Digital Innovation is Brewing at Starbucks

With the amount of digital innovation brewing at Starbucks, it's hard to tell whether the company is a technology company or food and beverage company.

With over 24,000 stores in 70 countries, Starbucks has long been a dominant player in the food & beverage industry [1]. However, recent investments in technology have also made the company a market leader in the digital space. The company is leveraging digital channels such as mobile, Web, and social media platforms to increase its touchpoints with customers. Starbucks is integrating these channels with its existing physical retail operations to create a cohesive experience for customers to engage with the brand.

Creating a Latte of Opportunity for the Customer…

The digital transformation for Starbucks developed as a reaction to the widespread adoption of online shopping, which Starbucks CEO Howard Schultz referred to as “a seismic change in consumer behavior” [2]. The company has adopted customer-centric digital strategies, such as free Wi-Fi in stores and a mobile application, which has helped the company adapt and drive traffic into the store. Since then, Starbucks has become a market leader with its mobile application in the fast-food and fast-casual restaurant industry. A recent market study found that nearly 70% of consumers who were aware of the Starbucks apps downloaded it [3].

Perhaps the biggest feature that draws consumers to the company’s mobile application is Starbucks Rewards, a spend based program that rewards the company’s most loyal customers. In 2016, Starbucks had 12.3 million active U.S. members and saw 18% Y-o-Y growth [4]. The loyalty program creates a stickiness for the company’s products in what Schultz believes will have “as much relevancy outside of the ecosystem of Starbucks than it has internally” [2]. Recently, Starbucks has partnered with brands such as Spotify, Lyft, and the New York Times, where the company’s star rewards act as an external currency [5]. Subscribers of partner organizations can earn reward points that are only redeemable at Starbucks locations. These partnerships represent only the beginning of new digital experiences that are easily accessible to consumers via the cloud, a phenomenon referred to as the Internet of Things [6].

Customers are also increasingly utilizing the Starbucks app to order and pay for purchases ahead of time with mobile payments representing roughly 25% of transactions [4]. While introducing new outlets can sometimes cause a cannibalization of existing outlets, company leadership expects that the “mobile-ordering initiative will help boost sales growth at Starbucks outlets much like pairing a drive-through with a traditional order-counter store” [7].

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A Jolt on Operations…

The digital transformation for Starbucks has aligned benefits – an improved experience for the customer as well as operational efficiencies for the business. For example, improvements in order processing not only means less time in line for customers, but it also means less time processing payments for baristas. Recently, the company underwent enhancements that took 10 seconds off every card or mobile phone transaction, This reduced customers’ time-in-line by 900,000 hours per year [8]. With less time needed to process orders, stores have more capacity and greater throughput, shorter lines, and more time for baristas to engage with customers [9]. Additionally, the integration of these digital capabilities across mobile, the loyalty program, POS, and operations required significant cross-functional alignment. As a result, significant organizational changes were made to enable this collaboration. Lastly, the implementation of these digital initiatives has required extensive training for baristas across the world.

Grounds for Improvement…

With these significant digital improvements, Starbucks now has a powerful database of information and the digital presence to drive new sales and further personalize the customer experience. The mobile app and loyalty program give the company an opportunity to use past behavior to suggest future behavior, and customize marketing at the customer level. Additionally, the company should enhance its mobile platform by sharing wait time information per store location. Customers can plan accordingly and select a different store location if one has an extensive waiting period. Lastly, the company can also empower its employees to expand digitally. Baristas are the front-line communication for the company, and empowering them with the digital know-how will help accelerate the spread of these initiatives [10].

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[1] Starbucks Coffee Company. <https://www.starbucks.com/>.

[2] Lauchlan, Stuart. “Digital Disruption Done Right – the Starbucks Way.” 28 May 2015. Web. <http://diginomica.com/2015/05/28/digital-disruption-done-right-the-starbucks-way/>.

[3] Are Starbucks Fans Energetic About Mobile Ordering? EMarketer Pro. 2 Apr. 2015. Web.

[4] Maw, Scott. Goldman Sachs Global Retailing Conference. Rep. Starbucks Coffee Company, 07 Sept. 2016. Web.

[5] Eule, A. (2015). At starbucks, tech could fuel a latte growth. Barron’s, 95(31), 19-20. Retrieved from http://search.proquest.com.ezp-prod1.hul.harvard.edu/docview/1701071544?accountid=11311

[6] Caldicott, Sarah Miller. “Three Hot Trends To Watch As Starbucks And Spotify Brew Digital Deal.” Forbes, 21 May 2015. Web. <http://www.forbes.com/sites/sarahcaldicott/2015/05/21/three-hot-trends-to-watch-as-starbucks-and-spotify-brew-digital-deal/#16bc4dbc4743>.

[7] Brat, I., & Stynes, T. (2015, Jan 23). Earnings: Starbucks picks a president from technology industry. Wall Street Journal Retrieved from http://search.proquest.com.ezp-prod1.hul.harvard.edu/docview/1647594981?accountid=11311

[8] Marchand, Donald A., and Michael Wade. Digital Business Transformation. Rep. International Institute for Management Development. Web. <http://www.imd.org/research/publications/upload/41-Digital-Business-Transformations-03-09-14-NEW.pdf>.

[9] Duryee, Tricia. “Q&A: Starbucks Digital Chief Adam Brotman on Mobile Ordering, Delivery and International Availability.” 4 Dec. 2014. Web. <http://www.geekwire.com/2014/qa-starbucks-digital-chief-adam-brotman-mobile-ordering-delivery-international-availability/>.

[10] Fitzgerald, M. (2013). How starbucks has gone digital. MIT Sloan Management Review, 54(4), 1-8. Retrieved from http://search.proquest.com.ezp-prod1.hul.harvard.edu/docview/1399095649?accountid=11311

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2 thoughts on “Digital Innovation is Brewing at Starbucks

  1. Thank you for this interesting post! As a daily Starbucks customer, I really appreciate the simplicity of Starbucks’ app, as well as the ability to earn rewards. Of course, one of the key concerns with mobile payments is always cyber security, and Starbucks has been victim to this. In May 2015, it was reported that hackers were draining people’s bank accounts via their Starbucks apps [1]. In light of this, I wonder what Starbucks has done in terms of improving cyber security related to its mobile app, and whether they are doing enough to protect customers against hackers. In addition, since more than 21% of transactions at U.S. company-owned stores now come through its mobile app [2], Starbucks will need to focus more of its energy on becoming a technology company. In your post, you talked about the benefit of the mobile app to Starbucks’ operations on a store level, but I think that digitization will fundamentally change Starbucks’ operations at a company level as well as the company shifts from being a retail and coffee company to becoming more of a technology company.

    [1] Jose Pagliery, “Hackers are draining bank accounts via the Starbucks app,” CNN, May 14, 2015, http://money.cnn.com/2015/05/13/technology/hackers-starbucks-app/, accessed November 2016.

    [2] Olga Kharif and Leslie Patton, “Starbucks Takes Its Pioneering Mobile-Phone App to Grande Level,” Bloomberg Technology, March 30, 2016, https://www.bloomberg.com/news/articles/2016-03-30/starbucks-takes-its-pioneering-mobile-phone-app-to-grande-level, accessed November 2016.

  2. Thanks for the post!

    I had no idea that Starbucks had partnered with other companies that allow customers to use their Starbuck’s star rewards as currency. I think Starbucks should do a better job at advertising these benefits as it is something that differentiates the app from its competitors’.

    I also believe that the company should start allowing online orders through its app. Encouraging customers to place their orders and pay online would have many benefits, both for the customers and the baristas. Customers would be able to personalize their orders and would spend less time in lines and baristas would have access to the backlog ahead of time, making the process more efficient.

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