CASE STUDY : Starbucks: Driving Growth Through

New Dining Occasions

When Howard Schultz returned to Starbucks as CEO in early 2008 after eight years, he

concluded that Starbucks had lost its way in its quest for growth. In an interview in 2011, he

commented that growth at Starbucks had become a "carcinogen" and that the company needed

to pursue a strategy of healthy growth.1

According to Schultz, when growth is seen as a strategy it

becomes seductive and addictive. He set about returning Starbucks to a more disciplined approach

to growth.

In the first few years, Schultz focused on the fundamentalsreturning Starbucks to its roots of

creating a national brand around coffee and offering a unique experience in the Starbucks stores.

The growth strategy from 2008 to 2013 sharpened focus on the core business of coffee and pursued

growth in both emerging markets and new products and brands like VIA instant coffee to leverage

the Starbucks retail store footprint.

The Five-Year Growth Plan2014 to 2019

In December 2014, Starbucks announced the next phase of its growth strategy. It laid out

ambitious five-year goals that included nearly doubling revenues (from $16 billion to almost $30

billion), doubling operating income, and operating more than 30,000 stores globally by 2019.

1 Allen Webb, "Starbucks' Quest for Healthy Growth: An Interview with Howard Schultz," McKinsey Quarterly,

March 2011, http://www.mckinsey.com/global-themes/employment-and-growth/starbucks-quest-for-healthy-

growth-an-interview-with-howard-schultz. Do Not Copy or Post

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The sources of growth included new stores, new channels, new products, and new occasions (see

Figure 1).

Figure 1: Growth for Starbucks, 2015-2019

CHANNEL

DEVELOPMENT

AND OTHER

BRANDS

U.S. STORE COMPS

(NON-FOOD)

NEW U.S. STORES U.S. FOOD COMPS

INTERNATIONAL

COMP

NEW

INTERNATIONAL

STORES

Growth goals for 2019

$30B

in annual revenue

30k+

stores globally

20X

annual operating income

Source: Starbucks 2014 Investor Day Presentation.

To achieve these ambitious growth goals, Starbucks outlined seven strategies, including growing

its core business of coffee, building a new business in tea, expanding the global footprint of stores,

growing its portfolio of consumer packaged products, and creating more occasions for sales later

in the day (see Figure 2).

Figure 2: Seven Growth Strategies for Starbucks

Be the

Employer

of Choice

Invest in

partners

capable of

delivering a

superior

customer

experience

1

Lead in

Coffee

Build our

leadership

position

around

coffee

2

Grow the

Store

Portfolio

Increase the

scale of the

Starbucks

store

footprint

with

disciplined

expansion

3

Create

New

Occasions

Grow store

usage across

dayparts

with new

product

offers

4

CPG

Brand

Growth

Focus on the

Starbucks

brand to

unlock

profitable

growth

rarely seen

in CPG

5

Build

Teavana

Create a

second

major

business in

tea

6

Extend

Digital

Engagement

Drive

convenience

and brand

engagement

through mobile

commerce

platforms

7

Source: Starbucks 2014 Investor Day Presentation. Do Not Copy or Post

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K e l l o g g S c h oo l o f Ma n a g e m e n t

Creating New Occasions

A key growth strategy for Starbucks involved diversifying its revenues beyond mornings. As

Figure 3 shows, the morning daypart contributed 46% of its total 2014 revenues. This was far

higher than the 15% of revenues that other quick service restaurants (QSRs) got from the morning.

To make things worse, competition for the morning daypart was becoming more intense, with

Taco Bell, Panera Bread, Subway, and McDonald's now competing fiercely for the breakfast and

morning coffee occasion. Starbucks urgently needed to increase its relevance for the other dayparts.

Figure 3: Revenues by Daypart for the U.S. QSR Market and for Starbucks

15%

46%

85%

54%

TOTAL U.S.

QSR BUSINESS

Morning

Lunch

Afternoon

Evening

Source: Starbucks 2014 Investor Day Presentation.

Starbucks aimed to generate at least $1 billion in incremental revenues from the other dayparts

by 2019. The company's vision was to be relevant to customers across the entire day. Customers

could begin the day by brewing Starbucks coffee at home with K-Cups in their Keurig brewing

machines. They could then order a mid-morning delivery of coffee to their desk or grab a coffee

beverage from the Starbucks machine at the office. At lunchtime they could use their smartphones

to order a sandwich ahead of time so that they could socialize over lunch and still be back to work

within the hour. In the mid-afternoon, customers could recharge themselves with a Starbucks

smoothie. After work, they could stop by Starbucks with co-workers to unwind with a glass of wine

and small plates. With this vision in view, Starbucks had begun to create new products and new

experiences for afternoons and evenings (see Figure 4). Do Not Copy or Post

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Figure 4: Expanding the Occasions for Starbucks

Source: Starbucks 2014 Investor Day Presentation.

Growing the Afternoon and Evening Dayparts

Lunch

As part of the goal to evolve Starbucks into a food destination across multiple dayparts,

the company aimed to grow its lunch offerings by expanding its breakfast sandwich platform.

Starbucks expanded its lunch menu with new salads and sandwiches, including a barbecue beef

brisket sandwich on sourdough bread and a chicken artichoke panini on ancient grain flatbread

(see Figure 5).

Starbucks also introduced grab-and-go offerings, including prepackaged bistro boxes containing

fruits, vegetables, crackers and cheese, eggs, or hummus. The grab-and-go offerings were placed in

high-volume urban stores where people would be likely to grab a bistro box for lunch along with

their morning coffee.

To accelerate its push into food, Starbucks acquired the Bay Area bakery chain La Boulange in

2012 for $100 million. In September 2015, Starbucks announced that it would close all twenty-

three La Boulange retail locations, as well as the two manufacturing facilities that served these

locations. However, the La Boulange brand would live on in the form of La Boulange food products

inside Starbucks retail locations. Do Not Copy or Post

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Figure 5: New Lunch Sandwiches at Starbucks

Source: "Starbucks Introduces a New Chicken Artichoke Panini," press release, April 27, 2015, https://news.starbucks.com/news/

starbucks-introduces-new-panini-nationwide.

Evenings

In August 2015, Starbucks launched the Starbucks Evenings program in select stores in Florida

and New York after piloting the program several years earlier at a single location in Seattle. The

Starbucks Evenings offerings included a selection of wine and craft beer along with small plates

like truffle mac and cheese and flatbreads (see Figure 6 for a sample Starbucks Evenings menu).

The goal of the Evenings program was to attract customers meeting up with friends after work

to unwind and socialize over a glass of wine or craft beer, accompanied by snacks. Starbucks stores

traditionally had very little store traffic after 4 p.m. because few people wanted caffeine that late in

the day. The Evenings program offered customers a new reason to visit Starbucks in the evening.

Starbucks also redesigned stores' seating arrangements to accommodate the Evenings program.

Stores with the Evenings offering featured lounge seating, areas for larger groups, community

tables, and exposed brick walls. Wine and beer were carefully curated. Starbucks used a team of

sensory experts to evaluate more than 500 wines and select a list of ten wines that would be served

in the stores. Do Not Copy or Post

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Figure 6: Sample Menu for Starbucks Evenings

Source: Jason Notte, "How a Starbucks with Beer and Wine Actually Works," The Street, March 27, 2014, https://www.thestreet.com/

story/12543832/1/how-a-starbucks-with-beer-and-wine-actually-works.html.

Sunset Menu

Starbucks also focused on the post-lunch daypart by launching a "Sunset" menu that would

be offered only after 3 p.m. The new menu options included granitas (shaved ice sweetened and

topped with espresso, white tea, or limeade) and trifles (scones or a brownie topped with whipped

cream and flavored drizzle). See Figure 7 for examples of the new Sunset beverages. These menu

items were intended to be cool and light. Starbucks positioned the Sunset menu as a "refreshing

way to jump-start your evening and take you into a long summer night."2

Starbucks was betting that the time-specific Sunset menu would persuade the morning

Starbucks customers to make an afternoon visit to try out the new drinks and treats. However,

this involved the difficult task of changing people's habits. In addition, not all the new menu items

were unique. For instance, the granita was not all that different from a Starbucks Frappuccino and

Starbucks already offered pastries, cookies, and other desserts.

2 "Granitas and Trifles on Starbucks New Sunset Menu," press release, June 14, 2016, https://news.starbucks.com/ Do Not Copy or Post

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Figure 7: Sample Beverages from the Sunset Menu at Starbucks

Source: "Granitas and Trifles on Starbucks New Sunset Menu," press release, June 14, 2016, https://news.starbucks.com/news/

granitas-and-trifles-on-starbucks-new-sunset-menu.

Challenges with the New Occasions Strategy

Starbucks needed to be careful in pursuing the New Occasions strategy in its quest for "healthy

growth." Specifically, it needed to avoid the following pitfalls:

Brand dilution: According to Howard Schultz, disciplined growth for Starbucks was about

finding "innovative growth platforms worthy of our coffee."3

This statement affirmed the

core equity of the Starbucks brands as being about products and experiences surrounding

coffee. When customers thought of Starbucks, they tended to think of coffee. However,

Starbucks was quickly evolving into a "food and beverage destination" with the addition

of gourmet sandwiches, small plates, wine, beer, Teavana tea, and craft soda. Excessive

menu expansion could create confusion in the minds of Starbucks customers, current and

potential. Could Starbucks evolve from a coffee shop into a QSR that served premium

food and beverages? In seeking to broaden its product portfolio, did Starbucks run the risk

of diluting its brand?

Choice overload: As Starbucks expanded its product portfolio, its food and beverage menu

was becoming more complex. The abundant new choices would not necessarily create

3 Allen Webb, "Starbucks' Quest for Healthy Growth: An Interview with Howard Schultz," McKinsey Quarterly,

March 2011, http://www.mckinsey.com/global-themes/employment-and-growth/starbucks-quest-for-healthy- Do Not Copy or Post

growth-an-interview-with-howard-schultz.

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higher customer satisfaction. Some academic studies on consumer choice suggested

that consumers are more likely to make purchases when offered fewer choices and that

they are more satisfied with their purchases when they select from fewer options.4

By

giving customers more choices, Starbucks ran the risk of making customer decisions less

productive and less satisfying. In addition, customers would take more time to make up

their minds, which would increase wait times and lead to lower customer satisfaction with

service.

Operational complexity: The New Occasions strategy also had implications for several

operational functions, including the supply chain, store design, and employee training.

Starbucks stores were originally designed to produce and sell coffee. When customers

ordered food as well as beverages, the order become more complex because the employees

who were preparing food would need to coordinate with the employees making beverages.

This in turn increased the probability of miscommunication and incorrect orders.

Employees would also need additional training on the new routines to prepare gourmet

food. Finally, inventory in the store would increase and it would be more challenging to

maintain freshness of food. Starbucks would also need to redesign its storefronts to look

more like QSRs, wine bistros, and beer pubs. This redesign would come at a significant

cost and could be hobbled by execution challenges.

Conclusion

Starbucks hoped that the New Occasions strategy would persuade customers to visit Starbucks

for lunch, for afternoon refreshments, and for evening drinks and snacks. If the strategy worked,

Starbucks would be able to increase same-store sales and improve store profitability. However, the

company needed to make sure that the new offerings would be compelling for customers and that

the expanded range of offerings would not dilute the focus of the company.

Starbucks did not want to relive its past mistakes in the pursuit of growth. In his book Onward,

Schultz criticized the Starbucks foray into hot sandwiches:

Breakfast sandwiches drove growth and profits. They also caused a mess. The more popular they

became, the more time Starbucks baristas spent heating them. The cheese would inevitably drip

and sizzle in the ovens, releasing a pungent smell. Whatever rich, hearty coffee aroma remained

in the store was overwhelmed by singed Monterey Jack, mozzarella, and, most offensively,

cheddar. Where was the magic in burnt cheese? 5

In his second stint as the CEO, Schultz was painfully aware that growth is healthy only when

it does not compromise the essence of the brand.

4 Sheena S. Iyengar and Mark R. Lepper, "When Choice Is Demotivating: Can One Desire Too Much of a Good

Thing?" Journal of Personality and Social Psychology 79, no. 6 (2000): 995-1006.

5 Howard Schultz and Joanne Gordon, Onward: How Starbucks Fought For Its Life Without Losing Its Soul (New

QUESTIONS :

1. What do customers want from quick service restaurants during lunch, in the afternoon, and

in the evening? What outcomes are they looking for when they eat or drink during those

times? How do these outcomes differ from what they want in the morning? (max 250

words)

2. Identify a few specific opportunities for Starbucks based on the "Jobs To De Done" (JTBD)

framework for the lunch, afternoon, and evening dayparts. How can Starbucks differentiate

itself from competitors in doing these jobs for classroom? (Max 200 words)

3. Develop a set of criteria to evaluate the product/company fit for the Lunch, Sunset and

Evenings programs. (max 200 words)

4. Assess the three programs on the evaluation criteria you developed for question 3 and

recommend which programs Starbuck should pursue. (max 200 words)

5. What new ideas and suggestions do you have for Starbucks in its New Occasions Strategy?

What new products and experiences should Starbucks consider? (max 350 words)