What happened to Starbucks ? A Marketers Persepective.

Thank you. hello everybody welcome back to another episode of the big brand theory i hope by this time you are well aware that Starbucks basically ousted their latest Indian CEO and replaced him with the current CEO of Chipotle. And this comes around during a very turbulent time for Starbucks. Let's say Starbucks sales were going down.

People are pulling away from Starbucks. But how did this happen? I mean, Starbucks is one of the most valued coffee chains in the world in the past decade. But for the last few years, it's not the same.

Their sales have been going down. Their reputation is bad. What's going on? So let's dive deep into this.

We're going to find out what are the challenges facing one of the world's most recognizable brands and what lessons we can learn from them. All right, let's rewind a bit. Starbucks, as we all know, was founded in 1971, has been the poster child for coffee shop success for decades. There is no doubt in that, honestly.

They turned coffee from a commodity into an experience. The reason is their selling point. Their selling point was the Starbucks store is your third place, where the first place is your home, the second place is your office, the third place is a common place. It blends both your home and office.

It gives you an experience. That's what was helping Starbucks sell along with their fancy Italian-sounding coffees. Now, by 2022, Starbucks had over 35,000 stores worldwide. That's more location than McDonald's in the US.

Now that is some clear world domination right But lately as you know things haven been smooth for the Seattle giant Their stock price has been on a rollercoaster ride dropping over 35% in 2022, before again rebounding somewhat in 2023. Now, obviously, sales growth has slowed, and they are facing challenges on multiple fronts. So what happened? If the world suddenly decided doesn't like overpriced coffee anymore, that is not at all the case.

The reality, as always, is a bit more complicated. So let's break it down, shall we? First up, let's talk about competition. Remember when Starbucks was pretty much the only place to get a decent latte?

Those days are long gone. Now you've got local hipster coffee shops, other chains like Dunkin' and Costa Coffee, even McDonald's serving up fancy coffee drinks. So the competition has gone a way notch up. This increased competition is hitting Starbucks where it hurts.

Their sales growth. In the U.S., their largest market, comparable store sales growth slowed to just 5% in quarter 2 of 2023, down from 12% the previous year.

But it's not just about competition. Starbucks is also grappling with changing consumer preferences. In the consumers, in particular, are more health conscious and environmentally aware. So they are looking for options beyond the sugar-laden frappuccinos that were once Starbucks' bread and butter.

Now, speaking of butter, let's talk about cost. Inflation has been hitting everyone hard and Starbucks is no exception here. The cost of coffee, beans, milk and labor have all been on the rise, as you know. In response, Starbucks has raised prices several times over the past year.

but there's a limit to how much consumers are willing to pay for their daily caffeine fix, right? You don't want to pay eight bucks for a latte. Now let's address the elephant in the room, or should I say the union in the store. Since late 2021, there's been a wave of unionization efforts at Starbucks stores across the US.

As of early 2023, over 200 Starbucks locations had What are the unionized? The unionization drive presents a significant challenge for Starbucks. It could lead to higher labor costs and more complex operations. Plus Starbucks response to these efforts which has included allegations of retaliation against poor union workers has led to some negative publicity domishing their reputation honestly And we haven even talked about China yet.

As Starbucks' second largest market, China is crucial to the company's growth plan. But economic challenges and increased competition from local chains like lacking coffee or making things tough for Starbucks in the middle kingdom. Lastly and importantly there is the environmental factor. As a global brand serving let's say billions of disposable cups each year, Starbucks faces increasing pressure to address its environmental impact.

They've made commitment to reduce waste and carbon emissions but living up to these promises while maintaining profitability is a very tricky balancing act. So now these are all the downfalls of Starbucks or the situation where Starbucks is in. Now what can we learn from this rise and almost fall of Starbucks? I wouldn't say Starbucks has completely fallen.

There is still a lot of options to revive Starbucks. So what are the lessons we can learn as marketers? You should keep this in mind. Despite all these challenges, Starbucks is currently still a powerhouse brand with a lot of strengths and there are definitely some key lessons we can take away from their current situation.

First is to never rest on your laurels. Starbucks, as you know, dominated the coffee shop at this point for market but the dominance led to complacency. Now, no matter how successful your brand is, you should always be on the lookout for new competitors and changing consumer preferences. That brings me to the second point, which is adapt or to diet.

Starbucks is basically now scrambling, as you know, to let's say adapt to changing consumer taste with more emphasis on cold drinks, healthier options and digital ordering. The lesson, always stay ahead of trends in your industry and be willing to evolve your offerings. Number three, price is in everything But it's something Starbucks has been able to charge premium prices for years due to its brand power But there's a limit to how much consumers will pay Especially in tough economic times So always we need to be aware of these kind of external factors Especially the value proposition you're offering your consumers Number four culture matters Starbucks built its brand partly on being a great place to work The current labor interest tarnishes that image For your brand remember that your internal culture can have a big impact on your external perception.

Number five, sustainability isn't optional. Consumers, especially younger ones, when I say younger ones, I mean Gen Z, expect brands to be environmentally responsible. If our brand is not ready, not ready or not already thinking about sustainability, this is our time to think about it. Number six, innovation is key.

Despite its challenges, Starbucks continues to innovate with new products and technology. They are always experimenting with new drinks, new eatables, so forth and so on. Your brand should always be looking for ways to improve and offer something new to customers, you never know when a certain product or service will take off. Remember, even the biggest brands face challenges.

The key is how you respond to those challenges. Starbucks has overcome many obstacles before and you know that and they are actively working towards addressing their current issues as well. Time, I think, will basically tell if their efforts pay off. But I just want to reiterate again because brands often face challenges.

One great example again is Apple. If you want to learn more about their obstacles, you got to read about Apple on Google. Now, I want you to take a step back and think about your own brand. Are you facing any of the same challenges as Starbucks?

How could you apply these insights or lessons to strengthen your brand? Share your thoughts with me on Twitter using the hashtag Big Brand Theory. And hey, if you're working on any innovative marketing solutions to any of these challenges, I would love to hear about them. Remember, in the world of branding, it's not about avoiding challenges.

Let's say it's about how you respond to them. Even a brand as big as Starbucks has to keep evolving. So should you and me. That's all for this episode of The Big Brand Theory.

I'm Ronit Sharmila reminding you that in the world of branding, even the biggest trees need to bend with the wind to stay standing. Until next time, keep questioning, keep innovating, and keep building those remarkable brands. See you in the next.