Starbucks: Brewing a Comeback Story

Starbucks, the ubiquitous coffeehouse chain, has become a staple in many communities worldwide. Its story is remarkable growth and innovation, but like any business, it has faced its share of challenges. During my visit to Seattle for work, the historic Pike Place Market still brings a feeling of nostalgia because of its strong brand association with Starbucks. The green mermaid we all have a love-hate relationship.

From a Single Seattle Store to a Global Coffeehouse Empire

Once upon a time, a small store in Seattle's Pike Place Market selling roasted whole bean and ground coffee gave birth to the green mermaid Starbucks in 1971. It was during a trip to Milan, Italy, in the early 1980s that Howard Schultz, then a Starbucks employee, was inspired by the Italian coffeehouse culture and envisioned bringing that experience to the United States. Schultz left Starbucks briefly to pursue his vision but later returned to acquire the company, setting the stage for its extraordinary expansion.

Starbucks' growth was fueled by its focus on creating a "third place" beyond home and work, where people could connect over a cup of high-quality coffee. The company meticulously crafted its in-store experience, emphasizing comfortable seating, inviting ambiance, and personalized service from knowledgeable baristas. This commitment to creating a unique and welcoming atmosphere, coupled with its focus on premium coffee offerings, resonated with consumers and propelled Starbucks to rapid growth across the United States and eventually, the world.

The Starbucks Experience

Starbucks redefined the barista experience. Their handcrafted coffee from the farms of Costa Rica on the slopes of Volcano Poas became an instant favorite. For many, it became a way of life and a morning habit. From a single store in 1971 to >38,000 stores in 80 countries. This behemoth of a coffee chain has kept innovating. It has built a community for people to hang around, have a conversation and even set up small remote offices. The feeling of Starbucks is local community charm - a warm inviting space where people meet over the love of coffee. Starbuck's mission of caring for people ranged from their customers to employees and even extended to farmers. This was very different in the case of other growing food chains during the same time like McDonalds and KFC. Starbucks shot to growth, especially during the pandemic. Starbucks's growth rate for the last 18 years (2005 to 2023) has been at 7.6% CAGR.

Starbucks has woven into the fabric of people’s lives and communities. And there are more reasons than just for the love of coffee.

• Starbucks's partnership with adjacent brands like Delta Airlines and Uber helps customers earn loyalty points which makes them keep coming back.
• Starbucks Store card value like credit cards allows customers to store money for Starbucks transactions.
• The personalization and feeling of familiarity when entering your regular Starbucks place where the servers know you by name and also remember your order gave a special feeling to the customer.
• Starbucks app experience and the convenience of placing the order on the go significantly reduced customer wait times.
• Finally, the consistent Starbucks experience is delivered by their employees in the 38,000 stores across 80 countries which is achieved through a unique employee training program. People are different but Starbucks was able to keep brand consistency through their employees.

Facing Headwinds: The Challenges of a Maturing Market

While Starbucks has enjoyed remarkable success, it now faces a set of complex challenges, particularly in its mature U.S. market. As the company expanded rapidly, its focus on operational efficiency and consistency may have inadvertently led to a more transactional customer experience in some stores. As the new CEO Brian Niccol says “ Starbucks has swayed from the core”. Customers have reported inconsistencies in product quality, long wait times, and a diminished sense of the personal touch that once defined the Starbucks experience.

Furthermore, Starbucks is contending with a more competitive landscape. The rise of specialty coffee shops and other beverage options has provided consumers with more choices, putting pressure on Starbucks to maintain its market share and premium positioning.

Adding to these challenges, Starbucks is grappling with a global economic slowdown and changing consumer spending habits. Post-pandemic, consumers are becoming more price-conscious, leading to a decline in traffic for Starbucks, particularly among non-Rewards members. This economic uncertainty, coupled with internal operational challenges, hasresulted in lower sales and a dip in stock performance.

Leadership changes poised for Growth

So the last 7-8 months have been turbulent times for Starbucks. There have been significant changes in the leadership, both employees and customers have been unhappy and these impacted the stock prices as well.

Laxman Narasimhan assumed the role of CEO Sep 1, 2022, succeeding company founder and now former CEO, Howard Schultz. He had >30 years of experience leading global consumer goods businesses and advising retail, grocery, restaurant, and e-commerce companies. He embarked on an immersion experience, with partners (employees), in manufacturing plants and support centers around the world. He became immersed in the $1B reinvention plans for the company led by Schultz who returned as interim CEO effective April 4, 2022.

However in just 17 months, as the company faced declining sales and growing frustration among investors he was fired, and Brian Niccol was brought in. The successful ex-Chipotle CEO joined the company on Sept 19, 2024. Niccol has been dubbed a “culture carrier,” with a proven track record of driving innovation and delivering exceptional customer experiences. The market also responded positively to this when announced leading to the stock price jump.

On his second day on the job, he laid out the broad outlines of his growth strategy, which I will go deeper into in the next section. But Starbucks' rebranding is a big item in that plan. He has already made several leadership changes but as a marketer, I am more interested in the two recent announcements that he made -

• Brian announced the Chief Brand Officer of Starbucks - Tressie Lieberman set to join the company on Nov 4. As the ex-CMO for Yahoo, Chipotle and Yum Brands Lieberman has been one of the trusted advisors in Niccol’s camp.
• Starbucks also hired WPP to oversee its US marketing. WPP created a bespoke team called “Team Starbucks” to draw talent from its subsidiaries like VML, Oglivy and Landor
• He has also centralized accountability of all store designs under one leader Sara Trilling.

It’s a do-or-die situation for the leadership and they don't have much time. With an eye to the long-term strategy, short-term goals like operational excellence, profitability, and customer experiences - all need to be a priority.

Brewing a Comeback: Starbucks' Four-Pronged Strategy

Recognizing the need to revitalize the brand, the brand-new Starbucks CEO has launched a comprehensive plan to address these challenges and regain its footing. The company has articulated four key focus areas in this turnaround effort:

1. Empowering Baristas: Acknowledging the crucial role baristas play in delivering the Starbucks experience, the company is investing in providing them with the tools, training, and time necessary to craft high-quality drinks and provide personalized service. Starbucks is also focusing on making itself a more desirable employer by offering career development opportunities and addressing partner concerns, which is reflected in the record-low partner turnover rate.
2. Elevating the Morning Experience: Starbucks acknowledges that the morning rush can be a point of friction for customers, leading to long wait times and inconsistent service. The company is focusing on improving operational efficiency, particularly during peak hours, to ensure timely delivery of consistent, high-quality drinks and food. The implementation of the Siren Craft System, with its process improvements and equipment upgrades, is a keyinitiative in this area.
3. Reclaiming the "Third Place": To re-establish the inviting atmosphere that once characterized Starbucks stores, the company is investing in enhancing the in-store experience. This includes creating more comfortable seating areas, improving store design, and ensuring a clear distinction between "to-go" and "for-here" service. This may mean short-term store closures that will lead to revenue decline. The key would be this rese
4. Telling the Starbucks Story: To counter negative perceptions and remind customers of its strengths, Starbucks is focusing on effectively communicating its story, emphasizing its coffee expertise, commitment to sustainability, and deep community involvement. This narrative-driven approach aims to differentiate Starbucks from competitors and reinforce its premium positioning.

Results so far

Underlying these four pillars is a commitment to operational excellence and efficiency. Starbucks is investing heavily in technology to streamline operations, improve the customer experience, and enhance its supply chain. These investments have already yielded tangible results:

• Out-of-the-window times have improved significantly.
• Calls to the customer contact center regarding long wait times have been reduced by nearly 50%.
• Mobile Order & Pay and delivery uptime rates have reached 99%.
• The company has achieved over 200 basis points in year-over-year efficiency gains through Q3 2024.

These improvements have helped offset the impact of a challenging macroeconomic environment and allowed Starbucks to maintain its financial resilience. The company remains committed to its dividend and has reaffirmed its full-year 2024 guidance.

What’s the future: Telling the Starbucks Story

Every company reinvention has to be associated with how you are telling the story. Rather than being a very transactional brand, crafting a narrative that resonates with consumers on an emotional level. So for Starbucks that may mean talking about their ethical sourcing practices, and their sustainability efforts, highlighting their role in growing the local community. All these create a reason for brand affinity outside of the product. Consumers are now buying from you for the set of values you stand for.

The Starbucks story has been a testament to the power of a strong brand, a commitment to customer experience, and the ability to adapt to changing market dynamics. While the company faces significant challenges, its comprehensive turnaround plan, coupled with its ongoing investments in operational excellence and efficiency, position it well for future success. The coming years will be crucial for Starbucks as it seeks to regain its momentum and solidify its position as a global coffeehouse leader and maybe even more.