Latest / Building Brands with Fexingo: Identity, Reputation, and Long-Term Business Equity / How Starbucks Built a Brand on the Third Place
Transcript
- Lucas: There's this phrase you hear in brand strategy circles — 'the third place'. It's the idea that people need a space outside of home and outside of work where they feel a sense of belonging. And no company has ever built a brand around that concept more deliberately than Starbucks. Luna: Right, the third place. I've heard that term. But I think a lot of people just see Starbucks as a coffee chain. How did they actually make people feel like it was more than that? Lucas: It starts with Howard Schultz returning from a trip to Milan in the 1980s. He walked into coffee bars there and saw this ritual. People weren't grabbing a cup to go — they were lingering. Talking to the barista, reading the paper, bumping into neighbors. He realized the coffee was almost incidental to the social experience. So when he took over Starbucks in 1987, he set out to replicate that in the US. Luna: Incidental? That's a strong word. The coffee has to be good too, right? Lucas: Absolutely. And Starbucks did invest in quality beans — dark roast, consistent grind, standardized espresso machines. But the product alone doesn't explain why people pay four dollars for what is essentially a commodity. What Schultz did was engineer every detail of the store to encourage stay-time. The furniture is intentionally comfortable but not too comfortable — soft chairs but not so soft you fall asleep. The lighting is warm. The music is curated. The smell of coffee is pumped into the ventilation system. And the baristas are trained to learn your name and your order. Luna: The smell thing — that's real. I've walked past a Starbucks and smelled it from half a block away. Did they patent that or something? Lucas: They didn't patent it, but they made it part of the brand code. No food that competes with the coffee aroma — that's why you don't see hot breakfast sandwiches in most Starbucks until later, and even then they're designed to not overpower the coffee smell. It's that level of obsessive detail. One former executive told me they used to ban the smell of grilled cheese because it clashed with the coffee. That's brand building at the molecular level. Luna: Okay, but here's the challenge I always think about: How do you keep that feeling consistent across thirty-five thousand stores? I've been to Starbucks in Tokyo and in Des Moines, and yeah, they feel similar. But how do you enforce that at scale? Lucas: A big part is the real estate strategy. Starbucks historically clusters stores in high-traffic locations — but they also pioneered this idea of 'soft' branding through store design. Every store follows what they call a 'design playbook' that lays out the zone for the counter, the seating area, the merchandise wall. But within that, local teams can add touches — local art, reclaimed wood, that sort of thing. It's standardized flexibility. Luna: Standardized flexibility — I like that. So the framework is rigid, but the expression is local. Lucas: Exactly. And then there's the language. Starbucks created a whole vocabulary: tall, grande, venti. Baristas call out your name. They write on the cup. That language becomes a shared ritual. It's a signal that you're inside the brand world. Critics mock it as pretentious, but for millions of customers, it's part of the experience. It makes the transaction feel personal. Luna: But didn't that start to fray when mobile ordering took off? I mean, now you order on your phone, skip the line, grab your cup. There's no interaction. Lucas: That's a real tension. In 2015, Starbucks launched Mobile Order & Pay, and by 2019 it accounted for about twenty percent of transactions. But the in-store experience suffered — regular customers complained that mobile orders clogged the pickup area and they couldn't get their barista's attention. Starbucks had to redesign counters, add dedicated pickup shelves, and retrain staff. They're still experimenting with what the third place looks like when the ritual is digital. Luna: And then the pandemic hit. Suddenly no one wanted to linger in a coffee shop. Drive-throughs and takeout became the only game. I remember seeing news that Starbucks closed hundreds of stores and accelerated pickup-only concepts. Lucas: Right. They launched Starbucks Pickup stores in dense urban areas — no seating, just a counter and a shelf. That's a pretty radical departure from the third place. But here's the interesting thing: the brand still holds. Even in a pickup-only store, the name on the cup, the green siren logo, the consistent drink quality — those cues still trigger the brand association. The third place is becoming a behavioral mindset rather than a physical space. Luna: So the brand equity is strong enough to survive a format shift. Lucas: Exactly. And it survived the 2008 recession too. While many premium brands took a hit, Starbucks actually grew through the downturn. They closed underperforming stores, retrained baristas, and focused on the core experience. Same-store sales bounced back. That's because the brand wasn't just about luxury coffee — it was about a daily ritual that people still wanted even when they were cutting back. Luna: I've heard that the loyalty program was a huge part of that retention. Some analysts say Starbucks Rewards is the most successful loyalty program in retail. Lucas: It's definitely up there. Over thirty million active members in the US alone. But what's interesting is how they built it. It's not just points and free drinks — it's data. Every purchase gives Starbucks a detailed profile of what you like, when you visit, how much you spend. They use that to personalize offers and to decide where to open new stores. The loyalty program is essentially a flywheel for the brand. Luna: And that's a good segue into something I've been thinking about: how many of these brand-building tactics are replicable for smaller businesses? Lucas: I think the third place concept is universally relevant. Any business that creates a space where people want to linger — a bookstore, a gym, a salon — can learn from Starbucks. The key is to create a deliberate atmosphere and train staff to be hospitable rather than just transactional. You don't need a billion-dollar budget to get the language right or to play good music. Luna: And if these conversations have moved your work forward in some small way, maybe you've thought about how to apply a 'third place' idea to your own business. A couple of dollars a month is genuinely what keeps these shows going — buy me a coffee dot com slash fexingo, if you've gotten something out of them. Lucas: Yeah, it's a small ask that makes a real difference. Keeps us ad-free and focused on content like this. So, back to Starbucks — one more thing I want to mention is how they handled the racial bias incident in 2018, when two Black men were arrested in a Philadelphia store. Luna: Oh, that was a huge brand crisis. What did they do? Lucas: They closed eight thousand stores for an afternoon of racial bias training. That was a massive operational and financial move. Critics said it was performative, and maybe there's truth to that. But it also signaled that the brand cared about the third place being inclusive. Since then, they've changed their policy to allow anyone to use the restroom or sit without buying anything. That's a direct brand action. Luna: It shows that brand isn't just about the fun parts — the music and the smell. It's also about values and how you respond when things go wrong. Lucas: Exactly. And that's the thing about long-term brand equity. It's built in moments of crisis as much as in moments of delight. Starbucks has had its share of missteps. But the core idea — the third place — has been resilient enough to adapt from Milanese coffee bars to suburban drive-throughs to urban micro-stores. I wonder what form it takes in ten years. Luna: Maybe it'll be voice-activated. Alexa, order my usual.' Lucas: Probably. But as long as there's a person on the other end who knows your name, the brand will hold.