the past few months, it opened in Minneapolis and New York and announced the purchase of Boston-based Coffee Connection and its 23 stores and two airport kiosks.

Starbucks hires 300 people every month. It serves 1.5 million people a week and has met its goal of becoming the largest buyer and roaster of specialty coffee in North America.

And a few weeks ago, Starbucks announced an accelerated rollout of stores, 150 in fiscal 1994 and 165 in fiscal 1995.

That expansion is in addition to impressive growth in its other lines - mail order (up 125 percent in the last fiscal year) and wholesale coffee sales to restaurants, retail stores and institutions.

"The challenge that we have of maintaining that kind of performance and that level of execution is a very difficult one," Schultz says. "When you're growing at this rate, growth has a tendency to cover up a lot of mistakes."

Schultz is well aware that a company growing this quickly may end up doing so at the expense of its brand, its culture and its integrity. He vows that won't be the case here.

"We can't and we won't allow that to happen," Schultz says emphatically. "We would just stop growing."

Analysts say Starbucks is well-positioned to make good on that promise. Schultz, who is chairman, president and chief executive officer, has surrounded himself with seasoned executives culled from the ranks of blue-chip companies such as McDonald's and PepsiCo, and analysts give the company high marks on its planning for growth.

Starbucks recently built a 330,000-square-foot, $13 million roasting plant in Kent and expects to announce plans soon to build a second, much larger plant on the East Coast. To do so, Schultz says Starbucks may return to the financial markets for additional funding on top of the $80 million already raised this year.

One danger to steady growth could be the rising price of green coffee beans. In recent weeks, green coffee prices have soared, largely the result of an agreement among 28 coffee-producing countries to withhold up to 20 percent of their crop from the market to maintain prices.

Although Starbucks has an adequate supply of beans to meet its needs in the foreseeable future, it may eventually have to raise the price of coffee slightly. Schultz says Starbucks will avoid an increase as long as it can.

Starbucks also faces increased competition within the specialty coffee industry, which doubled sales from 1979 to 1989 and is expected to double them again by 1999. The fastest-growing segment of the industry is flavored coffees, which Starbucks refuses to consider selling and views with great disdain.

Still, the coffee company founded on the simple premise that everyone wants a decent cuppa joe seems to be doing just fine, thank you. And most folks figure Starbucks' success will keep on growing, says Ted Lingle, executive director of the Long Beach, Calif.-based Specialty Coffee Association of America.

"If you asked me if, ultimately, it was possible that there could be as many Starbucks as there are McDonald's," Lingle says, "I'd say, `Sure.' "