How Starbucks Lost Its Way

Starbucks was revolutionary in the 1980s. Most people had never tried espresso or visited a modern and well-merchandised coffee shop. Whole-bean coffee was mind-blowing. By the end of the 1990s, the company had become enormously successful. 

But things have changed. In September, Starbucks announced 900 corporate layoffs and the closure of 300-600 stores. The average staff per store is 22 people. Assuming 10 percent of the staff is relocated to another store, that leaves approximately 9,000 retail employees laid off, on top of an additional 1,100 corporate layoffs earlier in 2025. 

Labor issues are just the beginning. Starbucks is looking over its shoulder at Dutch Brothers, the Grants Pass, OR darling of college campuses and the U.S. south, with more than 1,000 locations. Dutch Brothers is everything Starbucks isn’t: scrappy, cheap, irreverent, and of this moment. Its drinks have names like AnnihiIator, Kicker and Double Torture. 

To differentiate Starbucks from Dutch Brothers, Brian Niccol, Starbucks CEO, announced the “Back to Starbucks” campaign earlier this year, an effort to return to what made the company successful: An inviting store, a welcoming staff, priority for in-store versus mobile customers, and drinks delivered in less than four minutes. 

But the company is fighting a global trend. People want to order and pick up coffee in their cars. Seventy percent of Starbucks orders come through drive-through, mobile, or delivery. Dutch Brothers is successful, in part, because nearly all of their locations have drive-through windows. And they’ve dispensed with the store lobby niceties: Most shops are small stand-alone units in strip-mall parking lots, with only enough room for two baristas (or, as they are called at Dutch Brothers, Broistas). 

Starbucks is also behind the curve in terms of drinks. Yes, Starbucks once offered unicorn frappuccinos that had little to do with coffee, but their most sugar-loaded drinks top out at 640 calories. Dutch Bros, on the other hand, dispenses confections that deliver a whopping 1,100 calories to consumers who don’t care about the rich history of the coffee trade, or indeed whether there’s any coffee involved at all.

Starbucks has a branding problem. The company is going in two directions, with premium experiences that conflict with transactional visits. This is most apparent at Starbucks Reserve Roasteries and Bars.

Few people have heard of the Starbucks Reserve Stores. Yes, a drink costs 25% more, but it’s the best single-origin, premium coffee espresso you’ve ever had. It was made on a $30,000 espresso machine. And the pastries are made on-site, with the best lamination in the city. The Reserve Stores have $35 million dollar build-outs; they’re the five-star version of a coffee shop.

The problem is that the Reserve Stores have Starbucks in their name. Customers visit the Reserve expecting a Unicorn Frappuccino, but they’re met with a menu of classic Italian espresso drinks. Disappointed customers often ask for the location of the nearest store that serves caramel macchiatos.

The brand is taxed by the company’s two-pronged approach to quality and service. Starbucks needs to figure this out if it wants to grow. Over the past year, Starbucks stock is down 13%; Dutch Brothers’ stock shot up 80%. Many people aren’t happy with Niccol, who was lured with $98 million dollars in compensation in 2024. And then there are the closures and layoffs.

Starbucks’ future 

Howard Shultz joined the company in 1982, and supplied the vision that made the brand universally loved and wildly successful. The world has changed, but the Starbucks brand is rooted in a different time. To move forward, Starbucks needs to sever the link between past and present.

A good analog for success is the Marriott hotel chain. It serves all ranges of the lodging market, from the two-star Fairfield Inn to the five-star Ritz-Carlson. When you visit a Ritz, it never crosses your mind to think about a Fairfield Inn. When you check into the Fairfield Inn, you don’t expect Dom Perignon.

Starbucks needs to return to what made it so wildly popular, while addressing the fastest-growing part of the market. Similar to Marriott, the solution is splitting the brand across product lines: the traditional sit and sip coffee shops should remain Starbucks; the transactional coffee experience should become something else, with a new name and a new brand, like Marriott’s new Moxy Hotel chain, which appeals to younger travelers with modern designs and affordable rates.

Starbucks needs to embrace the future by freeing its growth from the expectations of the 1990s. In-store visits, plush seating, the world’s best espresso, and unmatched croissants have a place. But they need to be separated from the drive-thrus and sugar bombs preferred by a different market segment. This is how the next revolution starts.