One Venti Matcha Green Tea Latte with a side digital innovation coming straight up

Established in 1971, Starbucks with one store in Seattle’s Pike Place Market, grew to 116 stores by 1991 and as of 2015 has a total 22,519 stores worldwide. (1) Needless to say, Starbucks knows its coffee, so why is this coffee giant investing so heavily in digital innovation? According to Starbucks CEO Kevin Johnson, “No traditional brick-and-mortar retailer is better positioned to navigate and flourish in the global retail industry of today or better positioned to lead in the digital retail world of tomorrow.” So how are they adapting? Welcome to the Starbucks app. Or as Starbucks say, their Digital Flywheel, focused on four pillars: rewards, personalisation, payment and ordering. (2) Rolling out their digital ordering system in the US in September 2015, Starbucks’ mobile order-and-pay feature has become a major hit for the company. In Q3 2017, 9% of Starbucks’ U.S orders were placed in advance with nearly a third of all Starbucks’ orders paid for via the company’s phone app. 

“Our digital flywheel is a powerful proprietary asset that is driving deep customer engagement, revenue, and profit growth around the world” Kevin Johnson, Starbucks CEO.

Source: TechInsight via Starbucks

It is no shock that apps are revolutionising the food and restaurant industry, from Uber Eats, to Postmates and Eat24 we all have our go-to app for ordering take-out and delivery. A recent study carried out by Manifest of more than 500 smartphone users found that almost 50% of those who regularly use restaurant loyalty apps use the Starbucks app. (3) Starbucks payment system is in fact so powerful it actually outpaces Apple Pay and Samsung Pay in the US. I mean how crazy is that! In fact, a study carried out by eMarketer predicts Starbucks will continue to be the market leader through 2022. (4)

Source: AppSamurai

“Starbucks identified the smartphone revolution years before most bricks-and-mortar firms, and the technology still holds big promise in boosting sales over the long term. “The kind of growth and financial performance we are seeing out of customers with whom we have digital relationships blows the socks off of anything Wall Street would possibly want to see,” Matthew Ryan, Starbucks’ global chief strategy officer, tells Barron’s.” (5)

Source: The Manifest

So why is the app so popular? In short, digital engagement. Starbucks has found a way to meaningfully connect with consumers in a way that has revolutionised consumers’ paying and ordering habits. With a strong rewards program, ease of ordering (I mean who doesn’t like to skip the line?) and Spotify integrated into the app, what’s not to love? Seriously though, when you can order your coffee via Amazon’s Alexa, through integration with Ford vehicles and boasting a voice command AI feature within the app to boost speed and convenience (6). Starbucks is certainly keeping digital innovation at the heart of its business model. App personalisation and pushing new products to upsell customers on more expensive or additional items, Starbucks has found a way to draw more value from its customers while keeping them engaged and appreciated. Starbucks also utilizes iBeacon technology to enhance customer engagement. From pop up messages on screen alerting you to nearby a Starbucks or discounts on your usual order, this engagement alerts you to the presence of a Starbucks, making you more likely to go to one.

And according to Starbucks CFO Scott Maw, that digital engagement has paid tremendous dividends for the company. In March 2018 at a JP Morgan forum, Maw attested that almost all of the company’s same-store sales growth has come from customers that have digital relationships with the company (7). In Q3 2017 spending per member via the app increased 8% which was double the rate of the company’s same-store sales(2).

At the heart of any successful business, is their ability to adapt, it is this digital transformation that has ensured Starbucks retain investor trust. According to Starbucks CEO, Johnson “there is a seismic shift in the behaviour of the customer, changing to digital platform and retailers must be agile.” (8) Johnson expands further on this by noting parallels between their company and Amazon’s acquisition of Whole Foods. “The evidence is clear that the pace of retail transformation is accelerating with a common theme: extending the in-store experiences to include relevant digital scenarios,” said Johnson, a long-time tech executive who became CEO earlier this year. “It is the driving force behind combinations including Walmart’s acquisition of Jet.com, the combination of PetSmart and Chewy.com, and last month’s announcement of Amazon’s intent to acquire Whole Foods. Each of these combinations demonstrates that pursuit of enhancing the physical retail experience with a relevant and complementary digital experience.” Starbucks sits in a unique position in the ever-changing retail world, as it has a huge physical retail footprint — 27,000 stores in 75 countries serving roughly 90 million customer visits each week — with a robust digital platform.” (9) 

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References:

1. Starbucks Company Timeline, Starbucks https://www.starbucks.com/about-us/company-information/starbucks-company-timeline
2. Starbucks: a tech company or your neighbourhood coffee shop? Kat Franklin, January 29, 2018. Harvard Business School. https://digit.hbs.org/submission/starbucks-a-tech-company-or-your-neighborhood-coffee-shop/
3. How Customers Use Food Delivery and Restaurant Loyalty Apps. The Manifest. https://themanifest.com/app-development/how-customers-use-food-delivery-and-restaurant-loyalty-apps
4. App Success Story: Starbucks App. Felicia, June 19, 2017. App Samurai. https://appsamurai.com/mobile-app-success-story-starbucks-app/
5. Starbucks Teaches Silicon Valley a Lesson in Tech, Barron’s. August 19th 2017. https://www.barrons.com/articles/starbucks-teaches-silicon-valley-a-lesson-in-tech-1503115292
6. The Success of Starbucks App: A Case Study. Medium. https://medium.com/@the_manifest/the-success-of-starbucks-app-a-case-study-f0af6709004d
7. Starbucks Corporation. JP Morgan Forum Transcript. March 9, 2018. https://s22.q4cdn.com/869488222/files/doc_downloads/doc_events_attach/2018/03/JPM_SM_3-9_Transcript.pdf
8. Digital Transformation in Starbucks. Hoang Nam Le, May 16, 2018. Tech Insight. https://techinsight.com.vn/language/en/digital-transformation-in-starbucks/
9. Starbucks is a tech company: why the coffee giant is investing heavily in digital innovation. Taylor Soper, July 31, 2017. Geek Wire. https://www.geekwire.com/2017/starbucks-tech-company-coffee-giant-investing-heavily-digital-innovation/