Trouble Brews at Starbucks
(14 pages of text)
After going public in 1992, Starbucks' strong balance sheet and double-digit growth made it a hot growth stock. The Starbucks vision was coffee culture as community, the Third Place between work and home, where friends shared the experience and exotic language of gourmet coffee. Its growth was fueled by rapid expansion in the number of stores both in the United States and in foreign markets, the addition of drive-through service, its own music label that promoted and sold CDs in stores and other add-on sales, including pastries and sandwiches. In an amazingly short time, Starbucks became a wildly successful global brand. But in 2007, Starbucks' performance slipped; the company reported its first-ever decline in customer visits to U.S. stores, which led to a 50 per cent drop in its share price. In January 2008, the board ousted CEO Jim Donald and brought back Howard Schultz - Starbucks' visionary leader and CEO from 1987 to 2000 and current chairman and chief global strategist - to re-take the helm. Starbucks' growth strategies have been widely reported and analyzed, but rarely with an eye to their impact on the brand. This case offers a compelling example of how non-brand managerial decisions - such as store locations, licensing arrangements and drive-through service - can make sense on financial criteria at one point in time, yet erode brand positioning and equity in the longer term. Examining the growth decisions made in the United States provides a rich context in which to examine both the promise and drawback of further foreign expansion.
One of the overarching objectives of the case is to demonstrate how brand value and positioning can be influenced by seemingly unrelated, non-branding decisions. That Starbucks’ new-product initiatives — from food to music, books and movies — influenced brand meaning is obvious. But the Starbucks story offers a more nuanced appreciation of how brand value is built and maintained. The company’s aggressive expansion through company-owned stores and licensees added millions of new customers, but it also changed the nature of Starbucks’ customer base and eroded its positioning as a destination or Third Place. Its decision to add drive-through windows created customer convenience, but shifted the competitive set from specialty coffee houses to fast-food restaurants. In addition, rising food and gas prices and the entry of McDonald’s and Dunkin’ Donuts into the specialty coffee market created new challenges for Starbucks.
Some class participants may be familiar with Starbucks’ early history, but reviewing that history while focusing on brand management should lead to significant new insights.
Accommodation & Food Services
United States, Large, 1992-2007
$4.25 CAD / $4.25 USD Printed Copy
$3.75 CAD / $3.75 USD Permissions
$3.75 CAD / $3.75 USD Digital Download