Wednesday, April 12, 2017

Starbucks' Coherent Approach to Growth

In their piece "The Coherence Premium", Paul Leinwand and Cesare Mainardi state that companies all too often "pay too much attention to external positioning and not enough to internal capabilities." In considering companies like GE and Southwest that maintained coherent focus and only built on their core competencies rather than seeking to enter into unfamiliar market segments, Starbucks stood out. The company built itself into a coffee empire, later adding food offerings that accentuated its existing products, rather than entering into segments where it did not have expertise.

While it is easy to forget the days when food did not make up a major portion of Starbucks' sales, the company built itself on selling coffee and making itself the primary purveyor of coffee in the markets where it operated. Prior to purchasing La Boulange in 2013, food was not a primary driver of Starbucks' business. As pointed out by Pascal Rigo, Starbucks' vice president in charge of food operations, during the key lunch period of 11:30 AM to 2:00 PM, Starbucks was selling only eight lunches as compared to 140 sold by Subway. Considering that these companies are very often located in the same areas with the same overhead, Starbucks' dependence on beverage sales was a serious weakness, as it was generating its sales in the morning - with coffee - rather than bringing people back into the store throughout the day with more diversified offerings.

La Boulange's baked goods represented the perfect product to break the trend of underutilized assets while building on Starbucks market capture and brand loyalty. Coffee and baked goods go hand in hand the world over, and La Boulange's savory lunch options went hand in hand with the fruity, non-coffee drinks that had increasingly become a key part of Starbucks' growth, accentuated by the company's acquisition of Teavana in 2012. Starbucks has continued to follow its coherent growth model with the introduction of alcoholic beverages at many of its stores starting in 2014.

Having made its brand synonymous with coffee throughout many of its key markets and essentially achieving market saturation in that segment, Starbucks needed to break out of coffee to experience continued growth. Within that, however, it did not make sense to attempt to break into markets that would hurt its brand coherence. Baked goods, tea, and alcohol all built off its expertise in selling coffee, allowing for minimal change in overall strategy while creating up-sell and cross-sell opportunities with its existing customer base.

This strategy is quite similar to what we saw in Heskett and Sasser's piece on Southwest Airlines, with the company carefully entering into markets and acquiring companies that built off its existing strengths without compromising its brand coherence. Likewise, in Bartlett's GE case we saw the company focus on acquisitions and R&D that allowed it to build and grow in areas it knew, rather than expanding into areas where it was lacking in expertise. Ultimately, these three companies provide great examples of brand coherence, building on core competencies to make for a stronger, more sustainable business.

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