Latest / Building Brands with Fexingo: Identity, Reputation, and Long-Term Business Equity / How Starbucks Built a Brand on the Third Place
Transcript
- Lucas: So let's start with a number: thirty thousand. That's roughly how many Starbucks stores exist in the world as of this year, 2026. But the brand wasn't built on the number of stores. It was built on a single idea called the 'third place.' Luna: The third place — that phrase gets thrown around a lot. But I think people forget that it actually came from sociologist Ray Oldenburg. His book from 1989 defined a third place as a neutral, low-stakes social setting outside home and work. Lucas: Exactly. And Howard Schultz, who joined Starbucks in 1982 and later bought the company, explicitly borrowed that concept. He wanted Starbucks to be that third place — where you could sit, read, meet someone, or just watch the world go by. It wasn't just about coffee; it was about the environment around the coffee. Luna: But the original Starbucks, founded in 1971 in Seattle's Pike Place Market, was just a coffee bean roaster. It didn't have chairs. It didn't have espresso drinks. How did Schultz turn that into a global brand? Lucas: That transformation started with a trip to Italy in 1983. Schultz walked into an espresso bar in Milan and was struck by the sense of community. The barista knew customers by name. People lingered over a cappuccino. He realized Starbucks could replicate that energy in the US. Lucas: So he pitched the idea to the original founders. They weren't interested. They saw themselves as purveyors of whole-bean coffee, not a restaurant chain. So Schultz left, started his own chain called Il Giornale, and eventually bought Starbucks in 1987 for about $3.8 million. Luna: Right, and that's when the brand really took shape. The first thing he did was introduce espresso drinks, but more importantly, he introduced a design language that made every store feel like a neighborhood hangout. Lucas: Yeah, the design was intentional down to the color palette. Warm greens and browns to evoke coffee and a sense of comfort. Plush armchairs, communal tables, soft lighting. They called it the 'Starbucks Experience' — a proprietary term that became part of training manuals. Luna: But it's not just the physical space. They also created a unique language. 'Grande' instead of medium. 'Venti' for large. 'Barista' instead of counter worker. That jargon made customers feel like insiders, part of a club. Lucas: And it created a premium aura without being snobby. You weren't just buying coffee — you were participating in a ritual. That's hard to replicate because it's cultural, not just operational. And Schultz was obsessive about maintaining that culture as they grew from 11 stores in 1987 to over 4,000 by 2000. Luna: But with that expansion came a tension. The third place works best when a store feels locally relevant. How do you scale a neighborhood feeling to ten thousand locations? Lucas: That's the central challenge of the Starbucks brand. They tried to solve it in a few ways. One was 'store clustering' — in dense cities, they'd open multiple stores so each one felt more intimate than a massive flagship. Another was local art and furniture that varied by region. Lucas: But the bigger strategy was consistency of the core experience. The music playlist, the pastry display, the order of the menu — all standardized. So you got a reliable baseline everywhere, with some local texture on top. It worked for a long time. Luna: Until it didn't. There was a well-documented dip in the late 2000s. Schultz returned as CEO in 2008 and closed 600 underperforming stores. He also retrained baristas on espresso pulling and introduced the 'My Starbucks Idea' platform to crowdsource feedback. Lucas: That platform was actually brilliant for brand engagement. Customers submitted over 100,000 ideas, and the company implemented hundreds of them — like free Wi-Fi and the rewards program. It made people feel heard, which reinforced the community aspect of the third place. Luna: But here's where I push back a little. The third place concept assumes people want to stay. Today, a huge chunk of Starbucks' business is mobile orders and drive-thrus. The store is more of a pickup zone than a hangout. Has the brand outgrown its own founding idea? Lucas: That's the big question heading into the 2020s and beyond. The data shows that drive-thru and mobile orders account for over 60 percent of sales at many locations. The physical experience is getting squeezed. But I'd argue the brand still relies on the perception of the third place, even if you don't use it. Lucas: When you order through the app and pick up at a counter, you still see the warm lighting, the wooden shelves, the friendly barista. It's a brand halo. You're paying a premium because you associate Starbucks with that warm feeling, even if you're in your car for 90 seconds. Luna: I think the bigger threat is from local coffee shops that now offer genuinely better third places — more personality, better beans, and often similar prices. Starbucks' brand used to be about discovery and community. Now it's about convenience and consistency. Lucas: And that shift shows up in customer sentiment. In recent years, Starbucks has faced criticism over mobile order crowding, the 2018 Philadelphia arrest incident, and unionization efforts. Each of those challenges the brand's identity as an inclusive, welcoming third place. Lucas: But I'd argue the brand is still incredibly strong. Revenue has grown consistently. They have a loyalty program with tens of millions of active members. The question is whether they can evolve the third place for a digital era — maybe a 'third place 2.0' that blends physical warmth with digital convenience. Luna: That's a good framing. It's not about abandoning the concept, but reinterpreting it. For example, Starbucks Reserve Roasteries — those high-end, theatrical spaces in cities like Seattle and Shanghai — are a bet on experience-driven brand equity. Lucas: Exactly. And those Roasteries aren't about volume. They're about brand storytelling. They show you the roasting process, offer exclusive drinks, and sell merchandise you can't get elsewhere. They reinforce the idea that Starbucks is about coffee craftsmanship, not just a quick caffeine fix. Luna: So the brand's long-term equity hinges on whether it can hold both ideas — convenience and connection — without diluting either. That's a tough balancing act. Lucas: It is. And it's worth pausing here to say something about how we approach these conversations on this show. We deliberately don't run ads. No sponsors, no commercial breaks. That's a choice we made because we think it keeps the focus on the substance, not on selling you something. Luna: Yeah, and we've heard from listeners that they appreciate that. If these episodes have helped you think differently about a brand or given you a useful example for work or school, that's exactly what we're aiming for. Lucas: So if you want to support that ad-free approach, there's a simple way. It's buy me a coffee dot com slash fexingo. No pressure at all. But if you find value here, that link is how you can make sure we keep doing this. Luna: Alright, back to Starbucks. So we've talked about the rise and the challenges. What do you think is the single most important lesson for brands from the Starbucks story? Lucas: I think it's that a strong brand idea — like the third place — creates a permission structure for premium pricing and customer loyalty that lasts for decades, even as the business model evolves. But you can't take it for granted. You have to keep investing in the experience, not just the footprint. Luna: And that investment has to be genuine. Customers can smell a fake community a mile away. Starbucks has stumbled when it cut corners or treated the third place as a marketing slogan rather than an operational commitment. Lucas: Right. And as they move into the future, with ai driven ordering, more drive-thrus, and potentially smaller store formats, the brand will have to prove that the third place can exist even in a digital context. If they pull it off, it'll be a case study for another generation. Luna: I look forward to that episode. For now, I think the takeaway is clear: a brand rooted in a genuine human need — in this case, belonging — can withstand a lot, as long as you don't forget why people came in the first place. Lucas: And maybe that's the ultimate lesson for anyone building a brand. Have a clear idea of the role you play in people's lives. Not just what you sell, but what space you occupy. For Starbucks, that space was the third place. And even as the world changes, that idea is still the foundation.