Starbucks delivers
When you’re Starbucks, a one percent increase in traffic and a five percent gain in same-store sales is not enough (especially when analysts are looking for a 6.2 percent bump). So, if you’re Howard Schultz and company, you look for more and better ways to drive those numbers up. The latest answer from the coffee chain in its perpetual search for growth is home delivery.
On last week’s earnings conference call, Mr. Schultz said Starbucks’ numbers reflected a decrease in traffic to malls and other retail destinations as consumers went shopping online. If fewer consumers are going to come in contact with Starbucks, the chain figures one solution is to take its beverages and foods to them. To that end, Starbucks plans to debut delivery service in select markets in the second half of next year.
Mr. Schultz said the new service will be incorporated into Starbucks’ "Mobile Order and Pay" app, which will be introduced nationwide in 2015.
"Imagine the ability to create a standing order that Starbucks delivered hot or iced to your desk daily, that’s our version of ecommerce on steroids," said Mr. Schultz. "All this will grow Starbucks Rewards, our loyalty program that now has eight million active members up 23 percent over Q4 last year and has been launched in 26 countries."
Matt Ryan, Starbucks chief global strategy officer, said the company was not willing "to tip its hand" on the specifics of the delivery plan yet, but said it "was moving full steam ahead" and would begin pilots soon. Mr. Ryan did not provide an answer as to whether Starbucks would make deliveries itself or outsource the function.
"We are going to be looking at a number of different options," Mr. Ryan said. "There will probably be a multiple number of solutions that we go with them in terms of how we operationalize this."
Discussion Questions
Will offering deliveries grow Starbucks business? If you were advising Starbucks, would you recommend it manage the process in-house or use third-parties to deliver goods to its customers?
To the second question, Starbucks would probably be wisest to manage the deliveries itself to ensure the customer experience is executed as close to standard as possible. It just doesn’t seem worth the risk to reputation to outsource.
To the first question, I’d say yes. I’m a loyal Starbucks retail and Keurig customer, often buying a coffee drink from the store during the day after having an in-home produced cup at home. Whether working from home or during the weekend, the delivery option could extract more business from me in a number of ways. Especially on the weekend with family over at my house and wanting to get everyone drinks myself, I often limit my purchase to what I can personally carry. Without that limit, regarding food and beverage, I’d probably sometimes order more. Scale that over a few million or however many customers, and it seems like a growth opportunity. I’m always running low on K-cups so I’d probably take a delivery of those too that I otherwise would wait to buy at retail whenever I had a chance.
Simple question: How do you make money doing this without adding at least $10 for delivery or jacking up the prices to offset the expense? There are plenty of hurdles to delivery of any goods today, and I would like to see the details on this before I can make a call on the success of this venture.
Having been a coffee franchisor (we were the coffee shop prominently featured in Showtime’s Weeds) I don’t know how this could possibly be profitable. Coffee is a low-margin business, the money is in the espresso/blended drinks.
The people most likely to complain for a redo (“It’s not hot enough,” “It’s too cold”) are the very ones most likely to use this service.
I could see a 12-pack to an office but again, the labor costs—and what it could potentially do to the speed of service in the brick-and-mortar locations—seem awfully high.
Not sure this is a winning concept. Yes, everybody sees delivery as a way to grow sales, but delivery comes with a cost.
While the margin on a Starbucks drink or muffin is not small, the only way I foresee delivery working for them is if they have enough people ordering on a regular basis so the local location can have a regular route they run. Certainly there is no margin in delivering a single cup of coffee to the office on the 24th floor. My question then is if I am the last person on the route, will I be getting a hot cup of coffee from that paper cup?
If Starbucks is able to set up a model that works for delivery driver compensation, reliability and keeping the coffee hot on arrival, this will be as deliciously successful as pizza! Starbucks isn’t just coffee. For many us, myself included, Starbucks is—well—an addiction. This is going to work!
Starbucks has been at the forefront of digital path-to-purchase from the beginning. Now it appears they will be the first to combine browse, order, pay and deliver all in one app. You’ve got to tip your professional hat to them.
Starbucks has consistently been ahead of the pack when it comes to customer innovation. Home/office delivery is one more positive step. I’ll be interested to see how they pull this off and whether delivery has the same or better margins than in-store. I appreciate that Starbucks’ management is always thinking ahead. Some of their ideas work and others may not, but they are always innovating.
I’m with Tony on this one. I just don’t see how this creates value for Starbucks. Will the whipped cream on that salted caramel latte still be cold? Will this new process affect the impulse buy side of the house, like CDs and candy? What’s the delivery zone? Lots of questions here.
When I initially heard the headlines on this I thought no way could this make sense economically. It seems delivery costs would simply devour any additional profits. Now that I have read the cryptic description, “imagine having a standing order delivered each day,” it starts to make a little more sense. If an office pool could be formed so that instead of stopping on your way, the coffee was already at your workplace, how great would that be? It sounds like the challenge will be in preserving the quality whether that is temperature or integrity (don’t crush the croissants).
I imagine the typical Starbucks scheduling problem is how to accommodate the high demand around the periods of early morning and noon. With that in mind, I would recommend a third-party delivery service. Basically, by using special containers that allow pre-preparation and using third-party personnel during the peak periods it would become easier to schedule activity.
Just this little bit of thought makes you realize there are a lot of options. The key here will be trying a few tests to see what really works. I don’t think this is the type of thing you roll out until you have tried a variety of options.
I think that this works best in commercial centers where they can deliver to a whole office and perhaps create a form of Starbucks pop-up. No one asked, but perhaps the bigger opportunity is for Starbucks to have food trucks.
If Starbucks were to include newspapers (Wall Street Journal, The New York Times and USA Today for starters) and sweet treats as a part of the delivery service this might take off in the high rent districts. Value-added service for those that wish for it and are willing to pay is always a great idea. But the service must surpass the normal level of expectation to become attractive and habit forming.
Starbucks had been about creating that third place between home and work with coffee as a product they sell but not the business they’re in. With the move to a delivery service, they’re moving away from how they’ve connected with their customers and why those customers have become loyal to the brand.
If the delivery service is primarily for retail products versus drinks, then the emotional bond remains with the third place. If it is heavily skewed to beverages (especially hot), then the degrees of freedom on execution are extremely limited and they will get a lot of learning from their limited rollout/pilots. I would expect them to control and manage the process in-house.
Sounds like something Amazon would do. They don’t seem to need to make a profit on the things they do.
Also, I don’t see how you do this right without making them on location. Hmmm….
Oh, just please make it happen here in Columbus, Mr Schultze…pretty please? All of us addicts would appreciate it.
Growth is the only evidence of Starbucks’ Life. So they innovate forward. Their delivery system has both social/business merit and extra cost and potential problems. Which is most important to Starbucks’ objective these days?
As to who should manage the delivery process, Starbucks. This is not a project suited for surrogate execution.
As the customer goes mobile, so should Starbucks. However, I do not think “door to desk” deliveries are the answer.
Starbucks should create “mobile destination experiences” and deploy them throughout the US. Many mobile retail food solutions exist for Starbucks to explore and all are social media driven and would work well with the “mobile order and pay” app that the company will “introduce nationwide in 2015.”
For a start, I’d like to see a fleet of gourmet coffee trucks deployed from Starbucks corporate stores to college campuses, corporate office parks, areas where people gather daily. How about customizing signature merchandise for these local customers and having it on board for sale. And, adding demonstrations, such as how to create those amazing emblems in the coffee foam. Talk about sustainability and get customers input. Have them share what they learn on social media.
Starbucks is a destination experience in the mall. I’d like to see them become a mobile destination experience, too.