Starbucks: A Masterclass in Digital Transformation
How Starbucks Perfected the Art of the Cross-Channel ExperienceAdd bookmark
Over the past 30 years, Starbucks has evolved from a regional coffee shop chain into a major global brand and a digital darling. In addition to bringing the Seattle coffee shop culture to every suburban mall and shopping center in the world, Starbucks pioneered mobile order & pay as we know it.
Starbucks’ digital backbone combined with its, comparatively speaking, diversified revenue streams were key to its survival over the past year. Similar to many brick & mortar businesses, revenues hit an all time low in March 2020 and, though its on the road to recovery, Starbucks is a changed company.
Starbucks’ “Digital Flywheel”
In 2017, Starbucks revealed its new digital transformation strategy: the “Digital Flywheel.” Built around four pillars (rewards, personalization, payment, and order), the goal was to merge the physical customer touchpoints with the digital to “not only drive superior business results in the short term, based on rewards, ordering, and personalization, but we also make it very challenging for digital companies to outmaneuver us in the physical world,” according to Starbucks’ Chief Strategy Officer Matt Ryan.
He went on to explain, ““This fundamental modernization of our technology stack will replace legacy rewards and ordering functionality with the new scalable cloud-based platform for rewards and ordering, improved customer data organization, and tighter integration with store-based operating systems, including inventory and production management.”
In addition to enabling Mobile Order and Pay, Starbucks reimagined customer app used artificial intelligence (AI) to personalize product offerings and discounts based on the users unique preferences and spending habits. In addition, the gold mine of data collected from the mobile app is used to drive high-level strategy on everything from location selection to in-store staffing logistics.
In March 2020, just as Covid-19 was pushing countries into lockdown, Starbucks CEO Kevin Johnson told investors, “In every industry, there are periods of disruption that create great opportunity for those businesses that adapt to the disruption, invest in relevant ways and strengthen their differentiation and competitive advantage. I believe [COVID-19] is one of those rare opportunities to move aggressively and further differentiate Starbucks from our competition.”
As the Covid-19 hit a crescendo in the spring of 2020, Starbucks sales along with its stock value plummeted. However, unlike many of its competitors, Starbucks was better positioned to weather the storm due to its previous investments in digital technology.
For example, even before the pandemic, about 80% of Starbucks customers habitually used the app for “grab and go” orders. Drive thrus and mobile-only locations were already well established so extending these approaches to additional locations proved fairly seamless.
As a result of these efforts and general customer loyalty, though sales were down, the amount spent per order increased every quarter of 2020 helping them offset much of the revenue lost. In fact, Starbucks’s revenue only dropped 5% in the first three months of 2020.
How Starbucks is adapting to Changing Consumer Habits
Though Starbuck’s digital investments have served them well this past year, the company still plans to expand its real estate footprint to 55,000 stores by 2030. In addition, they also opened the The ASU-Starbucks Center for the Future of People this past December, a new think tank-like initiative aimed at exploring “how enterprises deliver a customer and human experience at scale while simultaneously taking care of humanity and the planet.
This past December, Starbucks also outlined it’s post-pandemic growth strategy. “Starbucks is uniquely positioned to lean into and benefit from these changes in customer behavior. And we see a clear path to modernize and sharpen our approach in ways that strengthen our leadership advantage, and we will continue to meet customers on their terms,” Starbucks CEO told investors.
According to comments made by Starbucks COO Rosalind Gates Brewer, AI will play a significant role in the company’s future. As summarized by Food Business News, this includes making relevant recommendations to customers, managing inventory and improving speed of service. AI is also being used to accelerate a new initiative to introduce two-lane drive thrus at some stores.
As part of the company’s commitment to ethical and inclusive business practices, they also recently announced the creation of Aira - a service that connects blind and low-vision people to remotely located agents who share visual information through a mobile app. Using Aira, vision impaired people can navigate Starbuck stores (and social distancing measures) with ease.