Starbucks: Coffeehouse or Tech Company?

With more than 23.000 stores in more than 65 countries Starbucks is the largest coffee shop in the world. You might be wondering how it is possible to achieve this size, and continue to grow both in in-store sales and in number of stores. There are so many regions in the world, but which ones are right for growth? And why do we sometimes see so many Starbucks coffee shops in one neighborhood and none in others? The answer to this question is that Starbucks more than a coffeehouse, is a technology and data driven organization.

Starbucks uses Geographic information system (GIS) to determine where to open new stores. GIS captures, manages and analyzes all forms of geographically oriented data. The company owns an in-house mapping and business intelligence platform called Atlas that helps them analyze access to transportation, consumer demographics, commercial mix, number of offices surrounding the area and many other factors to determine the demand for its products. This platform is used by local partners. In Nanjing for example, a local representative used the platform to find a location with high foot traffic from several office buildings that were under construction to open a new store. The use of this technology enables companies like Starbucks to increase the probability of success of new locations.

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Image Source:http://integralgis.com/our-work/starbucks/

Additionally, there are countless ways the company is using GIS data. Starbucks uses it to predict behavior, or even better, trigger desired behaviors in customers. For example, in Memphis the company uses weather information to stablish promotions, therefore if they know a heat wave is coming next week they can create promotions for cold drinks, and also use that information to improve supply chain management. Furthermore large parts of the new products offered are driven by data from customers. They started offering wine and beer at some stores because through Atlas they found locations with high spending patterns and large numbers of people who drink wine outside of home.

As the company sees the returns on investing in Data, they are allocating more and more resources to it. Its mobile app allows them to keep track of what each customer usually drinks, creating an opportunity to introduce new products, create targeted promotions and increase the share of wallet. In the UK for example, Starbucks has seen an increase in foot traffic using location based mobile ads (geo-marketing). xAd, the company powering the advertisements, measures its success by store visitation lift, and Starbucks has had 100 percent increase in visits after customers were targeted in the pilot locations. Finally, recruiting Gerri Martin-Flickinger former Chief Information Officer at Adobe with more than 30 years of experience leveraging technology-based solutions as Chief Technology Officer reflects the increasing role of digital technologies in the company.

If we look at most of these models used by Starbucks to create and capture value we could say that they are replicable by several other companies, but I believe that large part of their success is that they are always innovating and most important creating an ecosystem around data. It is not only about where can I open new stores, but how can I leverage data to predict what customers want, to trigger behaviors given certain events, and how can I use it to generate more efficient operations (e.g. optimize inventory and reduce waste). I believe that an ecosystem like that can only be created by a company that is committed to operate with a data driven approach, but also that has the economies of scale to implement it.

Sources

http://www.fastcompany.com/3034792/how-fast-food-chains-pick-their-next-location

http://blogs.esri.com/esri/gisedcom/2015/04/10/examining-the-distribution-of-starbucks-in-arcgis-online/

http://video.esri.com/watch/3654/starbucks-coffee-and-it

http://www.clickz.com/clickz/news/2385173/starbucks-uk-debuts-location-based-mobile-ads-beacons-meet-shoppers-on-regent-st

http://businessintelligence.com/bi-insights/starbucks-keeping-an-eye-on-you-through-big-data/

 

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6 thoughts on “Starbucks: Coffeehouse or Tech Company?

  1. Thanks for the insightful post, Ximena! It is fascinating how Starbucks continue to deliver the growth year after year even after achieving so much scale – especially on the same-stores-growth front. I was unclear about how much of it was just being able the first mover with a strong brand vs. how much of it is a codified process that they can continue to replicate as they grow new stores not just in the US but globally. Reading your post makes me believe that Starbuck has codified a process that enables them to extract these attractive same store growth levels even in mature stores.

  2. Interesting. Is there room for a startup that can do just that for retail chains? ie tweak a range of parameters and it will tell you where you should open your next location? The startup can probably also analyze your historical data to understand what your success criteria are and what that range of parameters should be. Is there reason that this capability must be kept in-house?

  3. I have often wondered why there are multiple Starbucks in close proximity, even within the same block. If Starbucks is able to use data to drive customer’s decision-making, why do you think they haven’t been able to just have customers cross the street and walk to one location. I would assume that real estate is a high fixed cost and that the company would be better served by increasing utilization of each shop, rather than building multiple shops.

  4. I think Starbucks is way ahead of most coffee shops in terms of how they use data and how they retain customers using their app, but what will happen when every coffee shop has the same technologies and is able to do the same as Starbucks is doing right now? How will Starbucks stand out and continue to grow? I think their music partnerships with Spotify and other companies are particularly compelling, but it will be interesting to see how Starbucks can continue to innovate after all of their competitors catch up.

  5. Really interesting to follow what is happening in this space in general, and how near-realtime GIS and satellite imagery data can be minded for insights and decision making in a way that was unthinking even 5-10 years ago. http://www.bloomberg.com/news/features/2015-07-08/satellite-images-show-economies-growing-and-shrinking-in-real-time

  6. Thanks for your interesting post! I’ve long admired Starbucks for how they have embraced digital over the years. They have adopted a lot of policies typically associated with tech companies, as you alluded to. They’ve made a number of hiring decisions in the past few years that strongly signal their ongoing commitment to integrating digital and technology into their business. It will be interesting to see what other things they try in the future.

    http://www.cio.com/article/2991314/cio-role/new-cto-role-at-starbucks-reflects-rise-of-digital-business.html

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