Could this strategy kill Starbucks?

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INTRODUCTION

When it comes to thinking about what the next big startup might be, what comes to mind? AI? Web3? How about coffee? Yes, I am being serious. This week I am going to cover one of the most interesting brands on the rise. A brand that grew from one humble coffee cart in 2020 to over 65 shops globally today. A brand that raised over $20M as part of its series B and might, eventually, topple Starbucks. Let me introduce you to Blank Street Coffee & the strategy behind its rapid growth.

#1 SHOW ME THE COFFEE

To say coffee is big business is an understatement. It’s a huge addressable market (95M cups of coffee are drank in the UK alone) with great profit margins. In the financial year ending June 2023, Starbucks alone made a whopping $35.01B in revenue globally. Bigger than the GDP of some countries, let alone categories. Yet with every great opportunity comes great competition. As you will know the coffee market is hugely competitive with big players at one end (i.e. Starbucks) and a long tail of smaller, independent coffee shops at the other. Big players generally offer more ‘reasonably’ priced coffee but a poorer product & brand experience. I mean does anyone enjoy sitting next to the smelly broken toilets in Starbucks?! At the other end of the market, independent coffee shops offer a far more expensive yet higher quality product and experience. What’s ruthlessly smart about Blank Street Coffee is that they are attempting to outcompete both bigger brands & independents on all fronts. Let me explain how below.

First, when it comes to product Blank Street Coffee (BSC) offers the quality of an independent at a price lower than even the bigger players can provide. In many ways, the brand is adopting the same aggressive growth strategy as Uber. Uber aggressively expanded by doing two things very well; it was more convenient than booking a private car and was cheaper than a legacy London black cab/New York taxi. Similarly, BSC is aggressively expanding by doing two things very well; quality as good as an independent & prices lower than even bigger brands. We can see this price-led growth strategy is a core focus for the company as it is literally reflected in the product positioning ‘high-quality coffee at an affordable price’. To be honest it’s not the most existing positioning statement is it? But I’ll touch more on this at the of the week’s newsletter.

The second thing BSC do is they offer a far superior brand experience. When you walk into one of their coffee shops you certainly feel like you are in the more premium end of the market. It feels closer to a boutique hipster coffee shop than the soul-destroying experience Starbucks too often provides. And it certainly doesn’t feel like you are sitting in a big corporate coffee shop with $20M of funding.

This second point is important to understand. Why? Well because it reveals that BSC is going straight for the heart of Starbucks’s original growth strategy. For those that don’t know Starbucks originally grew out of the idea of the third place. A place to go other than home or work.

BSC in providing a superior brand experience is directly attacking Starcbuks on its home turf. A third space that is likely only to become more important. Why? Well while many of us have been forced back into the office a few days a week, post-pandemic. More of us are now embracing a more flexible way to work and like to get out of the office more often. A space where we can enjoy a change of scenery, watch the world go by and spark our creativity. Can you guess where I am writing this week’s newsletter? Beyond this, the idea of a third space is also only likely to grow in relevance as younger generations increasingly demand more flexible approaches to work and office life.

#2 FAMOUS FRIENDS

Now some of you may be sick of me banging on about ‘fame’. Why do I do this? Am I running out of ideas? Nope. Do I want to keep reminding you that fame is the single biggest driver of brand growth? YES. Now as we have gained a few new readers in the last couple of weeks, I hope you don’t mind me very quickly recapping on what fame is. Fame, in short, is different from awareness. It’s not just about getting remembered. It’s about getting shared, talked about and in turn becoming top of mind, when people are ready to buy.

Now fame is especially important for scale-ups and challenger brands. This is because they cannot directly win on awareness against their bigger rivals (like Starbucks) who will spend their way to the top. Fame offers a more effective way forward for a brand when they don’t have the budgets of bigger brands. And BSC has found a clever way to tap into fame effects. What do they do? Let me explain.

BSC continually partners with some of the most influential and famous up-and-coming brands around. Over the last few years, BSC has partnered with the likes of Kendall Jenner’s 818 Tequilla, YouTuber Emma Chamberlains Coffee brand and Mike’s Hot Honey. In many ways, BSC is acting more like a fashion brand, than a coffee brand, with a range of collaborations throughout the year.

By partnering with these brands BSC manages to do three things very effectively. First, as mentioned, it leverages the fame of these respective brands to grow fame for itself. Second, it allows BSC to reach a broader audience (i.e. the audience/fans of their partners). And third, it imbues the brand with a ‘cool’ status. Just as Supreme’s partnership with Louis Vuitton grew its ‘luxury’ status, partnering with creators such as Emma Chamberlian grows the ‘cool’ status of BSC with a younger generation. This last point is particularly important because if you can get a person to buy your brand when they are young, they are more likely to keep buying as they grow up.

Btw speaking of friends, do you know what they tend to do? Share this newsletter! Ok, we’re not friends. I am just some award-winning strategist who spends his Sunday writing this for you..but it would be cool if you could simply refer this newsletter to a couple of people. Look I’ll even sweeten the deal and give you a gift for recommending it (check the bottom of this newsletter for details). Go on, don’t be lazy…hit the button below or share it on Linkedin.

#3 A BLANK CANVAS

Perhaps the most interesting aspect of BSC is the first word in its name (i.e. Blank). Why? Well, it helps the brand to still feel independent and small. It also hints at where the brand is going. Let me explain below.

Today people are increasingly wary of bigger corporations. Decades of questionable behaviour like tax evasion, bad ethics & unhealthy ingredients have seen many become suspicious of bigger companies. It’s the reason many are turning to new, smaller and more ethical offerings. It’s the reason many choose independent coffee shops over big players, such as Starbucks. This is why I think BSC’s name and approach is smart. You see the company is far from ‘small’ or ‘independent’ as you can see from its aggressive growth numbers. Yet when you sit in one of their shops it certainly doesn’t feel like you are in the mists of a big corporation. Perhaps they have cracked the code of being able to scale whilst still feeling like an independent.

Beyond this, I think the name ‘Blank’ itself actually conveys a lack of meaning if anything. It in a way invites the consumer to project their own meaning onto the brand. This is the total opposite of Starbucks which certainly imposes itself onto the consumer with its bold greens, mascot and logo. Perhaps it also hints at where the brand is heading. You see if BSC has cracked the code of scaling whilst remaining independent…they could easily replicate this in other verticals. Perhaps in the near future, we might see ‘Blank Street Burger’ or ‘Blank Street Sandwiches’. Of course, this is pure speculation at this point, but it’s not impossible to imagine.

#4 RED FLAGS

Ok, I have a confession to make. I don’t think BSC has the perfect approach and in fact, there are some potential big red flags. Wait what? Why are you writing about them then Will?! Well, often you can learn more from mistakes than success. Let me explain in the paragraph below.

The first concern is around their ‘Uber’ expansion strategy. You see whilst it is working today, it might not be that healthy in the long term. We all know that while Uber’s growth strategy served them well in the beginning it wasn’t a defensive moat. They eventually had to raise their prices to grow profitability & when they did new entrants such as Bolt & FreeNow undercut them. Turning back to BSC it’s not impossible to imagine a rival brand (perhaps even a new subbrand created by Starbucks) emerging that uses this same growth strategy and undercuts them.

However, my biggest concern with BSC is their total lack of any real brand positioning. At the moment their ‘brand’ is centred around price and doesn’t do what the most successful companies do. They don’t align themselves with culture and have a bigger pov in the world. This is, to be honest, a missed opportunity. Because in a world where people are looking for new ways to work. Where they seek a more flexible, informal & remote approach. BSC could be the brand that redefines and owns the new third place. You see whilst they might be doing some ‘cool’ activations in the short term they have yet to really nail their brand pov for the long term. And as we know from marketing science the best path to growth is to invest equally in the short (activations) and the long-term (brand).

It will be interesting to revisit BSC in a few years to see (a) if this changes and (b) whether they will continue to succeed without it. In truth, I doubt they will. What do you think? Would love to know your thoughts in the comments below.

CONCLUSION

So an interesting one this week. Whilst the brand is doing many things right (short-term growth, partnerships and brand experience) there are some major red flags around their long-term brand strategy and positioning. So next time you see some influencer or fake guru big them up online, it might be worth calling them out with some of the points highlighted in the ‘red flags’ section.

Don’t forget to share the newsletter…

Many thanks,

Will Poskett,
Founder of Defiant