After the latest earnings presentation this year, Starbucks' newly appointed CEO, Brian Niccol, stated, "It is clear that we need to make fundamental strategic changes to win back our customers. We have a clear plan and are working quickly to restore growth."
Starbucks has long been more than just a coffee shop; it has established itself as a “third place”—a social space between home and work. Yet, the company's growth, innovation, and digitalization strategies have encountered significant challenges. Recent insights from The New York Times shed light on these issues, highlighting valuable lessons on balancing innovation with core values.
Overexpansion and the Loss of the “Third Place”
One of Starbucks' key missteps has been overexpansion. Rapid growth in store numbers has diluted the sense of exclusivity and the unique atmosphere that once drew customers. Concurrently, Starbucks has leaned heavily into digital solutions. Mobile apps and loyalty programs have streamlined service but also created a sense of distance between customers and staff. This shift risks losing the soul of Starbucks—the experience that once made it a place where people wanted to stay and engage.
The Service Profit Chain: A Model for Value Creation
The Service Profit Chain offers an insightful model here. At its core, this model posits that internal employee satisfaction influences external customer satisfaction. The mantra here could be summarized as: “Happy employees, happy customers.” When employees feel motivated and supported, it positively impacts the customer experience, increases customer loyalty, and drives growth. Starbucks’ current strategy, however, seems to prioritize technological efficiency over human interaction, which could weaken the experience for both employees and customers.
Solution: Embracing a Social Profit Orientation (SPO)
Starbucks could consider implementing a Social Profit Orientation (SPO) to restore sustainable growth, as defined in our recent Journal of Marketing article. SPO is a strategic approach that places equal emphasis on social impact and financial returns, aiming to balance commercial goals with positive societal influence.
An SPO approach would mean Starbucks prioritizing sustainability initiatives, relationship-building, and community engagement as fundamental aspects of its business model. This might include investments in local community projects, partnerships with neighborhood organizations, and meaningful environmental initiatives—from fair-trade sourcing and plastic reduction to energy-efficient store designs. Such actions would strengthen Starbucks’ brand reputation and build loyalty among customers and employees.
Enhancing Customer and Employee Experience through Social Values
SPO could help Starbucks revitalize its “third place” concept, creating an environment where employees and customers feel part of something greater. Investing in fair wages and positive working conditions would reinforce the Service Profit Chain by providing employees with a strong connection to the brand’s social mission, positively impacting their well-being and the quality of service they deliver.
Technology that Amplifies, Not Replaces, Human Interaction
Technology should be used to enhance the relationships at the heart of the Starbucks experience—not to replace them. Striking a balance where digital solutions streamline operations without removing opportunities for human connection can make the brand more resilient. For example, Starbucks could implement solutions that free up employees’ time for customer interaction, allowing technology to serve as a tool for deeper engagement rather than isolation.
Working Conditions and Employee Engagement
By viewing employees as social ambassadors for the brand, Starbucks can strengthen the Service Profit Chain, where engaged employees deliver better customer experiences and foster customer loyalty. Investing in long-term improvements in working conditions can create substantial social and economic value.
The Way Forward for Starbucks
Starbucks’ situation illustrates that when it sacrifices the brand’s soul, growth can become a double-edged sword. By refocusing on core values like relationship-building, positive working conditions, and meaningful environmental efforts—and through an SPO approach that balances financial growth with social responsibility—Starbucks has the potential to renew customer loyalty and secure a sustainable growth trajectory.
