Abstract

The case discusses the evolution of US-based coffee café chain, Starbucks Corporation (Starbucks), into a ‘third place’ where people could enjoy and spend quality time. Inspired by Italian culture, Howard Schultz (Schultz), the CEO of the company, developed Starbucks into a perfect ‘third place’. From training its employees and maintaining an attractive ambience to offering world-class products, Starbucks did everything to attract customers and succeeded in doing so. The company built a team of the right people, addressing them as ‘partners’. The culture, values, and best practices of the company were communicated to all the employees, and the employees’ ideas were also considered and shared. Each barista had to undergo training of 24 hours during which he/she was taught about basic retail, customer service, all about coffee, and how to brew a perfect cup of coffee. The interiors and ambience were also welcoming and made customers comfortable. However, after years of rapid growth, beginning 2007, Starbucks faced a steep slowdown. With the U.S economy sinking under the recession, the costs of opening new stores, distribution expenses, as well as material costs were touching new highs. The price of major raw materials rose sharply. Some analysts pointed out that internal factors might have played a role in Starbucks’ disappointing performance while others believed that the company had become a victim of its own success. The massive expansion and the crowds meant it was no longer personal, it had become like any other coffee brand. Starbucks realized that the brand was losing its charm, and it introduced a “transformational agenda” that included five main initiatives. Promising to go back to the basics, Schultz tried to refresh the essence of right people placed in the right seat and moving in the right direction. Starbucks bought the Coffee Equipment Company, which enabled it to hasten the process. The company came up with creative and innovative ideas to improve its products and services. It brought in different flavors in its beverages, produced different drinks like Green Tea Latte, Frappuccinos, and iced teas, and brought more food on its menu. A free Wi-fi service was also offered for two consecutive hours at company stores. Thus, Starbucks became ‘the third place’ once again. By 2013, the company had managed to regain its lost glory. In 2014, Schultz announced plans to serve alcohol at many of Starbucks’ locations during the evenings. Will this move alienate the loyal customers? Can Starbucks remain the most preferred ‘third place’?

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Understand the meaning of ‘third place’
• Study the various efforts made by Starbucks to make it ‘the third place’
• Discuss and debate how Schultz’s efforts helped Starbucks establish itself as the most preferred place for customers
• Discuss whether Starbucks will continue to be ‘the third place’ after the changes that were brought in

Keywords

Starbucks, customer service, customer retention, coffee retail, culture, competition, customization, ambience, retailing, store design, atmospherics, store development, training