Latest / Building Brands with Fexingo: Identity, Reputation, and Long-Term Business Equity / How Starbucks Built a Third Place Brand
Transcript
- Lucas: It's July 2026, and Starbucks operates roughly 38,000 stores worldwide. But if you walk into one in downtown Seattle versus one in Shanghai versus one in Rome, the experience is surprisingly similar. That consistency is by design — but it also creates a tension. Luna: Tension between what the brand was built on and what it has to be today, you mean. Lucas: Exactly. The core idea that made Starbucks famous was the 'third place' — a space between home and work where you could sit, read, meet someone, or just be alone without being lonely. Howard Schultz didn't invent the concept, but he brought it to mass scale. Luna: And he got the idea from a trip to Milan in 1983, right? He walked into an espresso bar and was blown away by the sense of community. Lucas: That's the origin story. Schultz was working for a Starbucks that was then just a Seattle coffee bean roaster. He went to Italy for a trade show, wandered into a cafe in Milan, and saw the barista connecting with customers by name, the regulars chatting, the whole ritual. He realized Americans didn't have that. They had diner coffee and instant. Luna: So he pitched the idea to his bosses, they said no, he left to start his own coffee bar chain called Il Giornale, and then bought Starbucks in 1987. Lucas: Right. And from there, the third place became the brand's north star. Every store was designed to feel like a community hub — warm lighting, comfortable chairs, the smell of fresh espresso. Music playlists curated by the company. Baristas trained to make eye contact and remember your order. Luna: That human connection was the product as much as the coffee. Lucas: And it worked incredibly well. By the late 1990s, Starbucks was opening a new store every single day. Wall Street loved the growth story. But the more stores they opened, the harder it became to maintain that third place feeling. Luna: You're talking about the brand dilution that set in around the mid-2000s. Lucas: Exactly. By 2007, Schultz had stepped down as CEO, and the company was focused on speed and efficiency. They introduced automated espresso machines that removed the barista's craft. They switched to pre-ground coffee to save time. They started selling warmed breakfast sandwiches that made the store smell like burned eggs instead of coffee. Same-store sales were flat. Luna: And then he came back in 2008 — famously closed all 7,100 U.S. stores for three and a half hours to retrain baristas on espresso pulling. Lucas: That was the pivotal moment. Schultz wrote a leaked internal memo that called the brand's commoditization 'the watering down of the Starbucks experience.' And he took dramatic action. He killed the automated machines. He reformulated the coffee. He even canceled a bunch of store openings to focus on existing locations. Luna: And it worked — same-store sales turned around within a year. Lucas: The lesson is that brand identity isn't a logo or a tagline. It's the sum of every operational decision. When Starbucks optimized for throughput over experience, the brand eroded. When they restored the ritual — the sound of the grinder, the manual tamping, the 18-second shot pull — customers came back. Luna: But that was almost twenty years ago. The challenge today is different. Lucas: Totally different. The third place was designed for a pre-smartphone era where people wanted to sit and read a newspaper. Now, about 70 percent of Starbucks orders in the U.S. are mobile or drive-through. In some urban stores, it's over 80 percent. Luna: So the store is less a place to linger and more a pickup point. Lucas: Exactly. And that creates a real identity crisis. The brand was built on the idea of lingering. But the economics of the business today — labor costs, real estate, customer habits — push toward speed. Schultz himself acknowledged in his 2018 book that the third place is under threat from mobile ordering, which turns the cafe into a 'cold, transactional environment.' Luna: Yet they can't just go back to 2008 tactics. You can't close 38,000 stores for a day of retraining. Lucas: No, but they've tried other moves. They opened Starbucks Reserve Roasteries in bigger cities — huge, theatrical spaces designed to recapture the Milan cafe magic. Those are about brand halo, not volume. They've also experimented with smaller pickup-only stores in dense markets like New York and London. Luna: So they're segmenting the brand instead of trying to be everything to everyone. Lucas: Which is a smart long-term strategy. The core stores still serve the grab and go crowd. The Reserve stores cater to the experience-seeker. There's even a concept called 'Starbucks Now' in China — tiny digital-first stores for commuters. Luna: But doesn't that risk diluting the brand in a different way? If the Reserve store feels like a completely different brand, does the average customer still believe in the third place? Lucas: That's the central tension. Brand identity needs coherence. If a customer walks into a regular Starbucks and sees a cold, fluorescent-lit pickup counter with no seating, and then sees an ad for the Reserve Roastery with leather chairs and slow-pour ceremonies, they might feel the main brand is a lesser version. Luna: So what does Starbucks do? Keep the third place alive in all stores, even if it's less profitable? Lucas: That's the hard question. Some analysts argue that the third place is a luxury they can't afford anymore. But brand equity is built on consistent emotional returns. If you abandon the third place, you lose the reason people pay four dollars for a latte instead of two dollars at a gas station. Luna: And it's not just Starbucks. Every brand that relies on physical space for its identity is wrestling with this. Restaurants, gyms, retail stores. Lucas: Right. The third place concept is under structural pressure. But the brands that find a way to preserve the emotional core — even in a smaller footprint — will win long-term loyalty. Starbucks has the data, the real estate, and the supply chain. The question is whether they can also hold onto the ritual. Luna: It reminds me of something you said earlier about brand being the sum of operational decisions. The third place isn't a slogan. It's the decision to keep a few armchairs even if they take up space. It's the decision to greet every customer even when the line is long. Lucas: Yeah, and it's interesting — we talk about all these brands on this show, and the ones that last are the ones that protect their core experience even when it's costly. That's the real test of brand conviction. Luna: Speaking of conviction — we should note that this podcast itself is a kind of third place, in a way. A space for ideas without interruption. Lucas: That's a nice connection. And it's why we deliberately keep these episodes free of ads. If these conversations have moved your work forward in some small way, and you want to support that choice, the link is buy me a coffee dot com slash fexingo. Luna: It helps us keep doing exactly this — deep dives on brand identity without any sponsor pressure. Lucas: Right. Now, back to Starbucks. One thing I want to highlight is how they've used their loyalty program to maintain the relationship even when the physical space shrinks. Starbucks Rewards has over 60 million active members in the U.S. alone. Luna: And that becomes a digital third place of sorts. The app is where you personalize your drink, earn stars, feel recognized. Lucas: Exactly. The brand is migrating from physical to digital without losing the emotional thread. You still get a sense of belonging — just through a screen. That might be the next evolution of the third place. Luna: So the third place isn't dead. It's just moved. Lucas: Maybe. But the physical store still matters as a symbol. If Starbucks ever eliminated seating entirely, the brand would lose something intangible. The armchair is a promise that you could sit down if you wanted to — even if you never do. Luna: That's a powerful idea. The possibility of rest. Lucas: And that's what makes Starbucks a fascinating case study for any business trying to balance identity with scale. The brand is strong enough to evolve, but fragile enough that every decision matters. Luna: I think that's the key takeaway. Protect the core experience, even as you adapt. Lucas: And know what that core actually is. For Starbucks, it's not the coffee. It's the feeling of being welcome.