After lunch at Pei Wei with a friend and co-worker yesterday, I stopped in the Starbucks next door to pick up a coffee to bring back to work. That led to this conversation in the car on the way back to the office:
Me: So as I understand it, an executive at Starbucks was recently asked about saturation and the limits to growth, and his answer was, in essence, "We don't think we've even saturated Seattle yet."
Friend: Wow. That's amazing. There are the jokes about Starbucks opening up new Starbucks inside existing Starbucks, but the truth isn't too far from that.
Me: It's clear that Starbucks is trying to become a lifestyle brand. Their idea is that people will come visit not so much because they want a cup of coffee, but because of the satisfaction they get from being the kind of person who visits Starbucks. They get the satisfaction of physically being inside the Starbucks, and then they get the satisfaction of carrying a coffee cup around with them that shows they were at a Starbucks. No one I know who visits Starbucks regularly -- including me -- says that Starbucks has the best coffee. It's adequate, but it's not the best. It's not about the coffee; it's about the lifestyle.
Friend: They're not the only ones doing that. McDonald's and Coca-Cola are trying to be lifestyle brands. I've dealt with some of the people at Coca-Cola, and they absolutely believe their product is about a lifestyle.
Me: Who eats at McDonald's or drinks Coke because they somehow identify themselves with those brands?
Friend: I think there are plenty of people who identify themselves with McDonald's.
Me: When my ex-wife and I had little kids, we spent more time at McDonald's than I'd ever care to admit. Why? Because it was cheap, the kids would all find something to eat, and they'd give us a few minutes of conversational time while they played in the ball pit. But I don't think we identified ourselves with McDonald's. It wasn't something we aspired to. And as for Coke, they don't have a physical presence -- they're just a brand in a very competitive market, and not differentiated in any meaningful way.
Friend: What about Red Bull? They're popular now.
Me: Right, but it's a very tenuous popularity. It's a fad that could collapse at any time. I think Starbucks is fundamentally different. It's a lifestyle brand that's powered by physical spaces. And it's aspirational -- it represents a lifestyle that people want for themselves, and by going into the physical space, they can experience that lifestyle for a bit of time.
The more I think about this, the more I see both the opportunity and peril of Starbucks' approach. If they can truly establish themselves as the
aspirational lifestyle brand that's accessible on an regular basis, then they could be vastly larger than they are today, and for decades to come. That's an incredible opportunity. But when there's a Starbucks on every corner, will we continue to aspire to it? Is it possible to aspire to something that is everywhere, or does it need to be ever so slightly out of reach? I honestly don't know.
Later in the day, I saw this AP story (found via Starbucks Gossip) on Starbucks growth:
The people who work in Seattle's tallest building face a tough decision: should they get their caffeinated indulgence at the old Starbucks on the building's first floor or the new Starbucks, 40 floors up? And, if those lines are too long, is it too far to walk across the street, where a third Starbucks awaits?
Starbucks Corp.'s recently announced goal of having 40,000 stores worldwide isn't just about spreading green awnings through middle America, the Middle East and other areas of the world not yet tempted by easy access to mocha Frappuccinos and pumpkin spice lattes.
The coffee chain's aggressive growth also hinges on what the company calls "infill" -- adding stores in cities where its mermaid logo is already commonplace...
Starbucks adds a whopping six stores a day on average...
As of Oct. 3, Starbucks had 12,440 stores worldwide, including 7,102 company-operated stores and 5,338 licensed locations...
Starbucks insists that it sees very little cannibalization of its existing business when a new store opens...
It's highly unusual for a company to be able to add so many stores so close together and still see the kind of consistently strong sales growth Starbucks can boast, said John Owens, an equity analyst with Morningstar.
"At some stage there (are) limits to their expansion, but to date we really haven't seen any signs that they are near that point," Owens said.
Still, Owens said there are risks a company faces when it builds out quickly. He noted that McDonald's Corp. suffered after an attempt to expand rapidly in the 1990s. McDonald's has more than 30,000 stores worldwide, compared to about 12,000 currently for Starbucks.
Major concerns could include anything from a drop in quality to the brand losing its luster...
For now at least, Owens said Starbucks doesn't appear to have similar worries.
"We haven't seen any evidence of it, but that's certainly a risk," Owens said. "How can they continue to maintain such a strong connection with the customer as they become just basically a global giant?"