Unsolicited Advice for Starbucks

February 2, 2009

Starbucks’ early success was the result of a lot of very smart, new thinking, including creating a market for higher-end coffee drinks and tapping into consumers’ need for a “third place” outside of work and home.  For many years it thrived as it competed on its innovative business model, a relatively focused positioning. Starbucks delivered a specific experience to a specific set of customers (think Southwest not United).

For all its breakthrough thinking, its status as a public company meant that it still had to tame the growth beast.  And then it came to an inflection point that most focused competitors reach, how to continue to grow after the first wave of saturation.   It’s here where I think Starbucks stumbled.  The company had two choices for growth — continue to expand its focused service offering at the risk of diluting the Starbucks brand or creating a new brand that would allow Starbucks Inc. to grow and learn outside of the constraints of its original offering.

The company chose the former – all too many focused competitors do – and has suffered the consequences.  In doing so, it’s made a classic mistake, essentially trading off quality for growth.  But this is a false tradeoff that can be overcome  in creative ways that do not require abusing the brand.  Yum Brands is a good example. Yum is a collection of five quick-serve restaurants.  The overall Yum organization has ambitious growth expectations, but it doesn’t rely on any one brand to get there.  Yum reveals that it’s possible to have a multi-focused organization. For the sake of my tall skim, extra hot, no foam latte with an extra shot, I hope Starbucks gets this message soon.