Starbucks, a dominant force in the global coffee industry, is facing significant challenges that have called its longstanding market position into question.
With slowing sales and a brand identity that has become diluted over time, the company is at a critical crossroads.
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John Rossman, an early Amazon executive instrumental in launching Amazon Marketplace and a recognised thought leader on digital and innovation strategies, shares his insights on Starbucks’ current challenges and what it will take to restore the brand to its former glory.
The ‘Innovator’s Dilemma’: Starbucks’ struggle with identity
Rossman attributes much of Starbucks’ current predicament to what he calls the ‘Innovator’s Dilemma’, a concept popularised by Clayton Christensen.
This dilemma arises when a successful company struggles to reinvent itself, especially when innovation threatens to cannibalise its existing business.
For Starbucks, the dilemma is evident in the company’s shift away from the unique “third place” experience that once set it apart.
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By GlobalData“The Innovator’s Dilemma for Starbucks was this incredible brand and experience of the third place,” Rossman explains.
“Not just a great drink and cup of coffee, but a place where you could go have a relationship. You could go and have a relationship with the barista, a conversation with a colleague, a place to sit and comfortably read a newspaper.”
However, as Starbucks increasingly systematised and digitised its operations – focusing on mobile ordering, drive-through services, and efficiency – the ambience and personal touch that once defined its brand were marginalised.
“It allowed the ambience of the brand to be completely marginalised, and that opened up the opportunity for lower-price providers, McDonald’s and other entrants,” adds Rossman.
“If there is no premium to the in-store experience, then it really just becomes about ease and cost and they’re now competing against a value brand versus a premium brand.”
Back to basics: reinvesting in the in-store experience
To regain its competitive edge, Rossman advocates for a return to fundamentals.
“It’s going to be painful because it’s going to take investment, and it’s going to take making a bold choice of willing to do hard things in the short term in order to reestablish the brand and invest in that brand for the long term,” he warns.
Rossman argues that Starbucks needs to reestablish its premium brand by improving the in-store experience – something that has been severely compromised in recent years.
“You have to give them [customers] a reason why there’s a premium to the brand,” he emphasises, adding that Starbucks must “up-level all aspects of the experience. The food, the furniture, the store, cleanliness, the store environment.”
Rossman is particularly critical of the decision to introduce value meals at Starbucks, likening it to “Gucci saying we should have a low-price purse.”
He believes this move dilutes the brand’s premium image and advises against further devaluing the brand in pursuit of short-term gains.
The role of leadership: assessing recent and upcoming changes
The recent departure of CEO Laxman Narasimhan has sparked discussions about leadership’s role in Starbucks’ struggles.
Rossman suggests that Narasimhan may have simply followed the wrong playbook laid out by previous management.
“As I understand it and I’m not an insider at all, is he was handed the playbook in many ways from prior management and so I think that this path was laid out, but then I think he was brought in and doubled down on the path,” Rossman says, noting that the focus on improving efficiency may have come at the cost of what truly defines the Starbucks brand.
Looking ahead, Rossman is cautiously optimistic about Brian Niccol, the former Chipotle CEO, who has been appointed as Starbucks’ new leader.
While Rossman acknowledges Niccol’s success at Chipotle in differentiating and protecting its brand, he questions whether Niccol’s background is the perfect fit for a company such as Starbucks.
“I would have been looking for someone from a more premium brand background,” Rossman admits.
However, he concedes that Niccol’s operational expertise could be beneficial, depending on the “degrees of freedom and runway” he is given to make tough decisions.
Strategic footprint and store optimisation
One of the most pressing issues Starbucks faces is the need to reassess its store footprint.
Rossman believes that each store should be evaluated to determine whether it aligns with the brand promise.
“From a fleet level, from a portfolio level, it should look at every store and should go, does that store represent our brand promise? If it doesn’t, either can it be corrected, or is it fundamentally out of sync with what our brand needs to be and then they shut the store,” he asserts.
This, Rossman argues, is crucial for maintaining the integrity of the brand across all locations.
In addition to evaluating individual stores, Rossman advocates for setting high standards for the in-store experience.
He points out that many Starbucks locations are indistinguishable from lower-end competitors in terms of furniture and atmosphere.
“Most of the Starbucks that I go into, if you went to a McDonald’s and sat down in their furniture, and then you went to a Starbucks and sat down in their furniture, you wouldn’t know that you were in a different store,” he laments.
“It used to be a comfortable place.”
By contrast, some of Starbucks’ flagship stores, including the one at its corporate office, offer a much more luxurious and comfortable environment – a stark contrast that Rossman suggests should be the norm across all stores.
Leveraging technology: striking the right balance
While Starbucks has made significant strides in leveraging technology to enhance the customer experience, Rossman cautions against over-optimisation.
“To some degree, they’ve over-indexed on that, and they saw this opening and they took it. Great and everything, but as they continued to optimise for that, they became addicted to the caffeine hits as it is, of optimising the orders and optimising throughput,” he says.
This focus on efficiency has, in his view, come at the expense of the brand’s core identity.
Rossman suggests that Starbucks should consider using its successful loyalty programme to drive customers back into stores, rather than pushing them towards digital-only interactions.
“Think about how to leverage and juice that loyalty programme to pull them [customers] into the store and get them to pull a colleague or a friend into the store with them,” he advises.
This approach, he argues, could help reestablish the in-store experience as a key differentiator for the brand.
However, Rossman warns “it doesn’t come free, it doesn’t come cheap. You might be sacrificing some short-term financial gains in order to build the customer experience back again.”
“I think that the general game plan is, how do I switch my in-store customers to be more of a digital experience and I would think about doing the opposite of switching the digital experience and leveraging that to bring customers back into the store so that they feel this brand premium.”
Looking forward: the path to long-term success
As Starbucks navigates these challenges, Rossman believes that the key to long-term success lies in redefining the brand and staying true to that identity across all customer touchpoints.
“They need to ask themselves, what sucks?” Rossman says, referencing a question from his book Big Bet Leadership.
By identifying and addressing the most significant pain points in the customer experience, Starbucks can begin the difficult process of rebuilding its brand.
In the end, Rossman’s advice to Starbucks’ new leadership is clear: “Take the pain, take it early, set low expectations, build the brand back, accelerate all the bad news, ask what sucks, and then you have a chance of really transforming the organisation.”
Only by taking this tough medicine, he suggests, can Starbucks hope to reclaim its place as the undisputed leader in the coffee industry.
