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Inflection Points: Consequences of the Road Not Taken

What does a company do when their core value proposition becomes less than relevant – overnight? When macro-economic changes, like a pandemic, change absolutely everything – including all of the value you have built with your customer base?

That’s the problem Starbucks was facing when its longstanding “Third Place” value proposition (A place to meet that is not home or work/school) became superfluous to a population so fearful of Covid-19 that they didn’t even patronize their usual second place.

In the 8-K filed with the SEC last June – just two months after Covid began to rule our lives - we learned Starbucks’ plan.

As a part of what they called “A Transformation of our Business,” Starbucks decided to introduce a new store format called “Starbucks Pickup” for to-go and delivery orders. "We believe this transformation of our store portfolio, blending Starbucks Pickup stores with traditional Starbucks stores in dense metropolitan markets, will elevate the customer experience and position Starbucks for long-term growth." Starbucks was so serious about this change that they closed 400 existing stores to make room for Starbucks Pickup.

Wow. What happened to third place???

Well, the letter further explains that “the third place experience occurs from the moment a customer envisions” ordering a Starbucks beverage to “wherever they enjoy that Starbucks beverage.” So is third place now more symbolic than literal? Hmmm. It turns out this change was not as sudden as it seems. Starbucks had been concerned about a transformation in societal coffee consumption patterns long before Covid-19. Indeed, Starbucks had noticed that about 80% of all U.S. transactions before the pandemic were for to-go or delivery. In fact, Starbucks stated that the process of reevaluation and store redesign had been ongoing for two years prior to the outbreak. It was just because of COVID-19, that the company had decided to accelerate the change. So what can we learn from this?

  • Businesses should confront inflection points immediately or face the consequences of staying the course, which could have been heavy for Starbucks given that the pandemic is still ongoing

  • Strategy is an ongoing living process. Knowing when to the pull the trigger is equally as important

  • A powerful value proposition, brilliantly executed, will pay enormous dividends in allowing a business to continually stay relevant, even when the value proposition needs to be changed

Think about the tremendous, consistent and expensive effort Starbucks expended over so many years to establish and reinforce the “third place” value proposition. The success of that effort could have given the company false confidence that once the pandemic ended, consumers would return to their pre-existing patterns of consumption. We now know consumers haven’t and probably won’t.

The result – a powerful brand that was unafraid to confront their own inflection point has now become even more efficient while improving the customer experience.

Can your business do that?

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