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How Starbucks has brewed up CX trouble for itself as retired founder calls for an urgent mobile tech overhaul

Stuart Lauchlan Profile picture for user slauchlan May 9, 2024
Summary:
Starbucks was once a digital innovator. Now the innovation is around cakes and textured drinks. What has happened?

SMELL THE COFFEE

We recently launched a re-imagined premium blueberry muffin!

Long time diginomica readers will know that across the years Starbucks has been recognized as one of the digital enterprise thought leaders, inspired hugely by the foresight of its founder Howard Schultz in investing in tech.

So seeing current CEO Laxman Narasimhan offer up a blueberry muffin as a current example of the firm’s innovation is frankly as welcome as a cup of cold coffee. But that’s where we are it seems as he admits that the company is in a spot of bother:

Our performance this quarter was disappointing…these results do not reflect our strengths, our capabilities or the opportunities ahead.

There’s a long list of excuses to be run through for the current sorry state of affairs, ranging from blaming the weather to political boycotts, with one understated note of recognition:

The remainder of our challenges were attributable to fewer visits from our more occasional customers.

Yup, if you don't have customers, you don't have a business. OK, so if that’s the problem, what’s the solution? Unfortunately the answer seems to be a lot more fancy flavors of coffee as Narasiman pitches:

I’m excited by the number and types of products we're bringing to market. For summer, we are launching our first texture innovation Pearls. This is the first of more texture-based innovations that our customers can expect in the coming years. And we're launching a new functional product, a zero to low-calorie handcrafted energy beverage, both build on our coffee heritage and open entirely new vectors for additional future innovation.

Hmmmm. Adding to the mix is all good and well, although I'm not sure what 'texture innovation' is, but as the CEO has to admit:

Some of our new products did well and drove positive customer buzz, but not all met our expectations.

Simple problem 

The problem is actually a lot simpler - the Starbucks customer experience in-store has declined. Consumers don’t want to stand in line for a long time to be served up a cup of what is increasingly regarded as over-priced coffee. 

There’s been a lot of talk over the years about digitization of the Starbucks in-store experience, while genuine innovations, such as Mobile Order and Pay (MOP), were previously hailed as cutting down the time for buy and collect your java of choice. But something’s gone terribly wrong. By Starbucks own admission, one in seven mobile orders are abandoned prior to collection. That’s a dreadful stat.

I”m not alone in thinking this. Like Banquo’s Ghost, Schultz has risen up from retirement to haunt the current CEO with a fiery post on LinkedIn in which he states:

Over the past five days, I have been asked by people inside and outside the company for my thoughts on what should be done. I have emphasized that the company’s fix needs to begin at home: US operations are the primary reason for the company’s fall from grace. The stores require a maniacal focus on the customer experience, through the eyes of a merchant.

He goes on:

One of their first actions should be to re-invent the mobile ordering and payment platform — which Starbucks pioneered — to once again make it the uplifting experience it was designed to be.

For his part, Narasimhan does seem to recognize there is an issue here:

More than 60% of our morning business in the US comes from Starbucks Rewards members who overwhelmingly order with a Starbucks app. What's interesting though, despite strong Mobile Order & Pay sales, we saw a mid-teens percent order in completion rate within the order channel this past quarter. In other words, customers using MOP put items into their cart and sometimes chose not to complete their order, citing long wait times of product and availability, here lies opportunity.

That’s a huge problem when MOP sales make up nearly a third (31%) of total US sales.

Work underway

There is further digital work going on in-store with $600 million being spent here over the next three years, says Narasimhan:

We're intensely focused on actively working on improving operational throughput by providing our partners with the right processes and tools and on giving our customers a better sense of when the order will be ready.

Which means? He goes on:

We have been working for the past six months with the Toyota Production System Support Center to unlock additional capacity at our peak. And what we saw through store tests was a real near-term opportunity to fundamentally improve how we operate our stores. The siren craft system, as we're calling it, requires no capital.

He adds:

The technology solutions are relatively straightforward and we are working to roll it out in North American stores over the coming months. In stores where we've used the siren craft system to optimize operations, we have already seen an increase in peak throughput, which we estimate to be worth nearly one comp point annually. The siren craft system also bolsters the highly incremental returns we expect from our equipment-driven siren systems as it is deployed in stores. Taken together, these new processes and new equipment systems act as complements and amplify efforts to unlock capacity at peak.

And of course there’s an AI spin here:

We are revamping and investing in our Deep Brew technology to improve wait time estimates and provide more transparency for customers…We're making additional investments in our Deep Brew AI and machine learning platforms to further digitize and fine-tune how we operate our stores while delivering an improved digital customer experience and more personalized customer offers. Offers that are timely and relevant and flexible to location, inventory availability and weather. These investments, including a new revenue management system are foundational to successful execution.

Finally, the Starbucks Rewards (SR) program and app is getting some fresh attention:

We will begin opening the Starbucks app for all in July. This addresses the current gap in our ability to reach non-Starbucks Rewards members allows us to deliver more value for the occasional customers and improves our ability to convert them to SR members. It drives a better experience for our customers and is core to our growth. We know that SR customers visit more often and spend more. Upgrades in our queue include a guest checkout feature and sequential improvements that make our app an even more appealing gateway for all customers.

My take

We have a clear action plan.

Let’s hope so Mr Narasimhan, although it’s hard to see quite what that is underneath the managerial word salad - and that’s not a new 'texture-based food suggestion to add to the chiller cabinet by the way.

Shultz is far clearer in what needs to be done:

The answer does not lie in data, but in the stores…Focus on being experiential, not transactional.

The formal response from Starbucks corporate to the intervention from its founder:

We always appreciate Howard´s perspective. The challenges and opportunities he highlights are the ones we are focused on. And like Howard, we are confident in Starbucks long-term success.

Someone has to be.

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