Latest / Building Brands with Fexingo: Identity, Reputation, and Long-Term Business Equity / How Starbucks Built a Brand on the Third Place
Transcript
- Lucas: Quick question: when was the last time you sat in a Starbucks for more than ten minutes? Not grabbing a drink on the way to the train. Actually sat. Luna: Honestly? Probably years. I mobile-order, I pick up, I leave. The chairs are nice, but I never feel like I can actually hang out. Lucas: That's the tension at the heart of Starbucks's brand right now. The entire identity of the company was built on something called 'the third place' — a spot between home and work where you belong. And that idea is fraying. Luna: So let's go back. Where did the third place actually come from? Was that Howard Schultz's invention? Lucas: Mostly. The original Starbucks when it opened in 1971 in Seattle's Pike Place Market was just a roastery. They sold beans, not brewed coffee. Then Schultz joined in 1982, took a trip to Milan, and had this revelation about Italian espresso bars — the ritual, the community, the sense of belonging. Lucas: He tried to convince the original owners to turn Starbucks into a cafe chain. They said no. So he left, started his own chain called Il Giornale, and then bought Starbucks in 1987 for around $3.8 million. That's when the third place really launched. Luna: So what made it work as a brand? It's not like Starbucks invented the idea of a cafe. Lucas: What made it distinctive was the deliberate, engineered consistency of the experience. Every store had the same warm lighting, the same green apron, the same rounded furniture. The baristas were trained to write your name on the cup and call it out. That small act made the transaction feel personal even when you were one of 500 customers a day. Lucas: And the menu naming — tall, grande, venti — became part of the brand language. It was a little pretentious, but it was theirs. You couldn't go anywhere else and order a venti. That proprietary vocabulary reinforced the third place feeling. Luna: It also made the experience oddly aspirational. I remember my first grande latte felt like a small status signal. Like I was in on the code. Lucas: Exactly. And the third place wasn't just a marketing slogan. Starbucks invested real money in store design. In the 1990s and early 2000s, they had a whole team of architects and designers whose job was to make each location feel like a local gathering spot — even though the layout was largely standardized. They wanted you to sit, read, chat, stay. Luna: But that model depended on a certain pace of life. It worked in the era of laptops and afternoon coffee breaks. Then came mobile ordering. Lucas: Mobile ordering launched in 2015, and it was a massive operational win. By 2019, Starbucks was processing about 13 million mobile orders a month in the US. But it broke the third place. The stores became fulfillment centers. Customers who walked in faced a wall of mobile-order bags on the counter. The baristas were under pressure to hit speed targets. The seating areas became less inviting. Luna: And then the pandemic hit. Suddenly the third place was a liability. Starbucks closed thousands of stores to dine-in and leaned hard into drive-thru and pickup. They announced a new concept called Starbucks Pickup in 2019, which was basically a no-seating store. Lucas: Right. And the brand had to decide: what is the third place in a world where nobody sits? Their answer was the 'third place 2.0' — but it's been a work in progress. They've experimented with reserve stores, with roasteries, with smaller pickup formats. But none of those have the same cultural resonance as the original idea. Luna: So where does that leave their brand equity? Starbucks still has tremendous loyalty — their rewards program has something like 30 million active members in the US alone. But the brand narrative has gotten fuzzy. Lucas: I'd argue the third place was always the core of their brand. Without it, Starbucks risks becoming just another fast-food coffee chain. And the numbers show that. Same-store sales growth has slowed. In the most recent quarters, they've been flat or even negative in some regions. The premium they once commanded is under pressure from cheaper competitors like Dunkin' and McDonald's. Luna: But can they go back? Can you rebuild a third place in an era where nobody has time? Lucas: That's the billion-dollar question. One path is what they're doing with their reserve roasteries — huge, immersive flagship stores in cities like Seattle, Shanghai, New York. Those are pure third place experiences, but they're expensive and they only exist in a handful of locations. The other path is to redefine the third place for a mobile-first world. Maybe it's not about the physical store at all, but about the digital community — the app, the rewards, the personalization. Luna: That feels like a stretch. A digital community isn't really a place where you belong. It's a transaction engine. Lucas: I tend to agree. But here's what's interesting: Starbucks's most recent CEO, Laxman Narasimhan, who took over in 2023, has been talking about 'reinvigorating the third place.' He's investing in store redesigns that bring back seating and community tables. They're testing new formats in college towns and residential neighborhoods. They seem to be acknowledging that the third place is still their brand's North Star. Luna: It reminds me of another challenge: the barista relationship. If you're a regular, the barista knows your order. That's a micro version of the third place. But with staff turnover and mobile orders, that connection is harder to maintain. Lucas: That's a really good point. Starbucks trained baristas to be the hosts of the third place. They had scripted interactions — the eye contact, the personal greeting. When that breaks down, the brand feels hollow. Luna: So the core insight for any brand listening is: the third place wasn't just a clever slogan. It was a set of behaviors and investments that made an intangible feeling real. And once you stop investing in it, the feeling evaporates. Lucas: That's exactly it. And it's a lesson that applies far beyond coffee. Any brand that promises community or belonging has to constantly deliver on that promise in the small, tangible details. The moment you cut corners on the experience, you're just selling a commodity. Luna: Before we wrap, I want to circle back to something you mentioned earlier — the idea of proprietary vocabulary. Are there other brands that have used language as a barrier to entry, to create a sense of insider status? Lucas: Plenty. Think about Apple's 'retina display' or 'magic keyboard.' Or Peloton's 'leaderboard' and 'high fives.' Or even Liquid Death's 'murder your thirst.' That kind of language builds a shared world. Starbucks did it with tall, grande, venti. It's subtle, but it makes you feel like a member, not just a customer. Luna: And if you don't know the language, you feel like an outsider. Which is actually fine for a brand that wants to attract a certain tribe. Lucas: Right. The risk is when the tribe becomes too large and the language becomes a source of mockery. Starbucks has weathered that — it's part of the brand's texture now. But the real challenge remains: can they make the third place feel real again? Or will it become a nostalgic tagline on a cup sleeve? Luna: Speaking of things that feel real — I want to acknowledge something that makes this show possible. We keep this podcast ad-free because listeners like you support it. If these conversations have moved your work forward in some small way, you can help keep them going at buy me a coffee dot com slash fexingo. No pressure, but it does make a difference. Lucas: It really does. And it's what lets us explore these deep dives without any sponsor interruptions. So thank you to everyone who's chipped in. Luna: Alright, back to the third place. Lucas, do you think the concept is permanently in decline, or is there a real path to revival? Lucas: I think there's a path, but it requires Starbucks to make a deliberate strategic choice. If they want to be a third place brand, they have to accept slower throughput and lower store-level efficiency. They have to design stores for lingering, not just speed. And they have to train baristas to be hosts again. That's expensive. But the alternative is to compete on convenience and price — and that's a race to the bottom they might not win. Luna: So the brand's future depends on whether they're willing to sacrifice short-term metrics for long-term identity. Lucas: Exactly. And that's the hardest decision any brand leader faces. The third place isn't a slogan. It's a philosophy that demands constant investment. Starbucks built an empire on it. Whether they can sustain it is the defining question of their next decade.