The Perfect Blend: Starbucks and Data Analytics

Every day, Starbucks grinds through mounds of coffee beans to serve its customers. In doing so, the company has also been collecting mounds of data that could be used to improve customer experience and business performance. In this article, we will investigate how this 26 Billion USD company captures value through data analytics.

An opportunity brewing

Through its network of over 30,000 stores worldwide, Starbucks has been gathering over 100 million transactions a week. To make use of these data, the company set up a dedicated team of data scientists, led by Jon Francis, Starbucks’ Senior Vice President of enterprise analytics, data science, research data, and analytics. Since then, the team and the company have been able to tap into the power of data analytics to enhance its business performance. 

Using data collected at the store and through its mobile apps with over 17M members, the company has been able to drive business improvements in 3 significant ways. 

(1) Personalized experiences and promotions

When Starbucks launched its rewards program and mobile app, they dramatically increased the data they collected and could use to get to know their customers and extract info about purchasing habits. Through its mobile app, Starbucks has been collecting data about what, where, and when members buy coffee. To do so, Starbucks leverages the Digital flywheel program, a cloud-based artificial intelligence engine that’s able to recommend food and drink items in a precise manner. As such, even when people visit a new Starbucks location, the store’s point-of-sale system can identify the customer through their phone and give the barista their preferred order.

Based on customers’ purchase history, Starbucks could also suggest new products a consumer might enjoy and provides unique discounts and rewards on certain items based on customers’ unique preferences. Taking it a step further, Starbucks has also been collecting data on weather patterns and their relationship with customer order patterns. Doing so allows the company to provide even more personalized experiences and promotions such as targeting a customer with cold drinks on hot days.

(2) New product introduction

When launching new products, Starbucks also turned to the data collected to determine what products they should offer. Specifically, when expanding its product lines into grocery stores, the company relies heavily on the data collected. For example, data collected has shown that 43 percent of tea-drinking customers tend to skip the sugar. To cater to this segment, Starbucks created its lines of unsweetened ice tea. When data has shown that 25 percent of consumers don’t add milk to their coffee, the company launched a new line of black iced coffee without milk.

(3) Location selection

Selecting the right location is critical to winning in retail. Using location-based analytics powered by Atlas, a mapping and business intelligence tool developed by Esri, the company can select the most strategic location to open up its new stores. The tool enables Starbucks to evaluate massive amounts of data including variables such as population, income levels, traffic, competitor presence, and proximity to other Starbucks locations before recommending a new store location. Using these data, the company can also predict revenues, profits, and other aspects of economic performance associated with that location.

Conclusion

While Starbucks was not born in the digital era, it has successfully integrated new technologies into its core business like a digitally native company. Over the years, data analytics has undeniably become the backbone of Starbucks’s continuous improvement. Looking ahead, I have no doubt that Starbucks will continue to gather more data and make even more innovative use of those data to create an even more personalized customer experience and achieve business excellence.  

 

End notes:

“Starbucks Isn’t a Coffee Business – It’s a Data Tech Company,” Marker, Jan 16, 2020

“Big Data: The Secret to Starbucks’ Supply Chain Success,” Sisense, Jun 25, 2020

“Starbucks: Using Big Data, Analytics And Artificial Intelligence To Boost Performance,” Forbes, May 28, 2018

“6 Ways in Which Starbucks Uses Big Data,” Analyticsteps, Nov 17, 2020

“How data empowers human connection at Starbucks,”Tableau, Jan 15, 2021

“Starbucks knows how you like your coffee,”CNBC, Apr 6, 2016

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Student comments on The Perfect Blend: Starbucks and Data Analytics

  1. Thanks, Max, for the very interesting article! I am just wondering how successfully Starbucks was able to attract new customers with their initiatives with big data. It definitely added a lot of value to existing customers but was it enough to pull customers who like other coffee shops? Also, I wonder what would happen (or maybe is already happening) if competitors start to do the same things with big data. In a such setting, what would be the real competitive advantage? Would it go back to the basic things such as the quality of the coffee?

  2. Great post Max! Very informative. I did not know that Starbucks is actively monitoring the weather information to make product decisions. I would like to know if you think that data is giving Starbucks any sustained competitive advantage?

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