Our Managing Editor, Theodore Chan, MBA, was interviewed on the future of the Starbucks brand. Here are some of the highlights.
What is your current take on Starbucks positioning in the overall specialty coffee market?
Starbucks has been under threat for many years, and while it’s clearly not going anywhere, it’s in a sticky position in terms of where to move the brand.
Third-wave specialty coffee poses a significant challenge as customers increasingly value high-quality beans and authentic cafe experiences. While profitable, Starbucks’ increasing reliance on sugary drinks makes it vulnerable to shifting health trends and potential backlash, and is a big turnoff for increasingly sophisticated specialty coffee lovers. Starbucks’ business is at genuine risk if it cannot adapt to these evolving preferences, and that’s why it brought in a new CEO. For many years, Starbucks had better quality, consistency, and a nicer space than a neighborhood cafe. That’s not that case in many major markets anymore. Even other chains like Blue Bottle are flanking (outflanking?) them in terms of defining the mass-market specialty coffee experience.
What made Starbucks so successful? What business tactics helped them grow from a small Seattle coffee shop to a global giant?
For a long time, Starbucks was a differentiated product from traditional coffee shops and fast-food chains. The company’s focus on customer experience, premium branding, and store aesthetics created a unique value proposition. Key tactics included scalable store expansion, innovative drink offerings, and mastery of supply chain operations to ensure consistent quality globally.
How did Howard Schultz shape Starbucks? What was his management style and key decisions?
Schultz was instrumental in transforming Starbucks into a cultural phenomenon. His vision of Starbucks as a community hub and his ability to market it as a premium experience were transformational. Schultz’s leadership style combined inspiration with operational rigor, as seen in decisions such as adopting ethical sourcing, creating the Starbucks Rewards program (which we specifically teach as an MBA case study in my marketing class), and emphasizing barista training to deliver consistent service.
How did Starbucks change American coffee habits and business culture?
Starbucks was the leading edge in making coffee an experience rather than a commodity, with what at the time was a best-in-class user experience and a better product than what was generally available.
What’s behind Starbucks’ recent struggles? How have customer habits changed since COVID? How is inflation affecting their business?
Starbucks is facing a positioning challenge. Third-wave specialty coffee, characterized by artisanal roasters, café ambiance, and a focus on single-origin beans, has matured enough to threaten Starbucks’ core customer base directly. From a specialty standpoint, reviews of Starbucks coffee are not great. The pandemic accelerated a shift towards at-home brewing, driven by premium equipment and subscription models. Inflation compounds these challenges, as customers re-evaluate discretionary spending, making Starbucks’ offerings less attractive than cheaper alternatives or higher-quality third-wave competitors.
Starbucks is still a benchmark for the specialty coffee community because if the cafe or home pourover isn’t better than Starbucks, we’re wasting our time. But there are far more ways to get better coffee now.
How has the Starbucks customer experience changed in recent years? Are they still delivering what customers want?
It hasn’t been a lack of trying. They’ve upgraded cafes and tried some new products. Starbucks has tried to evolve its experience toward specialty coffee with mixed success. Efforts like Clover Machines, Starbucks Reserve, and Oleato drinks show a willingness to cater to specialty coffee enthusiasts, but they have yet to truly stick or scale effectively. It’s challenging for a brand to balance the demands of the sweet drink crowd with the expectations of specialty coffee lovers, leaving Starbucks navigating a tricky middle ground.
New CEO Brian Niccol comes from Chipotle. What’s his track record? What changes might he bring to Starbucks?
Niccol is regarded as an awesome operational manager. In my space, there’s some skepticism he really gets the nuances of the coffee businesses. He’s been all about technology and operational efficiency to reinvigorate brands and generate cash flow for re-investment. I am not sure how he handles the core challenge of revitalizing the café and specialty coffee experience without alienating one of Starbucks’ core customers or diluting the brand.
In the coffee world, there’s an increasing split between the coffee masquerading as dessert community and the specialty coffee lovers. Niccol might have to commit to one or lose both.