Jerry Baldwin co-founded Starbucks but sold it in 1987 while keeping Peet's Coffee. He discusses why he let Starbucks go to Howard Schultz and Gordon Bowker, turning down venture capital offers, and how Peet's later competed with the coffee giant it helped create.
Chapters
You were leading both Peet's and Starbucks at the same time?
Well, let's see, the company owned both of those, you know, as well as these other offshoots, some of which were separate companies, some not. So, but Peet's had to succeed. If Peet's didn't succeed, the whole thing went under.
Yeah. And so now at this point, Howard had to leave, correct? To start his Il—
Well, let's see. Howard left, as I recall, in 1986 to do Il Giornale. I was leading up to that. When we started to acquire Peet's, we went into his stores and saw— we had discontinued the coffee bar part of our stores, and we really liked the way it worked at Peet's. And so we decided that we would put it in at Starbucks. Gordon and I—
How was it working at Peet's that it wasn't at Starbucks? What was working at Peet's that wasn't—
Well, we had stopped it because during this frost—
The coffee bar, as in brewing coffee and selling that?
Right. So we had stopped it. We did not serve a cup of coffee at Starbucks.
Just beans.
But we did at Peet's. But we noticed at Starbucks that we liked what the coffee bars were like. So we built a store in 1984, kind of simultaneous. in Seattle, simultaneous with the acquisition, that had a coffee bar in it. That was the first Starbucks store with an espresso machine, which Howard and Gordon were certainly key developers.
Were you not as big of a fan of the espresso bar, or did you—
Oh, yeah. No, it was fine. No, we all wanted to do the espresso bars. We all wanted to do bars in the stores. Espresso was beginning at that time. So it wasn't a big discussion. I mean, Howard may well have been inspired by his trip to Italian coffee bars, but—
But it was working at Peet's.
It was working at Peet's. It was coming to Starbucks.
And then, is this around the time when Gordon exited the company as well?
It was a little bit later. Well, actually, not long after Howard left, Gordon decided he wanted to sell. Mostly for personal things, health, family. He and his wife had lost a set of twins and— And he had read a book. It was just time to take some time off for him. So I went looking for who my next partner was going to be. I certainly didn't have the money to buy him out. And after talking to investment bankers and VCs, I decided that it wasn't really what I wanted to do. Basically, the offer from VCs— we had a couple of different ones.
You were getting offers from VCs at this point?
I'm sorry?
You were getting offers from venture capitalists at this point?
Yeah, when I was looking for the next thing. If you look at the unit economics of a coffee store at that time, they were very favorable. So we had one offer led by American Venture Partners, who were really retail specialists at that time, and then another from— whoo, I can't remember who led that. First Interstate Capital was in it. But in any case, they both, some more directly than others, said, okay, we'll give you both big checks. Gordon, you retire. Jerry, you retire.
I'm retired.
They didn't say it in this way, but don't get in the way, okay? And we'll hire a big-time guy and we'll roll this sucker out and we'll all get rich. And I just said, man, geez, I'm, I don't know, 44 years old or something. Do I want to retire? I don't think so. So Jane, my wife, and I said— I had the idea, so why don't we sell one of these companies and focus on the other?
So this is where you decided to sell one brand and keep the other one?
Right. And, but Jane swears it was her idea that we keep Peet's and sell Starbucks, even though we had kids in high school in Seattle. It wasn't going to be easy. But in any case, that's what I wanted to do also.
Immediately you knew that Peet's was the right decision for you?
Yeah. Well, no matter how good Starbucks could get, it would never be Peet's.
As far as coffee goes or the whole brand as a—
Well, I just— well, as far as coffee goes. I mean, branding is a different thing. I mean, I don't think Peet's was a particularly strong name, but it would be idiotic to change it.
And so once you've decided now to sell the company, what happens?
So I called one of Howard's investors, and, you know, the chief of staff and I had lunch, and I said, well, you know, I'm thinking about selling Starbucks. And he said, okay, I'll get back to you. And then, of course, they immediately got Howard involved.
Because he wanted to buy Howard. Howard wanted to buy Starbucks, correct?
Well, it was a stronger name. It was established in the community. Roasting came with it, which they clearly had to face. I mean, it was a natural fit.
And on that day where all the paperwork was signed, Can you take us back to that day or what your feelings were?
Well, it was, you know, signing the deals are always anticlimactic. You know, everybody gets in the room. Howard gave me a pen, a nice fountain pen, which I used to use all the time.
A Starbucks pen, or was it just a nice pen?
Well, no, it was a fountain pen, which I used in those times. It was, no, Gordon gave me that one. I wonder what Howard gave me. A Waterman. And so, I mean, we signed it, shook hands.
No animosity or anything?
Oh, no, not at all.
And then once you take over Peet's, what does life become like for you?
Well, I was— I mean, it was fabulous. You know, I had— I took, you know, Jim Reynolds, who took care of coffee and, you know, general manager, and my head of HR operations, Judy Davis, stayed. And moved to the Bay Area. So I really had a strong staff. I kept an office in Seattle, kept the kids in school in Seattle, and on it went.
So from building Starbucks all the way up to now, what is your position at Peet's?
President, you know, and majority owner. But after buying Gordon out, I had, I owned like, I don't know, 55 or 60% of the remaining company.
And then it just became planning for the future of Peet's, I guess?
Yeah, well, we, you know, with the money, we built a new roasting plant and opened 2 stores and just kept going, you know, kind of a store a year, organic growth. I mean, Starbucks being so aggressive, changed the business somewhat. They're coming into Northern California, changed it a little bit. It was kind of— it was really nice before. Somebody got to a neighborhood first, you just said, okay, you got it. But Starbucks wasn't quite that nice.
Yeah, they were very aggressive.
They'd open across the street. So the whole thing became more competitive, and there was some fallout for sure. But the other thing was Starbucks IPO. So everyone's thinking, oh, well, if Starbucks is worth this, then we must be worth this. So what are you going to do, Jerry?
Did you guys eventually go towards the IPO?
Well, eventually, but it became clear that we would have to keep— because we weren't worth that much in my view, whatever the extrapolation was. So we had to start paying attention to that. And had to defend ourselves. Starbucks started in San Francisco, I think, in '90— I'm pretty sure it was '92. I believe that was the same year they went public. So in '92 and '93, we opened quite a few stores, but we'll congratulate ourselves for opening them within our perimeter. Coffee Connection on the East Coast tried to branch out. I mean, he's in Boston, but he opened a store in Great Neck, New York, which to me was wacky because you're stretching supply, you're stretching management. So.
