Got Starbucks?

TV Campaign Is Culture Shift For Starbucks

By STEPHANIE KANG, JANET ADAMY and SUZANNE VRANICA

The Wall Street Journal

November 17, 2007

With more than 10,000 U.S. stores, and products in shops around the globe, Starbucks Corp. has built one of the world's best-known brands. Now, for the first time, it's rolling that brand out on national TV. The decision is a cultural turnabout for the coffee giant, which built itself into a global chain by harnessing word-of-mouth buzz. Starbucks's chairman, Howard Schultz, wrote a decade ago: "[B]y its very nature, national advertising fuels fears about ubiquity."

Today, competitors McDonald's Corp. and Dunkin' Donuts, which never had any qualms about hawking their wares on the tube, are stepping up their coffee marketing. And Starbucks, after years of phenomenal success, is struggling to lure customers as the economy softens.

The first batch of ads, which aired last night, is timed for the holidays and uses "animatics," a crisper, less-cartoonish form of animation. In one TV spot, a bearded skier and reindeer are stuck on a ski lift, and the skier offers the reindeer a cup of coffee.

The holiday spots are just the beginning. The Portland headquarters of the advertising agency Wieden + Kennedy, which Starbucks has hired to oversee the ad efforts, is already at work on post-holiday ad campaigns for the company.

The move could backfire. Despite the ubiquity of its stores, Starbucks still likes to think of itself as a collection of thousands of corner cafes that sponsor the local zoo and have baristas who know their customers' favorite drinks. Executives at Starbucks often say they built the chain by word of mouth and are proud of the fact that they made limited use of traditional media, long before "stealth" and "viral" marketing became the rage.

Some other big brands continue to turn up their nose at national TV ad campaigns. Google Inc. uses under-the-radar marketing online rather than TV ads.

The anti-advertising mood at Starbucks began to shift over the past year. One major development was the recent departure of Anne Saunders, Starbucks's senior vice president for global brand strategy, who was a firm believer in the power of local marketing. Another factor is the relationship between Mr. Schultz, the Starbucks chairman, and Wieden + Kennedy co-founder Dan Wieden. Mr. Wieden visits Mr. Schultz several times a year, says a person familiar with the matter.

Starbucks has flirted with a national brand campaign before but pulled back, creating some tension between the chain and Wieden + Kennedy, say people familiar with the matter. The independent agency helped make Nike Inc.'s "Just Do It" ad slogan a cultural phenomenon and also created long-running campaigns for ESPN that featured humorous takes on the culture of the sports-TV network.

The Starbucks holiday spots lean toward the warm and fuzzy, but Wieden + Kennedy has also been developing an edgier idea for about six months. The proposed ads would show Americans discussing issues of importance to them and depict Starbucks coffee shops as the living room of the national conversation.

In a pitch meeting, the agency showed a short reel of consumers talking about the war in Iraq and health care, says one person familiar with the matter. The agency also showed images of what people were talking about, such as a picture of pop singer Britney Spears the day she shaved her head and a picture of a U.S. soldier.

The idea of the campaign was to create buzz without directly pushing Starbucks products, this person says. However, the company decided its first TV spot for its brand should be the less-controversial holiday commercials. It is unclear if the other campaign will air or if it will be replaced by a campaign that focuses on specific Starbucks products, says this person.

A Starbucks spokesman said that campaign is one of many ideas that they've looked at. He added that the decision to go with the feel-good holiday ads was part of an integrated marketing campaign taking place in stores and not an either-or between it and the more edgy campaign. He also said Starbucks remains committed to local sponsorships.

Starbucks has about 10,500 locations in the U.S., or about 3,000 more than it did two years ago, and has expanded into new cities and towns. In an interview Thursday, Chief Executive Jim Donald said Starbucks is getting into TV advertising because "as we grow our stores, we're trying to reach out to this broader audience that maybe [has] not had a chance to experience Starbucks."

Mr. Donald said the campaign is "very appropriate for the brand" and added that "it's done in a way that" is "very Starbucks."

The average number of transactions in Starbucks U.S. stores fell for the first time during the most recent quarter, and the company on Thursday cut its earnings and sales-growth projections for the coming year.

Executives blame the disappointing results on weak consumer spending, pointing to other retailers that have also struggled to grow sales and earnings. Mr. Donald said the slowdown in customer traffic isn't the reason Starbucks decided to start its television campaign.

Starbucks has placed ads in national print publications, used billboards and run radio spots. As far back as the mid-1990s, the company dabbled in television advertisements in some markets. More recently, it has run some TV ads for bottled beverages, but they weren't considered ads for the stores generally. Some Wall Street analysts have long believed that Starbucks should get into television in a bigger way.

McDonald's plans to introduce a line of espresso drinks in thousands of U.S. stores next year in what the company calls the biggest new menu initiative since it started selling breakfast in the 1970s. McDonald's spent roughly $60 million on ads for its coffee line last year, according to a person familiar with the fast-food chain.

Dunkin' Donuts, a unit of Dunkin' Brands Inc., spent $116.2 million on ads in the U.S. last year, according to TNS Media Intelligence, a New York research firm that tracks ad spending. Starbucks's ad outlays last year were $37.9 million. The company spent nothing on network television and depended largely on magazine and newspaper ads, according to TNS.

"There is a huge battle of the coffee brands and everyone is encroaching on Starbucks's turf," says Dean Crutchfield of Wolff Olins, a branding firm owned by Omnicom Group. "The competitiveness is diluting and commoditizing the entire coffee category, so it's critical that Starbucks maintains its message in the marketplace."

Mr. Schultz conceded in a leaked internal memo earlier this year that Starbucks was in danger of losing customers to competitors. "We need to recognize that the category is evolving," Mr. Schultz told analysts on a conference call Thursday. "And as the leader, we have an opportunity to make sure that our voice is heard through the all-important medium of television."

When Mr. Schultz began expanding the company beyond its hometown of Seattle in the late 1980s, he would line up a team of what he called local ambassadors, including mail-order customers and friends of Starbucks employees. Starbucks would send them two free drink coupons and tell them to share one with a friend. The company held tastings with chefs of well-regarded restaurants and local food critics to introduce them to its coffee.

Even when Starbucks began expanding nationwide, it continued to rely heavily on local marketing by sponsoring events like a free day at the Phoenix Zoo. That helped counter any impressions that Starbucks was turning into a faceless giant.

"In this ever-changing society, the most powerful and enduring brands are built from the heart," Mr. Schultz wrote in a 1997 book, "Pour Your Heart Into It," when the company was considerably smaller. "Their foundations are stronger because they are built with the strength of the human spirit, not an ad campaign."

Write to Stephanie Kang at stephanie.kang@wsj.com, Janet Adamy at janet.adamy@wsj.com and Suzanne Vranica at suzanne.vranica@wsj.com