Starbucks has been facing a crisis in recent years. Following declines in shares and sales, it ousted the CEO and brought in Brian Niccol, an executive with experience in fast food rather than coffee.
Niccol is tasked with leading the “Back to Starbucks” turnaround plan in an effort to recapture its market share. Starbucks aims to revive its coffeehouse culture by taking a stripped-back approach to coffee preparation and customer service.
Most recently, the chain revoked its open-door policy at US locations, meaning people who haven’t purchased any food or drink cannot stay in-store.
It also added the cortado to its core espresso-based drinks lineup. Unsurprisingly, its version contains three ristretto shots and is 8oz, almost twice the size of a cortado by specialty coffee’s standards.
Starbucks is leaning on specialty coffee culture to retain customer loyalty, but it’s unlikely to prove effective in the US market, where people prefer large, highly-customised drinks.
Still, it shows that big brands are looking for points of differentiation, and specialty coffee culture is a promising option.
I spoke to Tony Dreyfuss, the co-founder and co-president of Metropolis Coffee Company, and Miranda Caldwell, the founder of The Coffee MBA, for their insight.
You may also like our article on why chains are banking on growing demand could create more hurdles for specialty coffee.
Starbucks longs for its golden era
Founded in 1971 in Seattle, Washington, Starbucks was built on the “third place” concept: a space at “the heart of a community’s social vitality”. After visiting espresso bars in Italy, former CEO Howard Schultz wanted to bring a similar experience to the US to offer consumers a home away from home.
Its cafés were warm and inviting, with cosy decor, friendly baristas, and iconic handwritten names on takeaway cups. Customers felt an emotional connection, helping the chain become a lifestyle brand that resonated with people’s values.
As the company expanded internationally over the last few decades, however, it became impossible to recreate the same sense of community on such a large scale. Today, Starbucks operates over 40,000 locations in 87 countries, and many agree that it has lost its welcoming ambience.
Although popular, endless beverage customisation options and disorganised mobile ordering pick-up systems have caused chaos in US stores, prolonging wait times and harming customer service. Sales in key markets like the US and China dropped sharply, prompting shares to fall by a record 16% in May 2024.
Starbucks took swift action, replacing then-CEO Laxman Narasimhan with Brian Niccol, who previously held executive positions at Chipotle, Taco Bell, and Pizza Hut. Using his expertise in fast food, Niccol announced a new strategy to revitalise the brand’s coffeehouse culture, bringing the chain back to its core values of community.
A number of menu overhauls were announced, including removing surcharges for plant milks, limiting customisation options, and dropping the Oleato olive oil-infused drinks, which received mixed reviews when launched. Niccol reiterated a firm promise of shorter wait times, emphasising the company’s renewed commitment to efficiency, simplicity, and customer prioritisation.
So why the cortado?
Scaling back customisation and reducing order backlogs are central to Starbucks’ turnaround plans, but the brand also wants to retain its premium appeal. While the Oleato range, positioned as a premium offering, didn’t resonate among consumers, it seems Starbucks is banking on other drinks to retain its status as a leading coffee brand.
The cortado is the latest example. Originating from Spain’s Basque Country, the term “cortado”, or “cut”, refers to the milk cutting through the intensity of the espresso. Although cafés around the world serve the drink in different ways, many specialty coffee professionals and consumers agree that it has a 1:1 ratio of espresso to milk with little microfoam and is traditionally served in a glass tumbler.
Starbucks’ version, however, includes three ristretto shots (highly concentrated espresso) of its lighter Blonde roast and is 8oz, making it double the size of most cortados served in specialty coffee shops.
The menu addition was met with scorn from the specialty coffee community, with some calling it “absolutely massive” for a cortado and seeing it as an obvious attempt to co-opt specialty coffee culture.
“Starbucks has been doing this for some time. A few years ago, it was with its cascara drink, and now it’s the cortado,” says Miranda Caldwell, who founded The Coffee MBA business education platform in 2022. “I think it’s an ineffective strategy for the brand because customers aren’t going to Starbucks for these types of drinks; they want larger, sweeter, and more customised beverages with multiple ingredients.”
Positioning such a small, simple drink as a premium option is unlikely to resonate with US consumers, many of whom were already displeased with Starbucks’ rising prices. Although it also offers the Brown Sugar Oatmilk Cortado, leveraging the popularity of its viral Iced Brown Sugar Oatmilk Shaken Espresso, people will continue to order larger drinks that offer more value for their money, especially with significant price increases on the horizon.
“People might be more confused seeing a cortado in a Starbucks than they would be in a specialty coffee shop,” Miranda adds.
Starbucks is facing stiff competition
Starbucks’ turnaround plan is not only the result of declining sales; it’s a subtle strategic response to an increasingly competitive US coffee landscape.
Chinese coffee giant Luckin, which posted impressive 2024 Q3 results with a 41% rise in net revenue totalling US $1.45 billion, is set to enter the US market in 2025. The company operates over 21,000 stores in China, Singapore, and Malaysia, and it became China’s biggest coffee chain in 2023 by offering similar quality drinks to Starbucks but at a fraction of the price.
Luckin has ambitious plans for the US market, where it intends to attract the attention of Starbucks’ customers by following a similar strategy that led to its success in China, undercutting competitors’ prices and targeting cities with high concentrations of Chinese expats.
Other notable chains are also eating into Starbucks’ consumer base in the US. McDonald’s recently launched the dulce de leche frappé to appeal to the Latino demographic, one of the key drivers of specialty coffee consumption in the country.
Dunkin’ launched its latest ad campaign featuring superstar Sabrina Carpenter to promote the Brown Sugar Shakin’ Espresso, a copycat version of Starbucks’ viral drink from 2023. Not only does this partnership speak directly to Gen Z consumers, who have the highest spending power in the specialty coffee industry, but it also positions Dunkin’ as the “fun” coffee brand, leaving Starbucks in its shadow as it struggles with increasing competition and falling consumer loyalty.
“Starbucks isn’t worried about craft or third wave competitors; it’s trying to differentiate from other chains,” says Tony Dreyfuss, the co-founder and co-president of independent roaster Metropolis Coffee Company in Chicago, Illinois. “But will they lean on other specialty coffee trends to stand out? They have been dabbling in it for some time with the Reserve stores, pour overs, and single origin espressos.”
Specialty will be a key point of differentiation for big coffee brands
Second wave chains have long borrowed from third wave and specialty coffee culture in their marketing campaigns and menu development. Former CEO Howard Schultz even claimed Starbucks introduced the latte to Americans, despite evidence that smaller independent shops were serving the drink before the 1970s.
“Starbucks has lost some of its coffeehouse vibes, and bringing in the cortado is a signalling of its efforts to regain a coffeehouse culture,” Tony says. “Will they sell a lot of them? Probably not. I don’t think it matters that it’s 8 vs 4 or 5oz, as there’s no one clear definition of a cortado anyway.
“Perhaps an even more important decision to revive its coffeehouse atmosphere is that the company is closing its doors to non-paying guests.”
Starbucks recently revoked its open-door policy at US locations, meaning people who haven’t purchased any food or drink cannot stay in-store. A Starbucks representative told the BBC that the decision was made to make their cafés “more welcoming” – in line with the efforts to bring back its traditional coffeehouse atmosphere.
Some have criticised the move, saying it could impact vulnerable groups such as disabled people, pregnant women, and people who are homeless. But ultimately, it means the chain can prioritise and retain paying customers, which is essential to remain a powerhouse US coffee brand.
As Starbucks seeks a return to its roots, we can expect more strategies that leverage third wave and specialty coffee culture – whether it’s new drinks or efforts to recalibrate the in-store atmosphere.
“As the specialty coffee market grows, commercial chains dress themselves up to look like specialty coffee in order to access those consumers,” Miranda says. “This trend will continue. In some cases, they will dress up to play the part, or they will acquire local specialty cafés as part of larger regional chains.”
Adding the cortado to its core espresso drinks is only the beginning of Starbucks’ attempts to bring back its coffeehouse culture. While the new menu addition is unlikely to resonate with US consumers, it’s clear that leaning on specialty coffee will play a big part in the chain’s turnaround plans.
Whether this puts specialty coffee shops – offering coffeehouse culture and a sense of community – at an advantage remains to be seen.
Enjoyed this? Then read our article on whether specialty coffee will embrace leadership reshuffles like big chains.
Photo credits: Starbucks
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