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August 10, 2018

MOHANBIR SAWHNE Y

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 fundamentals—returning Starbucks to its
roots of creating a national brand around coffee and offering a unique experience in the
Starbucks stores. fte 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 Plan—2014 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.
©2018 by the Kellogg School of Management at Northwestern University. ftis case was prepared by Professor
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 S ta r b u c k S and new dining OccaSiOnS KE1079

fte sources of growth included new stores, new channels, new products, and new occasions
(see
Figure 1).

Figure 1: Growth for Starbucks, 2015–2019

NEW CHANNEL
INTERNATIONAL DEVELOPMENT
STORES AND OTHER
BRANDS
Growth goals for 2019

$30B
in annual revenue
INTERNATIONAL U.S. STORE COMPS
COMP (NON-FOOD) 30k+
stores globally

20X
NEW U.S. STORES U.S. FOOD COMPS 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

1 2 3 4 5 6 7
Be the Lead in Grow the Create CPG Build Extend
Employer Coffee Store New Brand Teavana Digital
of Choice Portfolio Occasions Growth Engagement

Invest in Build our Increase the Grow store Focus on the Create a Drive
partners leadership scale of the usage across Starbucks second convenience
capable of position Starbucks dayparts brand to major and brand
delivering a around store with new unlock business in engagement
superior coffee footprint product profitable tea through mobile
customer with offers growth commerce
experience disciplined rarely seen platforms
expansion in CPG

Source: Starbucks 2014 Investor Day Presentation.

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 KE1079 S ta r b u c k S and new dining OccaSiOnS

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. ftis 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

Evening
54%
Afternoon
85%
Lunch
46%
Morning 15%
TOTAL U.S.
QSR BUSINESS

Source: Starbucks 2014 Investor Day Presentation.

Starbucks aimed to generate at least $1 billion in incremental revenues from the other
dayparts by 2019. fte 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. ftey 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).

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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. fte 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.

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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. fte 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).
fte 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. fte 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.

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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. fte 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. ftese 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/ news/granitas-and-trifles-on-starbucks-new-sunset-menu.

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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 ftis 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. fte 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- 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: fte 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. ftis 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. ftis 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 fting?” 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
York: Rodale, 2011).

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