Thursday, July 26th, 2007

Starbucks’ growth paradox

Starbucks’ growth paradox
Email to a friend Comments (16)

Almost every morning, I spend $2.17 on a doppio espresso. The Starbucks on Water Street is just a short walk from our office, and as a creature of habit this little excursion has become part of my morning. Recently though, I find myself tiring of the experience and asking if it’s time for a change.

A brilliantly efficient machine

I recently bought Howard’s Schultz’s book “Pour Your Heart Into It“. Although it often reads like an extended advertisement for his company, there are a few compelling stories in there. I think that anyone who has ever tried to build a company would appreciate the home-run Howard has struck. Think about this: in just five years, he took the company from a purchase price of under $4 million to a market capitalization of $273 million.

Stories like this kept me hooked for the first third of the book. There’s something pretty neat in their roots, and it’s hard to argue that they defined a sector. Wikipedia claims that as of February 2007, Starbucks and its licensees amounted to a whopping 13,168 locations worldwide. They continue to outperform expectations, and have effectively extended their brand into new and arguably risky areas.

The path to ubiquity and its perils

Starbucks is a case study in how to effectively apply assembly line precision to an entire operation. In measuring, assessing and refining every procedure they ensure a consistent experience for customers. This level of efficiency allows them to readily grow their operations and manage the logistics of opening new locations at a breakneck pace. Without such a clearly defined vision they wouldn’t have reached this level.

This approach has allowed Starbucks to reach a certain degree of ubiquity —a dream come true for any brand manager. Customers know what to expect from Starbucks, so they feel a sense of safety when buying from them. You’re unlikely to be disappointed at Starbucks, as the product is quite identical from day to day. I believe that most people aren’t that fond of surprises; furthermore, ubiquitous brands become so, by limiting inconsistencies. In the minds of most customers, this is a good thing.

Companies race to become the next “Xerox”, “Google” or “Kleenex”, and understandably so; however, meeting this lofty goal does come with a price. First of all, we human beings are a fickle lot. As much as we like to see something grow, we just as much love to see it tumble down; just think of how enamored we are with celebrity nosedives.

It’s also true that too much of anything can diminish its value. Flood the market with a product, and its desirability reduces. This is simple supply and demand. In the case of Starbucks’ growth the challenge is greater yet. Their level of saturation in some markets leaves community members feeling as though they have been invaded. This is a precarious spot for any brand to find itself in.

As of late, my morning trips to Starbucks have been tinged by this notion. I’ve started to wonder if in frequenting the institution I’m contributing to a homogenized future. Clearly, I’m not alone in this thought, as is evidenced by the numerous sites that voice frustration with the vendor. Perhaps the Starbucks brand is simply too big for its own good.

So, what’s the problem?

I doubt the folks at Starbucks are worried about this notion, but they should be. They can continue to grow, but what can they do should the public opinion turn? Perhaps this will never happen, but there’s grumbling out there. In fact, sites like “Delocator” present a persuasive argument for choosing any coffee shop other than Starbucks.

I desire a world as diverse and colorful as possible; so, the question of whether I should frequent Starbucks is one I continue to ponder. That being said, I’m not going to enter this debate in this post. Instead, I’d like to ponder how one might address this concern from a brand standpoint.

In his book, Howard often discusses the notion of Starbucks being a “Third Place”: a venue in between work and home, where one can connect with community and share in an experience. I think Howard has something here, but I also wonder if he’s holding the reigns a little too tight to allow this to happen as he’d like. All of the order and precision that Starbucks wields is useful in building a machine, but it’s not quite so helpful when trying to create community.

Real communities are messy, organic, and naturally occurring. I like to think of them as ecosystems. I ask if anyone would really want to live in a community that was exactly the same as the neighboring one. Starbucks’ ability to measure and predict almost every tiny detail may become a liability in Howard’s aim to create the “Third Place”.

A (risky) option

Systematization and process can be a great springboard for a company. These practices allow an organization to grow quickly, raise awareness and build a brand; however, at a certain point, should the training wheels come off? Does every Starbucks have to be exactly the same in order to maintain the brand identity? I argue that they don’t. In fact, I present that idea that thinking this way is an overly narrow way of seeing what constitutes a brand.

The Starbucks brand is built on a good foundation, and that affords some room to play. Of course, this is a little risky, as the amount one can experiment with such a formula is unclear. Most of us never get to test our theories on this level—there just aren’t that many brands as big as Starbucks’. Additionally, the risks associated are not insignificant. (Then of course, the risks of not doing so may be equally considerable.)

Here’s what I propose. What if Howard’s plan is right, but he just needs to jump in wholeheartedly and push this idea further? There’s no “authenticity” filter in Photoshop, and it’s not something that can be prescribed. These kinds of attributes have to take root naturally, and they take a little time; but, if the folks at Starbucks really embrace this idea of community, they might be able to leverage their numerous locations to do something delightfully interesting.

With their numerous locations and processes, they already have the “skeleton” in place, and are on solid footing. So, what if Starbucks loosened-up on the implementation of their brand? The value they offer is about more than fastidious adherence to the visual presentation. There’s room for the appearance to be more liquid.

Starbucks could work to make every store a discovery. Keep the logo there, keep the service the same, but let the shop grow in to the fabric of the community. Skip the standard music in every shop, and ask the staff to bring in different music and mix it up. Hire people in the community who understand the local pulse and character, and ask them to help shape the experience as the locals might like it.

Allow the nature of the community to inspire its interior design, and contract local artists to display works on site. Build a menu that is varied with locally grown foods and the flavors of the region. None of this would happen overnight, but the notion of a more organic space does bring with it some appeal. What a great experience for the consumer, knowing that the product would be consistently good, but with each shop boasting its own unique “flavor”. Wouldn’t that be a compelling reason to visit more locations?

Embracing community is about more than designing a mug or t-shirt around it.

A framework that affords authentic community

Logistically, this is all pretty tough to do when you are opening several new locations a day, but that’s sort of the point. In a user-generated world, maybe things like this don’t have to be top-down initiatives. Perhaps it’s a spot to set up a loose framework, and rely on the local partners to do the rest. It’s a potentially uncontrollable and chaotic strategy, but it just might be what has to be done to shake-off the “big brother” vibe. Plus, it works with the belief that Howard espouses in his book, of trying to inspire entrepreneurial spirit amongst stakeholders. While they seem to do this at a management level, to really weave the shops into the fabric of a community, they may have to open this up to all levels.

Perhaps all of this comes down to a notion that I continue to tinker with, of forming a solid framework that integrates room for independent creative action. Although I believe this to be rather tricky, I feel that it’s an approach well suited to large ecosystems. Think about a municipality. It provides guide-rails for constituents, without determining every detail. In my mind, this is pivotal in building community: developing a shared framework that ensures key items are addressed, while affording opportunity for constituents to shape the experience.

We do need places to engage with other community members, and I am not that worried about Starbucks being the one to facilitate this experience. I do however question whether they are currently doing it in a way that really works.

He’s smarter than I am

Howard Schultz built an empire that sells more in an hour than our firm bills in a year, so maybe I don’t have much of a right to present my ideas. That being said, it’s difficult to see where you are at, from within an organization; additionally, Starbucks’ success to date doesn’t make it invulnerable, and the challenge they face is an interesting one to ponder. It’s curious; their success has, in a respect, become their Achilles heel. Their machine has to grow, but in doing so, they increasingly put themselves at risk of alienating their patrons.

I predict that Starbucks will continue to do what they are doing, and they’ll continue to do so well—selling an awful lot of coffee in the process. I also admit that my proposal is a little “out there”. Suggesting that a multi-national should tinker with its winning formula may seem a little counter-intuitive.

In his book though, Howard talks in great length about the virtues of authenticity and community. It would be interesting to see what happened if he pushed these notions a little further. Very few companies can grow forever, and the challenge of making something great seems less daunting than keeping it that way. I’m interested to see what’s next in the story of this brand.

Follow @karj to hear about these posts first.

Comments & Trackbacks

  1. Eric Smith says:

    Eric,

    Very interesting read. I love the idea about local produce and art. I couldn't think of a more perfect place to try this venture as "what do they really have to lose". It could completely transform their brand. Very interesting Eric.

  2. Kevin Cannon says:

    I’ve often wondered if something like that is possible, It’s a tough one to call, but two things that I’ve always considered crucial to thinking about type of approach are cost & experience. How might they be affected by your ideas?

    Cost. One of the main advantage of a large brand like Starbucks is that they can rollout places cheaply. Due to economy of scale they get an awful lot more value for their money. If each Starbucks changed organically, those cost savings would be reduced if not lost entirely.

    Experience. When you walk into a Starbucks in London or New York the experience is similar. I feel this consistency is one of the reasons people like about Starbucks. They can get their coffee and they don’t have to think, just enjoy. It may not be perfect, but it’s good, it’s familiar, and it’s comfortable. If each Starbucks evolved organically they’d be different, and some people would be put off to hear loud rock music or pretentious classical choices that would evolve.

    So, because of that I think Starbucks will and should stay the same. There is a market for small, niche coffee shops that have a nice atmosphere and a community feel, many exist that do that, but I’m not sure that can be delivered by Starbucks. They’ve made their stance, and to change tack now could undermine their existing success.

    Some brands do try to be more laid back, friendly and local and succeed. The Innocent smoothies brand in the UK & Ireland is very good at that. But what I wonder is whether something that has a physical presence, like a coffee chain, or a supermarket, can it handle different stores that change depending on the staff who work there.



    Fundamentally, is it possible to advertise a global brand if each shop appeals to a different audience?

  3. Callie says:

    Hmmm, as someone who lives in Seattle, I can tell you that outside of the birthplace of the coffee giant, not all Starbucks' experiences are the same. I've found, in general, that the quality is better here in Seattle than other places. The baristas are more knowledgeable. I can ask for a doppio ristretto con panna and the barista will know exactly what I'm talking about. I've asked for that drink in more than one Starbucks on the east coast and they look at me like a deer in the headlights.

    Additionally, when I used to drink Starbucks (I don't anymore – once you're accustomed to the much higher quality independent coffee shops in Seattle and have experience espresso in Europe, Starbucks tastes like crap) I would never, ever but it at an airport or grocery store location. Those stores are licensed stores and the quality/service is NOT the same.

    That said, there's one on every corner here. I drink two shots of espresso every morning and I haven't drank Starbucks in a really long time. And next time you're in Seattle, forget going to the original Starbucks in the market. Instead, go to Vivace, Victrola, Caffe Ladro, Cafe Fiore, El Diablo, or Cafe Vita. Then you'll understand what I'm talking about....

  4. Blake says:

    That's a great argument for branding in general. I think design sensabilities have matured enough that we now know--almost too well--how important a strong and sturdy brand is. Yet, I had similar thoughts walking into my local Starbucks in the morning... what if the natural progression of our notion of a strong brand diversity? What if by embracing diversity we're actually embracing a stronger brand? What if they really tried implementing your ideas. Bring local community richness into the shop. Break down certain trends and release new ones on a more personal community level.

    But it comes down to the first company that's willing to take the risk. It seems the companies who are out there in deep waters taking a risk are the ones, after becoming well established, that become a foundation not willing to partake in another risk. We're all in awe of Google. Yet, years and years down the road, they'll be established and set in their ways. Possibly. Much like Microsoft is these days. They aren't risk takers. Starbucks in the same way. They brought about many new and different ways of presenting a cafe to Americans. Now they're beyond huge, and possibly not willing to take risks.

    I had the privilege of hearing a presentation by Starbucks' marketing creative director. He's quite generous and energetic about ideas. But I noticed all the ideas, while being wonderful, all fall a couple inches within their comfort boundaries. It's more about playing with an established brand. Nothing really changes too much. Hey, I understand that. Yet, for the sake of this argument, I bring it up.

    Then again, I struggle with the notion of shelling out 2 bucks a pop every morning when I could be putting that in a piggy bank for a rainy day.

  5. Drew Neisser says:

    I like Starbuck's both for their products and expressed social responsibility. They are a marvel of consistency and caffeination. No matter where you are you can pretty much count on getting your iced grande soy chai latte (or whatever is your fave) just as you expected and needed it to be. My guess is that Starbucks will continue to thrive until something better comes along. Better has a lot of potential dimensions--cheaper, cooler, faster, tastier, simpler, healthier, friendlier, etc. For example, my corner coffee cart guy says hello to my dog everyday in our morning constitutional and knows exactly what I want by how many fingers I raise. Since dogs aren't allowed into Starbucks and I can't seem to build a relationship with any of their ever-changing barristas, coffee cart guy gets my money just about everyday. The point is that if cheapo coffee cart guy can hold his own against Starbucks, imagine what more innovative concept might be able to do. Personalization can trump homogeneity and that's just one of the better options to choose from. Worry not. Innovation will prevail in caffeine land (could it be Tea parlors next?)
    Cheers,
    Drew

  6. yani says:

    Usually the staff in smaller independently owned coffee shops have a vested interest in the business and the service is way ahead of anything a large corporate franchise can offer. There's something about going to a place where they already know you name and what you want, and not having to give everyday.

    Valid points though in your post but I Starbucks would seem to be too big to make such a change.

    BTW, what the hell is a "doppio ristretto con panna"?

  7. Callie says:

    Doppio ristretto con panna = two shots of espresso, pulled short (this produces a more mellow, less bitter shot) with whipped cream.

    For here, too. NEVER to-go. Espresso does not belong in paper cups.

  8. paul merrill says:

    It's easy to be snobbish about coffee, as some of the comment-ors above have been.

    You gotta live in a place like Sparta, Illinois, where my friend Dave lives, to appreciate what a beautiful thing Starbucks can be.

  9. Ida says:

    I doubt your opinion is worth less just because you don't make as much as Mr. Schultz.

    I wonder if the genius in the branding of Starbucks has more to due with engaging a new void in community rather than actively facilitating community building. Commute times are get longer. Options for live civic engagement diminish. People are starting their own families later in life. Starbuck's brand of community is compelling in the midst of this. I agree with Kevin that a brand that depends on a physical presence might loose its influence once each place becomes too local.

    I give Starbucks credit where it is offering something new, like in Sparta, Illinois where Paul's friend lives . For me in Brooklyn though, I'm going to opt for the local coffee shop.

  10. xavier says:

    "authenticity and community?" Ugh. Awareness of this man's conceit has sure decreased brand value in one consumer's mind.

    The day Starbucks turns its network of 13,000+ stores into free* wireless access points is the day they have any right to even think those two words in proximity to one another.


    *with all the modifications on "free" that real community hubs have devised in making it feasible>

  11. Pingback: motion sickness » Blog Archive » Delocator

  12. Ternel says:

    Here in Manila, Philippines. Everywhere you go you see Starbucks. Its like a mushroom. I tried once their espresso...It sucks and they're using paper cups? Ha? After that, ok I'm done no more S-B for me. Funny 7-11 serves coffee and it taste really good.

  13. Wack says:

    The reason why people go to startbucks is nothing new, same as MacDonalds... They go because they know what to expect: the same nasty "coffee" anywhere in the World.

    The whole community thing (the Starbucks marketing gimmick, not the idea expressed in this post) is such a joke... There's absolutely no way they'd change their assembly line approach, that's the whole point of their biz model.

    I haven't had Starbucks coffee in about 10 years, thankfully they're still a couple coffee shops left in NYC... Although my fav disappeared a few years back, was not too far from Union Square where there's literally 3 freaking Starbucks (on 3 sides of the square...).

    Why I don't go there? The fact that I can't stand seeing the same chain stores over and over anywhere I go is part of it, but mainly it's because the stuff they're selling is NOT coffee... You can dress it up with fictional Italian names like dopio con crappa all you want, it's still not coffee.

    Before thinking about community and stuff, they should consider making good coffee and edible pastries, but that's not gonna happen either :)

  14. Yael says:

    Starbucks has done something really well and has managed to replicate it very successfully.

    I think they've reached a 'glass ceiling', though.

    There's a point in time where you can't really keep your past growth pattern growing and the newness and freshness can easily wear off in consumer's eyes.

    The sameness is what makes it problematic. Like Wack commented, you get sick of seeing the same chain stores over and over wherever you go.

    It IS possible, though, to create a strong unified brand image over a chain while leaving enough room for local flavor and individuality per store.

    An example of a brand doing this is Camper (http://www.camper.com). This is a neat, Spanish footwear company with stores worldwide. Each store is completely unique from the next - with a lot of fresh artist-infused decor.

    The beauty of this is instead of 'seen one, seen them all' it's a joy to make sure you visit each one when you travel to see the unique local flavor of that particular store.

    If you want to read more about it and see some pictures, check out Metropolis Magazine's article on Camper (http://www.metropolismag.com/cda/story.php?artid=2984).

  15. Rafi says:

    Starbucks may have over 13k shops worldwide but when they opened in Israel they soon closed down again as they did bad business. Their coffee just didn't taste of coffee and was too expensive.

    However, that said, when I was in the US earlier this year I found myself drinking a lot of Starbucks coffee because it was good enough and ubiquitously available. Flying back via Madrid, I saw a Starbucks stand in the airport and automatically bought there, out of comfort factor.

    The interesting point was though that at the stand in Madrid they offered options of different strengths of coffee. I went for the strong - it tasted more like real coffee. So maybe they learnt after all.

  16. Pingback: Ad Speak Admonition #1: Words are nothing when not followed by action

Voice Your Opinion

Thoughtful and critical comments are welcomed, and we ask that you use your real name (just seems fair, doesn't it?). Offensive, derogatory, and dim-witted remarks will be removed or result in equally mean-spirited finger-pointing and mockery.

Required

Not published