Starbucks is Ground Zero in today's coffee culture

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On a recent Friday afternoon, a man and a woman on a Chicago commuter train are chatting when a napkin bearing the Starbucks Coffee Co. logo floats down from the upper level and lands on the floor beside them.

Seeing the logo, the duo immediately launches into a conversation about the growth of the chain and how it seems everyone needs a daily Starbucks fix.

"It's almost like McDonald's," the man says. "You stand in line at one store and see two more Starbucks being built down the street.


"Their marketing is unbelievable to get people that fired up," he continues. "I mean ... it's only coffee."

Not to the folks at Starbucks.

In the four years since going public, the chain of coffee bars has become wildly successful by turning one of the world's most pedestrian beverages into a premium product, wrapped in a carefully cultivated, widely recognized brand name that extends far beyond what's in the cup.

It is a brand that's defined as much by attitude as it is by products. For devotees, the Starbucks "experience" is about more than a daily espresso infusion; it is about immersion in a politically correct, cultured refuge from everyday hassles.


This has been accomplished with almost no assistance from traditional advertising. Add that marketing discipline to the blend, in the form of a branding campaign planned for next year, and the chain's growth potential is staggering.

From 1992 to 1996, consolidated net revenues for the Seattle-based company grew 575%, from $103.2 million to $696.5 million. During the same period, Starbucks' store count grew 508%, from 165 units to a current total of 1,004.

Although Starbucks controls a tiny fraction of the estimated $30 billion coffee market, its brand reach extends well beyond its stores and even past the coffeehouse niche.

Its mermaid logo today appears on mobile coffee carts and kiosks in airports, bookstores and some supermarkets; on fine-dining restaurant menus; and on the coffee machines in many large offices. And last year's deal with United Airlines gave Starbucks a product-sampling coup: exclusive access to 75 million domestic and international travelers.

Over the past year, the company invested an estimated $2 million with joint-venture partners to develop coffee-related products designed to build a presence on supermarket shelves.


The results include a branded Starbucks ice cream from Dreyer's Grand; a bottled version of its popular Frappuccino product developed with PepsiCo; and Double Black Stout, a coffee-laced beer brewed by Redhook Ale Brewery.

This fall, Starbucks began testing bags of its branded whole roasted coffee beans for sale in Portland, Ore., supermarkets, and another test of bean sales under the Navigator brand name in Meijer supermarkets in the Midwest. Deals with record companies such as Capitol Records have yielded customized music CDs for sale in Starbucks units.

As part of its "digital initiative," Starbucks last summer hired John Williams, publisher of Microsoft's online 'zine Slate, and set out to hook computer-savvy consumers. A revamped site on America Online promotes coffee culture and introduces AOL's 7 million subscribers to a digital version of Starbucks' mail-order catalog.

And a venture with computer-chip giant Intel Corp., announced at the recent Comdex computer show, may push Starbucks into the realm of wired cybercafes. The chain will test a prototype cafe that features Internet access in 1997.

Starbucks is determined to generate a buzz outside North America, particularly in Asia. When it opened its first of two units in Tokyo in August, as many as 200 customers at a time stood in line to get in the door. The first Singapore store is slated to open by the end of this month.

The company is particularly eager to pitch Frappuccino in Japan, which has an estimated $7 billion cold-coffee market. A $10 million deal with Japanese developer Sazaby promises to add a total of 12 stores there over 18 months.


Arguably, Starbucks' growth can be attributed to its ability to market itself as an ideal as much as a product--a caffeine-infused oasis for the hip and trendy.

Starbucks' affinity with customers is almost cult-like: The average customer visits 18 times a month, while 10% visit twice a day.

Still, in 1995 the company spent just under $3 million on measured media, according to Competitive Media Reporting.

"We are blessed with a brand with a tremendous reputation that people like to talk about," said Scott Bedbury, senior VP-marketing. "We can do more with less than most manufacturers."

Agreed Don Schultz, professor of integrated marketing at Northwestern University's Medill School of Journalism: "It says you can do tremendously well without spending a lot on traditional advertising."


PR has clearly helped. Already a darling of business publications, the chain has scored reams of positive consumer press detailing its charitable work, community involvement and progressive personnel policies (even part-time employees receive health benefits and stock options).

"They have managed to do tremendously well" in PR, said Laura Richardson, analyst for Pacific Crest Securities. "They've almost become a household word. They're a large enough presence that just their coming to town is something to talk about."

Likewise, Starbucks' $18.7 million mail-order business has given the chain entry into markets where it has no retail locations.

That grass-roots marketing focus has made crafting a national branding campaign a challenge.

Although Goodby, Silverstein & Partners, San Francisco, was hired last year to develop such a campaign, to date nothing has materialized. A number of campaigns have been pitched, insiders said, but Starbucks management--particularly Chairman-CEO Howard Schultz--has proven a notoriously tough sell.

"The success of the concept is so great that with any advertising you do, you have to be careful it doesn't upset the apple cart," said Jeff Goodby, co-chairman of Goodby.

The challenge, Mr. Bedbury added, has been isolating Starbucks' core message.

"We're attempting to develop a voice that can speak many languages. Had we put forth a brand campaign two years ago, it would have been a very straightforward exercise. But the complexity of the brand today makes it a three-dimensional chess game," he said. "The real opportunity lies in finding a way to creatively connect everything we do--joint ventures, our retail platform and wholesale accounts."


Mr. Bedbury added that until a branded supermarket product has national distribution, a national campaign doesn't make sense.

"We're still short of being a truly national brand," he said, "and the efficiencies that are there for us next year are compelling enough for us to wait."

This opinion also extends to the marketer's retail network. The chain has locations in 21 states and the District of Columbia, as well as British Columbia and the Toronto area in Canada.

Elements of several proposed campaigns have trickled down into in-store promotional efforts. One such pitch eventually evolved into Starbucks' recently completed 25th anniversary campaign. It established a 1970s theme, with in-store posters, tie-dyed T-shirts and buttons with slogans such as "Make latte, not war," and "Give beans a chance."

While some critics sniffed at the execution, Mr. Bedbury said the underlying message was important for Starbucks: "Very few consumers knew Starbucks had been around for 25 years. It's important for people to realize we didn't just fall off the truck."


Anticipating that bottled Frappuccino--currently testing in West Coast markets--will be on store shelves nationally by August, executives close to the company said the most likely campaign to be approved is one that depicts the chaos of everyday life and positions Starbucks as a refuge from the madness.

The tagline of some early executions tied to that theme: "A little sanity, conveniently located."

In the interim, Mr. Goodby said, a holiday print and radio campaign has broken, promoting everything from espresso machines to demi-tasse cups as gift ideas.

Starbucks is now at a turning point. Its many brand extensions run the risk of diluting the core concept if the marketer can't convey a unified message.

"The challenge is not to sell beans, but to manage the brand so it keeps its cache," said Mike Mogelgaard, executive creative director for Starbucks' previous agency, EvansGroup, Seattle.

Managing ubiquity is already a challenge. Some communities now vocally oppose Starbucks' entry, likening it to retail Goliaths like Wal-Mart that enter a town and decimate small, local businesses.


Mr. Bedbury believes advertising can help to blunt that backlash.

"What we don't have that we'll get through ads is a chance to define ourselves more accurately than the way the brand is sometimes being presented," he said. "Challenges come when we're compared to McDonald's. All of us take offense at that."

Starbucks' most immediate focus remains on in-store marketing. Stores--all are company-owned--are currently undergoing a redesign, and Mr. Bedbury's team imposes strict controls on all aspects of the in-store environment, from music to lighting. To avoid competing with the aroma of the coffee, store employees are barred from wearing cologne.

Indeed, preserving Starbucks' brand integrity has become almost as important as promoting it. Mr. Bedbury said he turns down "a couple hundred" joint-venture proposals each week.

"A calendar company wanted to do a Starbucks boy-toy calendar," he says of one pitch. "I graciously declined."

Contributing: Alice Z. Cuneo, Judann Pollack.

Copyright December 1996, Crain Communications Inc.

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