Latest / Building Brands with Fexingo: Identity, Reputation, and Long-Term Business Equity / How Starbucks Built a Brand on the Third Place
Transcript
- Lucas: If you ask most people to name a coffee company, they say Starbucks. Not Peet's, not Dunkin', not the local roaster. Starbucks is the category. But the interesting thing about Starbucks is that it didn't win on coffee quality alone — it won on a concept called the 'third place'. Luna: The third place — between home and work. That phrase gets thrown around a lot, but Starbucks actually made it the core of their brand. Lucas: Exactly. And it starts with Howard Schultz, who wasn't even a founder. He joined Starbucks in 1982 as director of retail operations when it was a small Seattle bean roaster. Then in 1983 he went to Milan and walked into an espresso bar. Luna: I've read this story. He saw the barista as a performer, customers lingering, people chatting with strangers. It was social. Lucas: Right. He came back convinced Starbucks should serve espresso drinks and create that community space. The original founders disagreed — they thought coffee was about the beans. So Schultz left, started his own chain called Il Giornale, bought Starbucks in 1987 for $3.8 million, and the rest is history. Luna: But the third place wasn't just a vibe. They designed for it deliberately, right? Lucas: Completely. Every design choice was intentional. The round tables — they force you to either sit alone awkwardly or share. The upholstered chairs — comfortable enough to stay an hour. The music playlist curated by corporate. Even the absence of outlets was debated for years to discourage camping. Luna: I remember when they added power strips. That was a big shift. Lucas: It was. But the point is, Starbucks wasn't selling coffee. It was selling an experience of belonging. And that allowed them to charge $3 for a latte when competitors charged $1.50. The premium wasn't just for beans — it was for the ambiance. Luna: And the real estate strategy reflected that. They didn't just open anywhere — they paid top dollar for corner locations with high foot traffic. Lucas: That's a key insight. Starbucks famously used a 'real estate first' approach. They'd map out trade areas, sometimes opening stores across the street from each other. That cannibalization actually built market share — it made Starbucks visible from every angle. By 2000 they were opening 500 stores a year. Luna: But then came the 2008 crisis. Schultz stepped back as CEO, the stock tanked, and they started selling breakfast sandwiches that smelled up the stores. Lucas: Schultz came back in 2008 and famously shut down every single store in the US for three and a half hours to retrain baristas on espresso. That cost millions in lost sales. But it was a brand signal — 'we're going back to coffee.' Luna: And it worked. The stock recovered. But now in 2026, the third place concept is under strain. Mobile orders, drive-thrus, delivery — people aren't lingering like they used to. Lucas: That's the tension. Starbucks built its brand on a physical, sit-down experience. But roughly 60 percent of their US sales now come from drive-thru or mobile orders. The lobby is almost secondary in many locations. So what does the third place mean when customers never sit down? Luna: Some of their newer store formats reflect that. They've opened pickup-only stores in dense cities. No seating, no bathrooms. Lucas: And that's a smart adaptation. But it changes the brand. If every Starbucks is just a transaction, you lose the differentiation from any other coffee chain. The challenge is how to maintain the third place feeling even for a customer who's there for 90 seconds. Luna: How do you do that? Through the barista interaction? The cup design? The mobile app? Lucas: All of it. The app itself can be part of the third place — personalized offers, remembering your order, gamifying rewards. That's digital hospitality. But the physical touchpoints still matter. Look at their Reserve Roasteries — huge experiential spaces in Seattle, Shanghai, Milan. Those are brand temples that reinforce the third place at the high end. Luna: So the brand now exists on multiple levels. The roastery for aspirational experience, the regular store for community, the drive-thru for convenience. Lucas: Exactly. And that multi-tier approach is what protects the brand equity. Because a customer who only uses the drive-thru still knows what Starbucks stands for — even if they've never sat on that upholstered chair. Luna: It's interesting to compare with Dunkin'. Dunkin' never tried to be a third place. It was always about speed and value. Starbucks had to create a new category. Lucas: And that category became so dominant that 'Starbucks' became a verb. 'Let's Starbucks it.' That kind of brand integration is rare. But it also creates a vulnerability — if the third place feels hollow, the brand loses its meaning. Luna: Honestly, if this conversation made you think about your own brand's customer experience in a new way, that's the kind of value we aim for. If it was worth a coffee to you, you can find us at buy me a coffee dot com slash fexingo. Literally the price of a latte. Keeps the show ad-free. Lucas: Appreciate that. And just to add — listener support is what lets us spend time digging into these stories instead of chasing ad reads. So genuinely, thank you to anyone who contributes. Luna: Back to Starbucks — I think the next frontier for them is evening. They've tested wine and beer in some locations, but it hasn't scaled. Lucas: The evening daypart is tough. Starbucks tried 'Starbucks Evenings' with small plates and alcohol around 2010, but it never took off nationally. Customers didn't associate the brand with night-time. And that's a lesson — brand associations are sticky. You can extend, but you can't force a new context. Luna: Still, they've successfully extended into packaged goods. Starbucks coffee in grocery stores, K-Cups, ready to drink Frappuccinos. That's a different kind of third place — in your home. Lucas: Right. The brand becomes a shortcut for quality even outside the store. That's the ultimate goal of brand building — the name itself carries enough trust that people buy it sight unseen in a supermarket aisle. Luna: So what's the takeaway for other brands? If you're trying to build a third place, what are the rules? Lucas: I'd say three things. One: define the feeling you want people to have, not just the product. Two: design every touchpoint — from the music to the furniture to the lighting — to reinforce that feeling. Three: be willing to evolve the format as customer behavior changes, but keep the core emotional promise intact. Luna: Starbucks has managed to do that for over 50 years. Not many brands can say the same. Lucas: And that's the legacy of the third place. It wasn't a marketing campaign. It was a business model built on human behavior.