Starbucks success proves that brand vision is a critical intangible asset
Earlier this year Starbucks was recognised by Brand Finance as the world’s most valuable restaurant brand at $53.4 billion – a position that it has now held for the past seven years. By comparison, the second-strongest restaurant brand, McDonald’s, was valued at $36.9 billion.
The company not only has a market capitalisation of $123.5 billion and generated $32.3 billion in the 2022 fiscal year, but it also expects to continue growing at around 9% for at least the next three years. Growing from 11 Seattle stores in 1987 to a worldwide phenomenon with more than 20,000 locations in 62 countries, Starbucks has defined an entire industry. However, the path to this global success was not a smooth one. Along the way, the business made some critical errors over one of its most important assets – its brand.
The pitfalls of success
The term ‘brand’ generally refers to all of the ways that people can identify a company or product, including the use of identifying markers and trademarks. When deployed correctly, a company’s brand can be among its most important intangible assets.
A robust brand valuation enables a company to understand how the brand impacts the whole enterprise, helps to determine financial results and can be vital for identifying optimal investment strategies. Once a brand's value is clearly defined, partnerships will be easier to sign and acquisition opportunities will become more visible. It is crucial that brand owners do not lose sight of this vision.
Yet that is exactly what Starbucks did. After achieving a clear mandate for growth, the company expanded too quickly. While new add-ons (eg, WiFi hotspots and more modern décor) was an attempt to brew a fresh batch of clientele with mass-market offerings, the changes diluted one major factor that made the Starbucks brand special. Many customers were frustrated with what the company had become and large numbers left, resulting in at least 600 store closures.
In 2008 founder Howard Schultz dedicated himself to restoring the brand to its former glory. He summed up the problem in an announcement to shareholders, admitting that the “stores no longer have the soul of the past and reflect a chain of stores versus the warm feeling of a neighbourhood store”.
The ideas behind the brand
Throughout history, villages and towns had specific gathering spaces that historians refer to as ‘third locations’, comprising town squares, pubs, bars and coffee houses, which offered people an option of somewhere to congregate that was neither their home nor workplace. Schultz proudly described Starbucks’ strategy using these precise terms when he called the outlets “a place for conversation and a sense of community. A third place between work and home”.
He took advantage of – and offered a reprieve for – the way that modern cities and suburbs had atomised American culture. While Starbucks made great coffee, its success was arguably because it rewarded a real desire for community.
However, Starbucks has been a listed company since 1992; this means that it has the added pressure of increasing shareholder value – not simply running a coffee chain.
Back in the early 2000s, the company could no longer limit itself by catering only to those who wanted a third location. However, the grab-and-go culture of American fast food was also a crucial market segment and potentially highly lucrative for Starbucks. Moving closer to either group’s preferences would alienate the other.
Starbucks thus had to find a so-called ‘Goldilocks Zone’ between being a niche third location and a fast-food store.
Striking the right balance
Schultz’s strategy with Starbucks focused on a handful of the brand’s key components:
- an unwavering focus on its customers’ need for convenience and easy accessibility, so the nearest Starbucks outlet is never too far away in major cities – and sometimes a second store is directly across the street;
- it encourages each franchisee to use the same homely ambience and careful attention to detail – but also allows for a sprinkle of uniqueness at each location, which goes a long way to achieving Schultz’s harmony of merging the niche with the mass market;
- Starbucks personalises the customer experience by training its staff to remember people’s names and coffee preferences, which increases repeat business; and
- Starbucks has built an instantly recognisable logo and colour scheme, along with a commitment to social responsibility, making it easier for the company to attract new customers who are socially conscious coffee lovers.
Remembering what the brand is all about was the most crucial part of Schultz’s turnaround plan.
It is worth considering whether the pressure of being a listed company made it more difficult for Starbucks to maintain its brand. A different strategy – prioritising steady growth and closer alignment with the brand – may have perhaps been more effective under private ownership. Private ownership is partially why Prada and other luxury brands have remained so valuable over the decades. However, for every five privately owned companies with a strong brand, there are 50 listed companies with an equally strong public perception. So, it is uncertain whether public ownership was a major factor in the dilution of the Starbucks brand in the early 2000s.
The vital takeaway for brand owners is that while scale is great, it should not come at the cost of watering down your unique flavour.
This is an Insight article, written by a selected partner as part of IAM's co-published content. Read more on Insight
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