San Francisco is the jumping off point for Starbucks Delivers, followed by New York, Boston, Washington, Chicago and Los Angeles over the next few weeks. International pilots are underway in major cities, including London, and the new offering is also being pitched as another tool to be used to crack the lucrative China market.
In the US, getting your Flat White delivered to your front door will cost you the price of the coffee and a $2.49 booking fee, so the mark-up on your morning java is going to be pretty hefty. But the scheme went down well in Miami where it was tried out at 200 stores last Fall.
While Starbucks has previously played up the idealistic notion of the local Starbucks as being a community hub for people to gather in and around, CEO Kevin Johnson sees the delivery option as a strong new customer engagement channel:
Our partnership with Uber Eats is gaining momentum and we expect to bring delivery to nearly a quarter of our US company-operated stores by April, including our second market in San Francisco which launched earlier this week. Our early experience is encouraging and has provided us the blueprint for how to operationalize this new channel, an important step to create a seamless workflow for our partners. From a customer perspective, Starbucks Delivers is being seamlessly integrated into the Uber Eats mobile app enabling full beverage customization and fully integrating into our store operations to ensure a premium Starbucks experience.
There have been some operational learnings around the digital tech that have been picked up from the Miami pilot according to Chief Operating Officer Rosalind Brewer:
We were encouraged exiting the work that we were doing in Miami and it's given us some insights in terms of how important it is for us to have the software integration to be successful so that the process actually works and the partners can execute very cleanly in the store. That’s going well. But in Miami we did learn that we have a little bit larger ticket with the delivery order. Secondly, we also learned that we are able to deliver certain beverages very well and others not, and so we are refining the menu so that we can make sure, when this program is fully rolled out, that we understand what the menu needs to be.
Starbucks Delivers will also assist with expansion in China where Starbucks has a digital partnership in place with e-commerce giant Alibaba. The delivery option is already on offer in 2,000 Chinese outlets and is contributing “mid-single digit transaction mix” in the Beijing and Shanghai markets. There’s a lot of opportunity to grow here as the integration of the Starbucks online store fronts throughout the Alibaba empire is still in its early stages.
John Cuver, Group President,Starbucks International Channel Development in Global Coffee & Tea, says that early metrics are encouraging, both in terms of take-up and performance:
We have rapidly rolled out Starbucks Delivery in less than 90 days to 2,000 stores across 30 cities and we're seeing a strong awareness being build, we're seeing strong trail and we're seeing a growing adoption level from customers. From some of the metrics the average delivery time is approximately 19 minutes when a customer orders to the time they receive it. We’re seeing strong performance in both, Beijing, as well as Shanghai, and the average ticket that we're seeing through the delivery orders is a bit higher than what we see in our average core stores and the mix tends to be more beverage-led, and in particular, espresso-led.
Back in the domestic US market, the other big initiative is the scheme to build out its loyalty scheme to a wider audience. This has been brewing for nearly a year and is intended to tackle the issue that while Starbucks has millions of customers signed up its Rewards program, there are far more millions of consumers who are not. Johnson argues:
Starbucks Rewards continues to be a powerful enabler of loyalty and we are thoughtfully evolving the program to provide greater choice and flexibility for rewards members. We will enhance the program this spring to enable loyalty customers to earn and redeem more quickly, and redeem those awards across a broader range of items in our stores. We have leveraged learnings and customer insight from prior changes to the rewards program to inform our work ahead of this launch. This includes a robust marketing activation plan to drive not only awareness of the changes but overall awareness of the program and key customer benefits. As we've shared in the past, lack of awareness has historically been one of the limiting to customer adoption, and we had a significant opportunity to amplify a powerful message around loyalty.
To build our digital ecosystem we widened the aperture of digital reach and created a funnel of activation that is leading to increases in active membership in our Starbucks Rewards program. Since we've started these efforts last spring, we have acquired 13 million digital customer registrations, and we're excited about the potential this has to drive our Starbucks Rewards program. In Q1, we expanded our active member base by an impressive 1 million customers, a 14% increase that takes active reward membership to 16.3 million. This result was driven by leveraging our increased digital reach, as well as a more seamless customer on-boarding experience, greater mobile order and pay adoption, ands enhanced personalization features. Between digitally-registered and active Reward customers, we are now approaching 30 million digital connections in the US.
The next step is to take the 13 million digitally-registered customers who are not actively signed up to Rewards and make that upsell. Brewer says there will be a pitch made around the benefits to the customer:
Some of the customer benefits of the new program are, all members will now be able to redeem from the start, no more levels to hurdle, like instant goals. There are options to redeem faster, so earlier program engagement by offering lower thresholds for items and add-ons. Choice and flexibility are really at the heart of this program, and we really believe that it will really increase the overall appeal of the program to these individuals that we've not been able to attract straight into the Starbucks Rewards Program. We're going to continue to learn about these individuals and access and market to them, they were part of the group that we marketed the new Happy Hour Program too, and we were able to monitor their response against the new Happy Hour Program just by their email accessibility.
I can’t envisage a situation - other than perhaps being housebound by illness - that would incite me to order a coffee to be delivered to my door by an Uber Eats courier. One of the purposes of coffee shops, to my mind, is the act of getting out of the house and going to the store to work or to relax over a coffee - as well as tapping into broadband that’s stronger than my own. But then again, I suppose that for those who are unable to get to the store for whatever reason - as well as lazy Millennials - this could be a good thing.
And as we’ve noted before, delivery is the other d in digital transformation of the fast food and beverage industry, with McDonald’s blazing a trail. McDonald’s is also parking its tanks on Starbucks lawn, with CEO Steve Easterbrook stating:
As we build out our digital capabilities and loyalty in CRM, we think coffee, because it’s such a habitual purchase, will play well against those customers who we want to encourage back more often. When we talk about converting casual customers to committed, we know coffee and snacking plays strongly against some of those more casual consumers.
I joked at the time that when we saw Starbucks selling burgers, we’d know there was a serious collision course ahead. As I write this, I’m in a Starbucks and the baristas are serving up sausage sandwiches. These I assume will be available for delivery by Uber Eats as part of the new service. Memo to self - when it comes to digital transformation gambits, be careful what you wish for.