Starbucks adapts to market changes with a focus on convenience

Starbucks’ unveiling of new stores and more efficient automated machines earlier this month marked the definitive shift in the company’s 51-year focus from community building to convenience.

The changes included a shift to drive-thru and retirement-only stores, a forecast of slower growth in bar-only stores, and the addition of efficient machines such as reducing a 20-step cold brew process to four stages.

The focus on the convenience model contrasts with a “third place” model for community building, said Temple University professor Bryant Simon, who wrote a book about Starbucks.

“More weight is on convenience than ever,” Simon said.

Starbucks’ own term for its new ventures is “experiential convenience.”

These changes are part of the company’s “Reinvention,” a plan announced at Starbucks’ Investor Day 2022 at Sodo’s headquarters earlier this month. The plan focuses on growing the company, according to Starbucks, with an estimated revenue growth ranging from 10% to 12%.

Starbucks is also undergoing leadership changes with a new CEO, the departure of its chief operating officer, and the elimination of the COO role.

Outgoing COO John Culver said in a statement that the company must “reduce the level of complexity and simplify work for our partners by enabling greater engagement and connection between our partners and the customers they serve and offering experiential convenience.” “Partner” is Starbucks’ term for its employees.

Changing behaviors

Starbucks is adapting to different consumer behaviors, which have changed in part due to COVID-19, said Emily Flippen, an analyst at Motley Fool. Instead of sitting in a bar during the high infection levels of the pandemic, people preferred to order drive-thrus more than before.

Drive-thrus stores accounted for 86% of all 450 Starbucks store openings in 2022. Pickup-only stores accounted for 7% of store openings, while cafes accounted for 3% of all store openings .

Starbucks’ reinvention plan will come out next month and run for the next two years. Under the plan, 35% of its new stores will be drive-thru only, while 14% will be pickup-only and 5% will be delivery. Cafe-style store openings will be 2% of all fiscal year openings from 2023 to 2025.

Starbucks plans to open 2,000 locations in the United States over the next three years, in part by adding new delivery-only stores.

Traditional cafes with counter and seats make it easier for Starbucks baristas to talk and connect with customers, said Arthur Pratt, who works at a syndicated store in Portland. Starbucks said the new machines installed in the bars will allow workers more time to connect with customers.

“Third place digital

Existing stores have been built for a different period and need to change to meet customer demand, Culver said. He said he expects a 50% return on investment from stores; Drive-thru stores offer stronger sales, but there aren’t enough of them to meet customer demand.

For years, Starbucks has claimed the role of “Third Place”, a place between home and work. The term was coined during a time when Americans were looking for a community in the early 2000s, Simon said. Starbucks offered that space, along with a sophisticated coffee experience.

But in recent years, social media has fueled custom orders, and customers have begun to see Starbucks as a place for a quick, cool drink. Starbucks’ new third place, according to the company, is now digital. Cold drinks accounted for $ 1 billion in sales in the previous quarter.

Starbucks “is responding to the consumer’s desire to be a little faster and a little less formal,” Flippen said.

The challenge after the pivot, he said, is to keep Starbucks as a premium brand. Starbucks drinks are more expensive than McDonald’s and Dunkin ‘Donuts, but people are willing to pay more for the experience, Flippen said. “If they feel the Starbucks experience is being diluted by the way they interact with the company, through drive-thru, retirement, then they will be more price sensitive,” Flippen said.

The person who will soon carry out Starbucks’ reinvention is its new CEO, Laxman Narasimhan. Appointed earlier this month, he will know the company until next year. He said on Investor Day that he will become a certified bartender, which requires 40 hours of training. Current interim CEO Howard Schultz, who is in his third stint in the job, will continue on the board of directors.

In the midst of a reinvention roll-out, Starbucks looked for an executive who could execute the plan rather than someone who came up with innovative ideas, Flippen said.

The pace of this leadership transition is slow, Flippen said. It’s “an extension of Howard Schultz 2.0,” he added.

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