Dale Dietrich
friedman: always supply your comparative advantage
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The Intertwined History of Peet’s and Starbucks

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Few people realize that the owners of Peet’s once owned Starbucks and that the Starbucks we know today was created when Howard Shultz (Starbucks current Chairman, then a disgruntled executive) bought out the original Starbucks owners (who then purchased Peet’s) after a dispute as to whether or not to include espresso bars in their coffee bean stores.

I fell in love with Peet’s coffee when I lived in Silicon Valley from 1998 to 2002. To this day I have a couple pounds mail ordered to Canada every few weeks.  Over many cups of Peet’s coffee, I took the following notes as I read Howard Shultz’s book – Pour Your Heart Into it: How Starbucks Built a Company One Cup at a Time. It’s quite the interesting, intertwined history.

  • image Alfred Peet (pictured on the right) formed Peet’s in Berkley, California in 1966. (click here for more info on Alfred Peet)
  • Originally Peet’s locations just sold beans – no drip coffee, latte’s etc.
  • While attending college at Berkley, a Starbucks Founder (I forget his name, let’s call him "SF1") strolled by and bought some beans. SF1, a native of Seattle, fell in love with Peet’s beans.
  • SF1 returned home after college and continued to purchase coffee from Peet’s by mail order (as I do today).
  • SF1 enjoyed the beans so much that he decided to open a similar bean selling store, Starbucks, in Seattle with Starbucks Founder II ("SF2"). SF2 had ran a local Seattle Coffee shop prior to that point. [I note from this Wikipedia entry on Starbucks that there were three founders, Jerry Baldwin, Zev Siegel and Gordon Bowker. I’m not sure which of these three were SF1 and SF2]

  • Starbucks beans were originally purchased, pre-roasted, from Peet’s.
  • More Starbucks stores were opened over several years. At some point Starbucks began roasting their own beans. But the green beans were still sourced from Peet’s for the first decade.
  • image In early 80′s Howard Shultz (pictured to the right) was selling espresso machines from New York. He noticed that a ton of machines were being ordered from these Starbucks stores in Seattle.
  • He decided to find out why and checked them out during his next vacation. He fell in love with the concept and, in 1982, convinced the Starbucks founders to hire him as Director of Marketing.
  • Schultz set about expanding Starbucks (still beans only – no liquid coffee being sold)
  • Subsequently he went to a trade show in Milan Italy. He noticed how Italians loved their espresso coffee bars, how social they are.
  • Schultz tried to convince SF1 & SF2 to open espresso bars in their Starbucks stores. At first they said no, but after relentless nagging, they allowed Schultz to try it out in one store.
  • About the same time Peet’s and Starbucks decided to merge their operations and buy out Alfred Peet.
  • The espresso bar in the one Starbucks location was a hit. Nonetheless SF1 and SF2 still didn’t want to expand the concept.
  • Starbucks bought out Alfred Peet and, for a time, Starbucks owns both Peet’s and Starbucks. All Peet’s locations were, for a time, folded into Starbucks.
  • Upset that neither Peet nor the Starbucks founders wanted to add espresso bars into other locations, in 1985 Howard Schultz quit Starbucks and started his own espresso bar chain called Il Giornola.
  • A year later SF1 and SF2 decided to sell off the Starbucks brand and retail locations, and retain sole ownership of the Peet’s brand.
  • Schultz saw an opportunity, raised venture capital, bought the Starbucks brand and locations and merged them with the Il Giornola, each location of which was rebranded with the Starbucks name. 
  • Shultz put espresso bars in every Starbucks store.
  • The former Peet’s stores were spun out and renamed Peet’s.
  • The two companies signed a 5 year non-compete whereby Schultz/Starbucks was precluded from opening coffee shops in the San Francisco Bay Area for five years. The Peet’s chain was to have exclusive rights in that market during that period. Interestingly, the Peet’s location on Chestnut Street in San Francisco’s Marina district was a Starbucks for its first two weeks. But, under the new arrangement it was spun out and became a Peet’s store – as it remains today.
  • Five years later Peet’s hadn’t grown much while Starbucks had expanded into Chicago, New York, L.A. and other places. When the five year period was up Starbucks expanded into San Francisco too.
  • Somewhere along the line, Peet’s owners (the Starbucks Founders) saw the light and started selling liquid coffee as well – Thank God for that!!!!
  • Starbucks ultimately became the North American, then global, phenomena that we all know.
  • To this day Peet’s remains a largely a regional player though it has expanded to a few other U.S. states. It still makes the best chain-store coffee I’ve ever had – far surpassing the coffee made available at Starbucks.
  • While Peet’s trundles along, slowly expanding its retail stores, primarily in California, it continues to focus on its mail order business.
  • Starbucks went public and conquered the world.
  • Peet’s went public in October 2000 – and has conquered my taste buds.

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  • Anonymous

    Great story. I have no idea that Starbucks coffee is once purchased by Peet’s coffee.

  • Anonymous

    Thank you for this very interesting article. Now I know that Starbucks doesn’t start as a individual company because Peet’s coffee once purchased Starbucks.

  • Anonymous

    Being a coffee-fan, this information was really interesting.

  • Anonymous

    Wow, interesting. I had no idea. But let’s fold in some Seattle’s Best into the story as well!

  • Anonymous

    Hey, thanks for that. I’m not a big coffee drinker, and didn’t know about Peet’s. But that is still pretty interesting! -Cheers

  • Anonymous

    Great story. I have no idea that Starbucks coffee is once purchased by Peet’s coffee.

  • Anonymous

    Thank you for this very interesting article. Now I know that Starbucks doesn’t start as a individual company because Peet’s coffee once purchased Starbucks.

  • Anonymous

    Being a coffee-fan, this information was really interesting.

  • Anonymous

    Wow, interesting. I had no idea. But let’s fold in some Seattle’s Best into the story as well!

  • Anonymous

    Hey, thanks for that. I’m not a big coffee drinker, and didn’t know about Peet’s. But that is still pretty interesting! -Cheers

  • Glenn

    Hey, thanks for that. I'm not a big coffee drinker, and didn't know about Peet's. But that is still pretty interesting! -Cheers

  • http://www.zatznotfunny.com Dave Zatz

    Wow, interesting. I had no idea. But let's fold in some Seattle's Best into the story as well!

  • http://www.plaxo.com/profile/show/158916226800?pk=5ff71772ee26bd5a9fc137e3f8fb54c07b7ec9f2 Yuri Mizyuk

    Being a coffee-fan, this information was really interesting.

  • Pingback: Would you rather be Peet’s or Starbucks? « The Art of the Business

  • http://coffeeofthemonthclub.net/ Coffee of the Month Club

    Thank you for this very interesting article. Now I know that Starbucks doesn't start as a individual company because Peet's coffee once purchased Starbucks.

  • http://bestcoffeeclubs.com/blog/ Coffee of the Month Clubs

    Great story. I have no idea that Starbucks coffee is once purchased by Peet's coffee.

  • Coffee of the Month Clubs

    Great story. I have no idea that Starbucks coffee is once purchased by Peet’s coffee.

  • Anonymous

    Hello, My name is Mark Peet. I would love to have a taste of my namesake coffee.
    Is it really that good….?
    Email me at – markpeet45@yahoo.co.uk