Features February 09, 2012, 6:00 PM EST
Grounds Zero: A Starbucks-Free Italy
Why hasn't Howard Schultz brought his coffee giant to the land that inspired it?If it weren’t for Italy, Starbucks (SBUX) might not exist. After all, it was on a business trip to Milan in 1983 that Howard Schultz had the revelation on which he built his global empire. At the time, Starbucks was a coffee roaster—it didn’t own a single cafe—and Schultz was its marketing director. In a book published after the company had become an international behemoth, Schultz described how he set out one morning, sipping espressos at the cafes near his hotel. By afternoon he had sampled his way to the Piazza del Duomo, home to Milan’s famous Gothic cathedral. The large square was “almost literally lined” with coffee shops, he wrote. The air was alive with the sound of opera and the smell of roasting chestnuts. Schultz noted “the light banter of political debate and the chatter of kids in school uniforms” and watched as retirees and mothers with children made small talk with the baristas behind the counters.
It was at this point that Schultz, no doubt heavily caffeinated, was seized by inspiration. Most Americans were still drinking their coffee at diners, in restaurants, or at the kitchen table; Italians had made cafes part of their community. Coffee didn’t have to be just a drink, he realized. It could be an experience. The opportunity was enormous, and Starbucks, by limiting itself to roasting, was in danger of missing it. “It was like an epiphany,” Schultz recalled in his book. “It was so immediate and physical that I was shaking.”
Nearly 30 years later, the insights Schultz brought home have not only spread deep into American culture but gained millions of adherents worldwide. From the first few cafes that Schultz opened in Seattle, the chain has expanded into some 11,000 locations in the U.S. The company, which declined to comment for this article, has 925 outlets in Japan, 730 in the U.K., 314 in Mexico. Starbucks has stores in, among other places, Spain, France, Germany, Switzerland, Austria, Greece, Turkey, Lebanon, Jordan, Egypt, and Saudi Arabia. On Jan. 30, Starbucks announced that it will open its first outlet in India later this year.
But there’s no Starbucks in the Piazza del Duomo, the site of Schultz’s epiphany. Nor is there an outlet anywhere else in Milan, or indeed, in all of Italy. At a time when Starbucks views global expansion as the key to future growth—and when it is virtually impossible to walk through a major European city without stumbling onto a Starbucks—the company has no presence whatsoever in the country that inspired its founding.
This was not Howard Schultz’s plan. “I am interested eventually in Italy and France,” he said in 2002, as the company was in the first stages of its international expansion. Two years later, Starbucks had branches in Paris and Lyon—but not in Rome or Milan. “We want to go to Italy,” Schultz told Kai Ryssdal, host of public radio’s Marketplace, in 2006. “We’re just—we haven’t looked at it as seriously as we had other markets, but at some point we will go.”
“You afraid a little bit?” asked Ryssdal.
“I don’t think we’re afraid,” said Schultz. “I just don’t think we’re—it has not been as high on the radar because other markets are bigger in scope and offer more potential, but we will go to Italy.”
Six years later, Italy remains the mountain Schultz has yet to climb. The country might not mean much from a pure business perspective; while Italians love their coffee, the market for it is famously crowded and fragmented. But what Italy does represent is the height of coffee culture, the gold standard against which all others are measured. As such, the country represents a reputational risk. There’s only so long the company can sit on the sidelines before Ryssdal’s question to Schultz will start to resonate. When it comes to competing in Italy, what is Starbucks afraid of?
Schultz doesn’t mention which cafes he visited on his trip in 1983, but he would have been hard-pressed to miss Caffè Miani. The Milan institution occupies a corner spot at the entrance to the glass-vaulted galleria that connects the Piazza del Duomo with the La Scala opera house. Its floors are a marble chessboard of brown and white. An art nouveau mosaic of jungle vines and tropical birds runs over the large mirrors behind the bar, above which hangs an antique clock. The baristas—in Italy a cafe is called a bar, and barista simply means bartender—wear white shirts and bowties. In the afternoon they stock the countertop with bowls of olives and pickles sprinkled with ice to keep them cool.
The cafe’s owner, Orlando Chiari, a 78-year-old former stock exchange worker, has the mobile phone numbers of top executives at Italy’s most important coffee companies and the confidence to dial them in the middle of an interview. But when I ask him if he’s ever visited one of the Seattle-based chain’s locations, he answers me with an empty look.
“Starbush?” he says. “No. I’ve never even heard of it.”
It takes a couple of beats to realize he isn’t joking. When the concept is explained, he says, “Interesting. But does it exist in Italy?”
At Caffè Miani, as in all Italian cafes, the customer pays first at the register, just like in a Starbucks. But the similarities stop there. In the U.S., most restaurants, including Starbucks, fill an espresso cup nearly to the top. In Italy, a typical serving rises only about a finger’s width from the bottom. Cappuccinos are strictly for breakfast (or a brief window in mid-afternoon). Ordering one after a heavy meal is the sure sign of a tourist—not considered rude so much as inexplicable. “A cappuccino is considered almost like something that you’d eat,” says Chiari.
In 1988, Chiari took a trip to Denver to a meeting of the Lions Clubs International, along with seven fellow grandees. They’d often order only a single cup of coffee, he told me, and divide it. “There was coffee enough for eight people,” he says.
Unlike in the U.S., where coffee drinking evolved around the steaming mug of drip coffee, in Italy the culture was shaped by the espresso machine. First patented in 1901, the early models consisted of a vertical cylinder, in which water was kept near the boiling point and released through twin valves. Pressure from the steam would push the water through the grounds and into a coffee cup. Later versions added hand levers, pumps, and heat-transfer systems that warmed the water on demand, but the concept remained the same: a hot, fresh drink that could be prepared in less than half a minute and—because coffee quickly loses its flavor—consumed just as fast.
Forget soft couches and easy-listening music. Italians drink coffee the way New Yorkers once took cigarette breaks, as a brief interlude in a hectic workday. Chiari sells at least 1,000 cups of coffee a day, mostly in three short bursts, during which customers press and jostle against the bar. (Ordering it “to go” is unthinkable.) The first rush is at breakfast, on the way to work. There’s another at 10 a.m., when Italians break for espresso, and one more after lunch. A similar rhythm plays out in the nearly 140,000 bars and cafes across the country.
Not only do Italians drink their coffee differently, in many cases they drink a different type of coffee. Part of the legacy of the early espresso machines is that Italians, particularly those living in the south, prefer a stronger, more astringent espresso. Starbucks prides itself on using expensive arabica coffee beans with complex flavors. In Italy, because of cost and market demand, many roasters mix in significant quantities of bitter robusta beans. “The coffee leaves you with a strong, acidic, somewhat sour taste on the side of your tongue,” Schultz wrote to his staff in a report after a 2008 visit to Italy. “This taste was unpleasant and disagreeable.” He added: “For many years now, we have been a respectful inheritor of the Italian coffee culture. We have built our business honoring the very things we saw and experienced. And, in some cases, I am humbled to say, we have improved it.”
For many Italians, however, arabica beans aren’t superior, they’re just different—and not necessarily in a good way. “If I were to open a bar in Naples with 100 percent arabica, tomorrow I’d be closed,” says Gianluca Brizi, who trains baristas for Planet One, an Italian cafe and restaurant supplier. In northern Italy, coffee drinkers do prefer arabica, but they also favor a lighter roast than Starbucks tends to offer, believing it better brings out the flavor of the beans. In 2007, Brizi traveled to Madrid to do a “little bit of industrial espionage.” He spent a week visiting the 21 Starbucks outlets then in the Spanish capital. His conclusion: “Starbucks is a good concept.” The company is masterful at finding profitable locations, streamlining its production process, and ably displaying its merchandise. “What’s missing is the quality of the product,” Brizi says.
In Italy, Starbucks finds itself on the knife-edge of globalization. The company may have taught tea-drinking cultures like China and Japan how to appreciate a cup of coffee. But in the birthplace of the cappuccino, Schultz confronts a more daunting challenge. Can a company succeed in a place where its product is available on every corner, where consumers remain wedded to a culture that’s all their own? Is it possible for an international brand to repackage a local tradition to the very people who invented it?
There’s reason to believe the answer could be “si.” One thing that visitors to Italy notice is that there are few places where you’d feel comfortable sitting with a book or a laptop. What they don’t often think about is that until Starbucks came along, the U.S. wasn’t any different. What Schultz did was take the Italian coffee tradition, fly it across the Atlantic, and infuse it with a Seattle approach to leisure. As a result, for many of its customers, Starbucks isn’t really in the business of selling coffee. Instead, it’s offering a place to hang out that happens to sell coffee. And the market for that in Italy—for a home outside the home, for an office away from the boss, for a place to sit and chat and read and while the day away—is very open indeed.
You can find proof just across the piazza from Caffè Miani where, since 1996, the area’s most prime location—a storefront with an unobstructed view of the cathedral’s facade—has been occupied by a McDonald’s (MCD). And for the last four years, the branch has also been home to what the company calls a McCafé.
When the fast-food giant first opened an outlet in Italy in 1986, the reaction sparked a global countermovement: the invention of Slow Food as an effort to preserve local cuisine and regional diversity. Today, McDonald’s has 411 locations in the country, and in 116 of those there is an Italian-style coffee bar, serving espressos, cappuccinos, and a range of pastries and pies.
McCafés have become the fastest growing part of the company’s Italian business. According to a 2010 company survey, one in five first-time McCafé visitors had never entered a McDonald’s before. Unlike in an Italian bar, where the tradition is to slam your shot of espresso and leave, McDonald’s encourages its clients to linger. Italians may be picky about their coffee, but they’re wide open for a company that offers them a new, slower way to experience it.
The longer Starbucks stays out of Italy, the more competition it may face from imitators who have capitalized on its absence. Just half a block down the street from the Caffè Miani and the flagship McCafé sits another establishment, called Arnold Coffee. Occupying four floors of a historic building, it has an open stairwell and mirrored back wall. On the day I visited, kids were studying upstairs around a long wooden table. A couple of friends huddled over a laptop, and clusters of young women sat and chatted. The menu features American drip coffee, shakes, and caramel macchiatos.
The firm’s founders, Andrea Comelli and Alfio Bardolla, explicitly modeled their business on Starbucks—so much so that soon after they opened their first location, in 2009, they received a notice from the coffee giant’s lawyers. Arnold Coffee’s logo—which included the company name in a double circle—was in violation of the Starbucks trademark. After some back and forth, attorneys for Starbucks presented the duo with 10 logos and asked them to pick their favorite. They chose a steaming mug of coffee set against a black circle.
Arnold Coffee has positioned itself as an alternative to the Italian coffee bar. It caters to young Italians used to spending time abroad, where the best option for reading a book, checking e-mail, or just catching your breath is a Starbucks. At one point, I watched a customer linger by the milk-and-sugar station, pick out a sugar packet, look at the logo, and place it in her purse. According to Comelli, his customers love the paper cups and the cardboard coffee sleeves, an item he was originally unable to source in Italy and had to order from the U.K.
Arnold Coffee has opened six locations, five in Milan and one in the airport in Verona. According to Bardolla, the company’s coffee shops are expected to break even after a couple of years. Last year, sales in the outlet I visited were up 44 percent. “We don’t see any competition,” says Comelli. “When the other bars are empty, that’s when we’re full.” The two partners plan to open another 44 locations in the next five years and then sell.
The last question I asked Comelli was whether he could remember the first time he drank an American coffee. I recalled Orlando Chiari’s verdict, and I was curious to hear about his. Comelli immediately told me about a trip to New York in 2001, when he bought a cup at Dunkin’ Donuts (DNKN). Unsure how to drink it, he sipped through the stirring straw, scalded his tongue, and threw the beverage away. “I couldn’t believe how hot it was,” he says. Looking around his cafe, he seemed taken aback by the memory. “Now,” he says, “I drink more American coffee than espresso.” Note to Howard Schultz: Italy is ready when you are.
Faris is a Bloomberg Businessweek contributor.