Starbucks: from physical to digital
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With COVID-19 changing the way that many businesses do business, Starbucks hasn't changed much when it comes to the way that they've been doing business, according to its financials. While many companies reported huge cash burn and plunging sales, Starbucks reported a 5% decrease in revenue in Q1 2020. This is quite shocking considering that many would be stuck at home finding ways to save money as the economy was in a recession.
With the long lines at the Starbucks drive-thru, I'd never imagined that it would lead to a majority of Starbucks's revenue. Even as those lines would grow and stay around the same lengths for hours every day, I'm impressed that it helped decrease the revenue plunge that the company was experiencing. There are many words to describe how unfathomable it is.
Since it seems like Starbucks only got a scratch from the COVID-19 pandemic, let's take a closer look at how they've been able to withstand the coronavirus recession.
A deeper look
For years, Starbucks has invested in mobile ordering and easy pickups. While it was mostly a place where people can hang out and do work, Starbucks has spent a lot of its resources in making sure that more customers order through their mobile app instead of in-person. Also, Starbucks ensured that their drinks would be safe and ready for pickup. Basically, Starbucks focused a lot on reducing the barriers to ordering and encouraged customers to order online more often to create a more convenient habit for both customers and the workers. With the plan to have all ordering be mobile with easy pick-up, Starbucks planned on becoming fully mobile like its Chinese peer, Luckin Coffee, at a later date. Because of COVID-19, those plans had to accelerate.
Starbucks has also been looking at investing in the infrastructure of their locations. By making investments that help accommodate for convenient ways of doing business, Starbucks will be able to survive in a world of social distancing and be able to become a digital coffee house. Currently, 1/3 of Starbucks's locations have a drive-thru. As their plans for opening new locations and renovate existing ones, it's estimated that 60% of their locations will have a drive-thru. This is one way that Starbucks is investing heavily in making the experience more convenient. Plus, with a world where social distancing becomes a norm, Starbucks will be able to spread its customer base among many locations to cater to its huge demand. Also, Starbucks has been looking at more ways of expanding curbside pickup by negotiating with landlords for more parking spaces. With that, Starbucks has been looking at installing windows in their stores. That way, customers can order outside and pick up their orders outside instead of doing both activities inside.
Another thing that Starbucks wants to do is to be able to accept orders from various places whether it be a new labeling system will automatically import orders from Uber Eats, the drive-through, or the Starbucks app and funnel them into one queue to streamline processing.
Photo by Sebastian Dumitru on Unsplash
Starbucks has been investing a lot in machinery that will help with their expansion plans. One new piece of equipment that is said to help the Starbucks baristas with handling many orders at once is The Mastrena II. It's a new espresso machine that combines multiple bean hoppers and automatically grinds adjustments into one machine, so baristas don’t need to hop from machine to machine depending on the order. Also, they are equipped with sensors that track how many shots have been pulled, and when it’s time for maintenance.
Innovations like this help their workers meet demand and allow the company to meet and surpass customer expectations.
All of this investment in speed and convenience sounds like they're going to soon remove the café experience. With all the investments in nice seats, artwork, and interior design going to waste, some wonder if all that money spent on the experience was worth anything. Being on the path to digitalization, Starbucks has been focusing a lot on efficiency, and part of that road to efficiency is removing some of the experiences that make Starbucks unique. With COVID-19, Starbucks got a lot closer to its destination of full digitalization.
While Starbucks is looking to remove that neat café experience in most of its convenient locations, it has been investing in giving a unique experience at other places. Since most people don't care much about the Starbucks experience as others, removing the experience portion of their stores in most of their locations and transforming them into fast convenient coffee shops makes Starbucks look a lot more like Luckin Coffee, that will surely decrease their costs by a big factor, increasing their margins.
My Opinion
As a person that is a fan of Starbucks (and who wished he invested in it), I'm intrigued to see how Starbucks will be like in the future. By making their operations as lean as possible, they'll surely save a lot of money and report higher profits overall with the great convenience factor. At the same time, I do have my concerns regarding growth in overseas markets and there are a variety of reasons why.
One concern is that Starbucks is a premium product for many people. In the Philippines, many Filipinos don't go to Starbucks compared to Americans mainly because of affordability. While Starbucks might be like getting a simple treat in America, in Philippines, it's like a bigger expense and with the amount of money it costs, many Filipinos can get a lot more treats for the same price. This also applies to many other countries especially the emerging markets.
Another concern is the competition. Competition is fierce in other countries and with nationalism rising in many countries, American brands are experiencing adversity overseas. Luckin Coffee did give Starbucks a great fight in the Chinese coffee industry but because they've been committing fraud, they were no longer competition for Starbucks. In other countries, Starbucks will face against other coffee chains and in the end, we have yet to see whether Starbucks will dominate or not.
But a big, long-term growth catalyst for Starbucks is that wealth is growing globally. As more and more people become wealthy like the average American, they'll be able to afford American-made goods and services, promoting more business to American companies. This will help Starbucks become more relevant to populations overseas. As I mentioned before, many Filipinos don't go to Starbucks because of the cost. With growing wealth in the Philippines, Filipinos will start going to Starbucks as frequently as Americans.
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