How a Seattle Company Revolutionized Global Coffee Consumption

By on January 31, 2017

Written by:  Dave Ward 

The Incredible Starbucks Story

When its Initial Public Offering (IPO) was executed in 1992, the Starbucks brand name was still relatively obscure; with only 165 locations in North America. Yet the story begins some 21 years previous, with the first store opening in Seattle’s Pike Place Market in 1971. This, however, was by no means a place for lounging around, drinking coffee, and socializing. Since the founders, Gordon Bowker, Zev Siegl and Jerry Baldwin, were in the business of selling bags of freshly roasted coffee beans, rather than cups of espresso.

As former students of the University of San Francisco,  these three friends were inspired by Alfred Peet.  A Dutch-American entrepreneur, who founded Peet’s Coffee and Teaa coffee roasting and retail business, based in the San Francisco bay area.

After undergoing initial training in the art of European style coffee roasting by their friend Albert; the threesome launched their own startup venture  After pooling together $8000.00 of their own money, they managed to secure the remainder of the required capital through loans. Thus with Peet’s blessing).they became purveyors of high-quality coffee beans. The name Starbucks was chosen in honour of the coffee-loving first mate in Herman Melville’s novel Moby Dick. Jerry Baldwin one of the original founders is generally credited as being the one to come up with the idea for this name. Their mission statement simply read as follows:

”To sell freshly roasted coffee beans.”

The company grew rapidly and within nine years, they were the biggest traders in coffee beans throughout the entire state of Washington. This caught the attention of Howard Schultz who at the time, was the manager of their filter supplying company Hammarplast.  In 1982 Schultz, persuaded the owners to hire him; as Director of Retail Operations and Marketing. From thereon. Schultz ‘s creative vision and exceptional business acumen has been the driving force behind this incredible success story. It was at this time, Starbucks began providing high-quality coffee to top notch restaurants and high-class espresso bars.


The Vision Manifests

In 1983 Schultz took a trip to Milan, where he represented the company at an international trade show. As he walked the cobbled streets of Italy’s main industrial and financial capital–Schultz was exposed to a cultural awakening. He began to visualize a chain of high-quality coffee houses all across America. Places where people could meet and enjoy a cup of the finest espresso or perhaps a cappuccino.  On returning to the US, he shared his idea with the founders, who unfortunately did not embrace his vision. However, In an attempt to appease Schultz, Jerry Baldwin allowed him to test out the concept in the form of a small espresso bar, located in the corner of one of the stores. Hence, this was the place where the first Starbucks latte was served and proved to be immensely popular.  

Despite the success of this experiment, the founders were still adamant that Starbucks should continue to focus on selling coffee beans. Although deeply disappointed, Schultz refused to abandon his vision, Being unable to convince the owners that diversifying into the coffee shop business was the right direction for Starbucks–  he decided to leave the company, in order to pursue his dream.


The Italian Coffee Culture Howard Schultz Wanted to Bring to America

In 1986 Schultz opened his first coffee house, naming it Il Giornale (The Daily),  which also happens to be the name of Italy’s largest newspaper. According to an interview, he did with Business Insider.  In order to raise the required $1.6 million for his startup, Schultz spent an entire year trying to raise the required $1.6 million for his startup. He approached 242 potential investors by talking to investors; out of the 242 candidates he approached, 217 them rejected his proposal.

The Il Giornale coffee house chain proved to be such a success, that when Starbucks came up for sale the following year– Schultz was able to purchase all of its assets outright. He did this with the full backing of local investors while securing his own position as Starbucks CEO. The company was renamed “The Starbucks Corporation”, and the business expanded into Chicago and Vancouver, Canada that same year; creating a total of 17 stores.

In 1990 the Starbucks Corporation released its mission statement as follows:

Our mission: to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.”

As previously mentioned the company became public in 1992, under the ticker name NASDAQ SBUX.  Following this, the company surpassed its own goal by opening one new coffee shop every work day. This resulted in a culmination of 3000 locations, by the Year 2000, whilst at the same time expanding its headquarters in Seattle.


Coffee Ethics

Unfortunately, coffee production has been plagued with a long history of exploitation; going back as far as the Colonial Slavery Days. Although Starbucks is well known for boasting its commitment to fair trade. It was not until the year 2000 that Starbucks established a licensing agreement,  to sell  Fair Trade Coffee in the USA and Canada. Yet this only came about after a long boycott campaign by the Organic Consumer Association, lasting many years.

In recent times, Starbucks has suffered a flurry of bad press reports, with multiple complaints being filed against them, One of the more serious cases pertains to tax avoidance in the UK, which we discuss later.  Notwithstanding, a detailed discussion of every individual case brought against Starbucks, is beyond the scope of this article.

For those wishing to broaden their knowledge in this area, we recommend the reader carry out their own independent research.  As a starting point, we suggest taking a look at the Starbucks 2015 Global Responsibility Report .which can be downloaded for free here. From thereon the reader can conduct a comparative analysis, and draw their own conclusions.


Gourmet Grab and Go

By exposing America to the Italian coffee culture, Schultz succeeded in changing the attitudes of mainstream coffee drinkers. By persuading them that coffee is to be regarded as an experience and not merely a commodity.  

Howbeit,  there is a common element in the equation of Starbuck’s phenomenal success, which can be identified across many other wealthy American enterprises–Which is the ability to recreate the cultural phenomenon of another nation, whilst adding a uniquely American twist.

As an example consider the humble English Muffin, a simple yeasted flatbread which is cooked on a griddle–in its original form it is simply toasted, buttered, and served as a breakfast item; Whereas its American counterpart is loaded with all kinds of fruits and spices; such as blueberries or raisins and cinnamon. Some are even sold in miniature form, and packed in fancy gift boxes along with fruit preserves. The English Muffin has also become the basis for many popular breakfast sandwiches, such as the  McDonald’s Egg McMuffin.

Interestingly; many of these so called Americanized products have been successfully exported back to their country of origin. Take a walk through any major British supermarket these days, and you are sure to come across English Muffins sold in a variety of forms. Such as whole wheat and multigrain, cranberry, apple with cinnamon, and raisin with cinnamon to name but a few.

In the case of Starbucks, it’s high-quality espresso coffee, fused with the American fast food concept, that gives the enterprise it’s distinct American twist, on gourmet style coffee. Early morning you can see people lining up, to purchase their espressos, lattes and other signature drinks on their daily commute to work.  

However, it was not until the launching of the first Starbucks Drive-thru in California in 1984, that the coffee house chain came into its own, as a serious contender in the American breakfast market. In addition, Starbucks offers many items with a seasonal flare, such as the Pumpkin Latte available around November. At the same time, a range of  Christmas treats such as the Eggnog Latte and the Christmas Cookie Latte starts to appear on the menu.These innovative creations provide new and exciting ways for us to enjoy our coffee.


Coasting the Crest of  Starbuck’s Success

Over the past two decades, Starbucks has seen explosive competition from rival coffee chains– here we present just a handful of the most successful global alternatives to Starbucks:



Coincidentally, this company was founded in the same year as Starbucks by brothers, Sergio and Bruno Costa in London. As is the case with Starbucks, Costas started out as a coffee merchant, supplying catering establishments and Italian coffee shops with high-grade coffee.

In 1995  the company became a wholly owned subsidiary of Whitbread PLC, the UK’s largest hospitality company. Since then it has grown into the largest coffee house chain in the U.K, second only to Starbucks globally. Currently, Costas owns 2,861 outlets across 30 different countries, 1,755 of which are based in the UK.

According to an article published in the British newspaper The Daily Mail in 2014, Costas is opening new shops across the UK, at the rate of 3 per week, and aims to reach 2,200 stores by 2018.


Caffe Nero

Also based in the UK, Caffe Nero (Italian for Black Coffee) was established in London in 1990, by founder Ian Semp. Originally it was a restaurant, not a coffee shop until the company was taken over by Paladin in 1997–when they recreated the brand name for a chain of five coffee shops, in South Kensington.

In 2001 the company was listed on the London Stock Exchange under the symbol CFN, but was taken back into private ownership in 2007, by Dr. Gerry Ford–the co-founder of Paladin, who is now the Caffe Nero’s current CEO. The company currently has 600 outlets in the UK; with shops in Cyprus, Turkey, the Middle East, Poland, Ireland, and the USA.


Dunkin’ Donuts

Established as a single restaurant in Quincy MA in 1948, the original name “Open Kettle” was subsequently changed to “Kettle Donuts” a year later.  The company finally settled on its current corporate name of “Dunkin Donuts” In 1950. Founder William Rosenberg first conceived the idea, when he used to sell food to factories and building sites. Rosenberg noticed the two most popular items on the menu were doughnuts and coffee.

In 1995 the company shifted focus from donuts to coffee and is now considered to be one of Starbucks greatest rivals, with over 11,000 outlets in 33 countries. Yet even though Dunkin Donuts was founded 20 years earlier, Starbucks today is a much larger company.

According to an article published in Investopedia Starbucks generated $16.4 billion in sales revenue for 2014, while in comparison the Dunkin’ Brand reported sales of just $749 million. Both companies offer similar menu items.



In the 70’s and 80’s; Mcdonald’s used to serve a questionable brown liquid, described on their menu as coffee–  though it was something-something that could hardly be considered gourmet.  

But all of this changed in 1993, when franchisee Anne Bell from Melbourne Australia launched the McCafe concept.  A chain of coffee houses aimed to meet the growing demand for high-quality espressos. She did this with the help of the late Charlie Bell, who was the  CEO of McDonald’s at the time.

Reports indicated that McCafe outlets generated 15% more revenue than a conventional McDonald’s. In 2001 the group opened their first McCafe outlet in Chicago USA, and within 10 years had become the largest coffee shop brand name in Australia and New Zealand.

In 2011, McDonald’s Canada launched McCafe nationwide. with the addition of specialty coffees; on the menu of participating McDonalds outlets. Canada’s other well known Starbuck’s competitors include Timothy’s, Second Cup and Coffee Time.


Bleak Times

In 2008, Starbucks like many other successful multi-nationals suffered the consequences of a corrupt financial industry. Hence on July 2nd, 2008 they announced that they were closing 600 stores worldwide, which was an increased figure of 500 from their original plan,

During this time, many customers were no longer prepared to pay a premium for their early morning caffeine fix and were now turning to cheaper independent coffee houses. By March of 2008, profits had dropped by a massive 28% from the previous year.  In order to survive Starbucks needed to take drastic action.

After an absence of 8 years as the company CEO, Howard Schultz returned to take over from Jim McDonald–in a bid to turn the company’s fortune around.  Schultz was quick to notice that in addition to the economic downturn. His original vision of creating a unique and appealing customer experience had been overshadowed by rapid expansion.


A Remarkable Recovery

Schultz’s comeback plan was to reconnect once again with the customer, through the power of Social Media–hence in 2008, the My Starbucks Idea program was launched. A crowdsourcing platform was developed, consisting of Starbucks own website; along with several prominent social media platforms. These included  Facebook, Twitter, Google Plus, Pinterest, and Youtube.

The project which initially generated over 70.00 ideas from consumers, proved to be a roaring success. Such that by the end of 2015 this figure had increased to an excess of 190,00, of which around 300 have been implemented by Starbucks.

As part of its initiative to reconnect with people, on February 28th, 2008 Starbucks closed all of its US stores for a 3-hour training session. “ In an article published on the NBC News website, Schultz stated the shutdown was “A way to re-energize its 135,000 employees and provide some re-education in the art of espresso.”


Record Profits

In 2014 Starbucks profits in the UK jumped to a staggering 32 million Great British Pounds (GBP) the equivalent of  $39.4 million dollars. This was its first official profit since the company arrived in the UK in 1998, despite the fact that sales fell from  $408.7 million GBP, to $406.5 million.

Kris Engskov who is the head of Starbucks for Europe, Middle East, and Africa explains, how the company was able to increase its profits by growing like for like sales in its owned stores–as well as cutting $16.5m GBP in costs by aggressively renegotiating its leases.

In early November 2016,  Starbucks reported overall record profits, with an annual operating income of $2.4 billion dollars. This was mainly attributed to their most profitable sector “The Americas where profits grew by 11%.  Although profits in the fourth quarter fell short of expectations– this has been attributed for the most part to the uncertainty of global markets, brought about by the 2016 US Presidential Election.

According to the Financial Times,after declaring its annual profits for 2016, Starbucks shares (which had dropped by 11% that year), rose by 2% to $52.75. The company expects adjusted earnings for 2017 to be in the range of $2.12-2.14 per share.


Tax Controversy

In a report published by Reuters; taxes filed by Starbucks have shown that since opening in the UK in 1998– it has generated around $3.8 billion GBP in coffee sales, and opened 735 outlets. Yet the total paid out in taxes amounts to just $8.6 million GBP. This is due to flexible UK tax laws. whereby international companies are able to move profits out of the country to other parts of the corporation.

In order to give the reader an insight on how Starbucks achieves this, an oversimplified version of an individual loophole is presented here.  By following the practices of high-tech companies such as  Google and Microsoft, Starbucks and other companies have set up Intellectual Property units in tax haven countries while charging their subsidiaries for using them.

This means that all of their UK owned (non-franchised) outlets are charged a royalty fee equating to 6% of total sales. By taking advantage of this and other loopholes, Starbucks has been able to show that it has been operating at a loss in the UK for many years. These kinds of tactics, which are also used by dozens of other corporations are perfectly legal, albeit morally questionable.

Nevertheless, the British people were outraged after it was reported in the press that–Starbucks had been telling shareholders that its UK operation was highly profitable, whilst at the same time reporting a loss. Starbucks had to move swiftly in order to limit the potential damage caused by its brand name. In 2012 the company agreed to pay $10 million GBP in corporate tax.  for each of the following two years, even if they recorded a loss.

In 2014 it was announced that Starbucks would be moving its European Head Office from Amsterdam to London.  In a statement, Starbucks said the move was motivated by a desire to operate from its biggest and fastest growing European market, Britain. Emphasizing the fact that the relocation would mean higher UK taxes for the company.


Gourmet D.I.Y

Thanks to Starbucks and its counterparts, we have been seduced into a love affair with coffee, paying upwards of $4 for a single serving of our favourite coffee treat. Many of us would even take a trip to our local Starbucks, rather than turn on the drip filter at home.

Notwithstanding, many have even invested in their own espresso machines, in an attempt to recreate the experience at home. Conventional espresso machines, however, require a certain degree of skill, calling for a delicate balance of art and precision–the learning curve can, therefore, be a bit hit and miss.  Since even slight variations in water temperature, steam pressure and the size of the coffee grounds can compromise the quality of the finished product.

To spare the novice from these frustrations of trial and error, a new generation of espresso machines has hit the market. Whereby, it is now possible to create a great tasting espresso in about 25 seconds at the touch of a button. This is made possible through the use of microchip technology coupled with an innovative concept known as the Coffee Capsule.

The term coffee capsule and coffee pod are often (erroneously) used interchangeably, though strictly speaking, a coffee pod is a measured amount of coffee in its own individual filter.  In contrast, a coffee capsule is a measured amount of coffee, contained in its own hermetically sealed unit of plastic or aluminum.

The capsule is dropped into the espresso machine where it gets punctured to allow a measured amount of water to be forced through it. This takes place at a controlled temperature under the correct pressure.  In order to create frothy lattes and cappuccinos, a steam attachment is available for many of these machines.

This all sounds fabulous, but coffee capsules have been widely criticized for being environmentally unfriendly.  Since most recycling plants will not accept the spent capsules, therefore a large amount of these end up in landfills. John Sylvan creator of the K-cup, a version of the capsule designed to replace filtered coffee, says he now regrets his invention, refusing to use them anymore.

Nestle, the manufacturers of Nespresso, one of the most popular home espresso machines on the market, insisting on using only aluminum capsules in their machines. Saying that this is the best material to use in order to achieve optimum freshness.

In response to customer demand, Nespresso has also implemented a recycling program, whereby customers can take their used capsules to one of their drop-off centers.  Unfortunately, these are only located in major metropolitan cities and therefore inaccessible to many. Though this is improving with an increasing number of third party drop off points.


The Nespresso Expert Machine Demo

Nestle has been accused in the past of capitalizing on its brand name by charging a premium for their coffee capsules. However, in 2012 the company lost one of its patents which opened the door to its competitors. Third-party manufacturers have been quick to take advantage of this misfortune, not least Starbucks, which now offers its own brand of coffee capsules for the Nespresso machine.


The Rise of Artisan Coffee Culture

We are now entering into what is described by many as the era of third-wave coffee evolution.  In order to explain this phenomenon, we need to go back and briefly identify the previous two cycles.


First Wave

The exponential phase, when coffee became ubiquitous.  In this era coffee was treated merely a commodity, to be produced and consumed in mass quantities. There was no real appreciation of coffees delicate aroma and flavour. Folgers and Maxwell House were the dominant players during this time.

Second Wave

The precursor to the third wave, where coffee is appreciated for its flavour and aroma and social qualities. Coffee is now more than just a drink, as with alcohol, it’s an integral part of socializing within the establishment of specialty coffee shops. Big names such as Peet’s and Starbucks are strongly associated with this second wave.

People are now starting to take their coffee ever more seriously, demanding service from only the most experienced, and knowledgeable baristas. This emerging breed of elite consumers expect only the best.  The most superior coffees, produce with the finest of beans from around the world, welcome to the third wave of this amazing coffee saga.

For coffee artisans, it is not enough to simply enjoy a quality espresso or latte, without seeking intimate knowledge of the entire process, from bean to final product.  In this fascinating world of coffee elitism, ceramic cups and coffee glasses have replaced paper cups. Where people can enjoy being pampered in a more relaxed ambiance. with soft music and tasteful decor.

In response to this market demand, there is an explosive emergence of Independent coffee houses, where the friendly qualified staff is on hand to provide the intimacy factor–not present in coffee house chains. In a sense, artisan coffee culture is embracing the quaintness of its Italian roots where on the streets of Rome and Milan.  No two coffee houses are the same but each provides a unique and delightful experience.


Cold Brew Coffee

In  2014, a new brewing method emerged.  One which turns out to be something of an oxymoron since it uses a centuries-old method. Served chilled in bottles; the Cold Brew should not be confused with Iced Coffee–which is hot or chilled espresso served in a glass over ice often with milk and syrup.  In contrast, the cold brew is produced by steeping coffee grounds in water at room temperature for up to 24 hours. The result is a coffee concentrate which is diluted with water and served chilled.

The increasing trend in cold brew coffee can be largely attributed to Millennials, who according to the Mintel Coffee Tracker, make up 66% of the cold brew market.  In contrast, only 34% of Generation X are cold brew consumers. Unlike conventional coffee, cold brew does not draw out the acidic properties from the grounds, which makes for a less bitter, and slightly sweeter flavour.  It is now offered as a mainstream item on the menu of both Peet’s and Starbucks. From a connoisseur’s point of view, cold brew is appreciated for its subtle nuances in flavour.


A Fourth Wave?

With individual palettes as diverse as the 180 chemical elements which constitute coffee itself. The question of what constitutes the perfect cup of coffee remains a subjective one. Yet the quest continues, as yet another breed of coffee enthusiasts, turns to science for the answer. This endeavor has been described by many as, the fourth wave, and is set to propel us into the nth degree of coffee geekdom.

By closely studying the changes in coffee’s chemical compound through different extraction processes, scientists are coming up with new and innovative ways of producing the end product. For example, Phil Broughton, a radiation safety specialist at Berkley University has perfected a cold vacuum process which requires six times the amount of beans than conventional hot-drip extraction methods and 96 hours of brewing time.

The result is an extremely potent elixir, which he named Black Blood of the Earth and contains a caffeine level 40 times higher than that of regular coffee.  In an article published in the Berkeley News, Broughton is quoted as saying:

“The goal of my experiment was to concentrate the natural oils from the beans for maximum flavour, minimizing acidity and bitterness.”

This latest wave is starting to blur the lines of distinction between generational entities.  While some consider cold brew to belong to artisan third wave, others argue that the change in chemical properties, place it firmly in the fourth wave. The truth is that both views are correct, as the cold brew concept straddles the defining line.

The Mathematics of Coffee

In mid-November 2016, Kevin Moroney, a Ph.D. researcher in Industrial Mathematics, at the University of Limerick published an academic paper in the Journal of Applied Mathematics (Moroney et al 2016). The paper which is an expansion on Moroney’s previous work focuses on a particular model of coffee extraction using the drip filter system.  The model describes in detail the coffee kinetics in a well-mixed system through a set of differential equations.

One of the Co-Authors Dr. William Lee who now leads the industrial Mathematics group at the University of Portsmouth is quoted in a report published on the BBC Website as follows:

Our overall idea is to have a complete mathematical model of coffee brewing that you could use to design coffee machines, rather like we use a theory of fluid and solid mechanics to design racing cars.”

While the answer to what makes a perfect cup of coffee will always remain a subjective one, the findings of Moroney and his colleagues could help drinkers optimize their own personal taste, by applying a more precise and scientific approach to the brewing process.


The Effect Coffee is Having on Different Cultures Around the World

In order to appreciate the measure of influence coffee mania is having around the world, consider how the Japanese–who at one time would cringe at the thought of eating and drinking while walking the streets in public, have quickly assimilated this concept as a cultural norm. Today on the streets of Tokyo and other Japanese metropolitan areas it is not uncommon to spot early morning commuters clutching a Grande Latte, whilst making their way to work.

The UK’ which has a  legendary tea drinking culture for centuries, is now giving way to a nation of coffee drinkers. In 2016 a featured article by Kashmira in The Independent, a leading British newspaper stated the following:

“Experts agree that Britain now has one of the most vibrant coffee cultures in the world, which was showcased by the 2010 World Barista Championships held in London.”

What may come as even more of a surprise to many, is an article published in, another leading British newspaper the Daily Mirror which makes the following claim:

“Britain will have more coffee shops than pubs in 2015.”


So What’s Next For Starbucks?

A Change in Direction

On Dec 1st, 2016, it was announced that effective April 4th, 2017, Starbucks Chief of Operations Kevin Johnson, will be taking over from Howard Schultz as the company’s CEO. Schultz who will be stepping down from the position for the second time will focus on Starbucks high-end coffee shops division. A sector of business the company is developing in response to the increased popularity of independent artisan coffee shops.


Starbucks is Boldly Seeking a Share of the Italian Coffee Market in 2017

In Feb 2016 Starbucks announced it would be opening up stores in Italy, citing locations in Verona and Venice. With the pilot store being placed somewhat appropriately in Milan, the city where Howard Schultz was first inspired to create a global coffee empire–over three decades ago.

This news has spawned a mixed reaction from both Italians and many others across the globe, some of whom are concerned that this could tarnish Italy’s reputation, as the Mecca of the original espresso coffee house. An article published in The Federalist, which is anEnglish language web-based magazine, strongly suggests that– Starbucks will never be able to succeed in Italy. While others have taken to social media, in order to express their outrage.


Starbucks set to Invade Milan (2017)

This is undoubtedly Starbucks greatest challenge to date, yet maybe the time is ripe for such a move. With the company’s recent entry into the artisan coffee shop market (see above), Howard Schultz’s comments that It will be done with the utmost respect to Italians–hints not at the familiar collection of homogenous coffee shops we see around the rest of the globe. But a collection of beautiful high-end establishments. Each distinct in its own right, and blending almost perfectly with Italy’s existing espresso bars, many of which have graced the streets of Italy for well over a century.

Whether or not Starbucks will be able to seduce Italy remains to be seen, though we shouldn’t discount the company’s impressive track record for breaking down cultural barriers and overcoming adversity, which is nothing short of amazing.

Whatever the future holds for Starbucks, one thing is for sure, it has earned its place in history as the company that transformed the way we think about coffee forever. Recent reports from the medical field have linked coffee consumption with multiple health benefits,  This is great news since coffee consumption is predicted to rise by 25% over the next five years as reported in the Wall Street Journal (WSJ).



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Dave Ward

About Dave Ward

Dave Ward majored in “Business and Computing” and “Computer Science” at the “University of Wolverhampton” in his native country the UK. Before graduating in 1992 he lived for a short time in Frankfurt, Germany, and Garmisch PartenKirchen afterwhich he returned to the UK. In 1995 he moved to the States where he currently resides in the Chicago area as a freelance “Systems Analyst /Software Developer”. In addition to his work life Dave enjoys a passion for the art of writing, having taken several classes in the subject including his latest at Duke University NC. Hitherto he has produced a plethora of writings, from various genres including technology, poetry, fiction and cultural affairs. His longtime interest in the health and fitness industry and its concerns has also spawned several articles dedicated to this subject. Currently he has several side projects in the pipeline; these include his latest poem, a book on morality, a stage adaptation of John Bunyan’s book “A Pilgrim’s Progress”, and a vegetarian cookbook. You can reach Dave at the following email address

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