Main content

Starbucks digital re-invention - a progress report with a strong AI foundation

Stuart Lauchlan Profile picture for user slauchlan August 8, 2023
Summary:
It's coming up to a year since Starbucks announced a tech-centric re-invention. CEO Laxman Narasimhan sees digital success stories.

starbucks-coffee-590x331

Last September, Starbucks unveiled a three-year re-invention plan, focusing on increased automation and adapting its operating model to meet ever more elaborate demands from younger consumers, including a need for ever greater personalization. 

The coffee giant has long been regarded as one of the leaders and innovators in digital transformation, an investment decision spearheaded by former CEO Howard Schultz before most of the firm’s peers and competitors did the same. The company has had great success with highly-personalized digital marketing and its mobile strategy, launched way back in 2011. More recently it began talking up the potential of AI , NFTs and its own version of the digital third space. 

At the time of the re-invention launch last year, Starbucks CTO Deb Hall Lefevre boasted

Our app is the envy of every retailer. We scaled our e-commerce and rewards programs to support Starbucks aggressive digital growth. And with 24.7 million active reward members driving over half of our US company-operated sales, I think we've done pretty darn well. We're also data-driven. Our millions of daily customer interactions give us the ability to use our data and our incredible data expertise to guide our business. We integrate data and insights into every part of our business.

But she added there was a need for change: 

Starbucks spent much of the past year reflecting on where we are and where we need to go. It resulted in a clear articulation of what re-invention needs to look like. Technology is fundamental to our plans. The technology foundation that we have today, it is absolutely strong, but what we have today has not been built for our vision of the future.

Progress?

So with the first anniversary of that re-invention plan looming, how’s it all progressing? On the face of it, pretty well. Starbucks last week handed in record quarterly earnings, although this was largely fuelled by progress in the Chinese market rather than anything attributable to an evolved tech stack back in the US. 

That said, CEO Laxman Narasimhan is quick to point to digital successes, stating: 

We're looking ahead at how we will further strengthen and differentiate our leadership position in digital. In the third quarter, we continued to grow our digital universe…We are revamping our approach to further accelerate digital innovation, including order, including payment and delivery enhancements, in terms of speed and personalization, which we believe leads to greater habituation by our customers. This includes developments in the US mobile app user experience as well. Additionally, we plan to make significant investments in China to further enhance our digital capabilities in the market.

He goes on: 

The investments we have made in marketing, and what we're doing with digital in particular, what it tells you is that we are even further increasing the pace at which we are bringing innovation and changes in terms of what we do. We have a whole list of benefits that we could bring. And we're taking up the agility in the company in terms of the investments we make, which will help us make this even bigger and stronger.

Narashiman points to the firm’s loyalty program as a case in point: 

Our 90-day active Starbucks Rewards customers grew to nearly 75 million globally, growing more than 25% in the quarter. This was driven by a record 90-day active user base of 31.4 million Starbucks Rewards customers in the US, an approximate 15% growth or 4 million new customers from the previous year.

Starbucks Rewards members in the US drove 57% of tender for the second consecutive quarter, up over three percentage points from the prior year. In China, we hit the highest number of 90-day active users we have ever had at over 20 million Starbucks Rewards customers. This is further evidence of our brand strength, relevance and customer engagement in the market.

That’s good news when translated back from the app to actual footfall in-store, he adds: 

Our Starbucks Rewards members come in more frequently. So they're not coming in less frequently, they come in more frequently. They buy more after joining the program, right? And they're also choosing larger sizes as they come in.

AI

Since the re-invention program was announced, generative AI has dominated the tech hype cycle. Starbucks has actually had skin in the AI game since 2019, when it launched Deep Brew, its own AI platform that drives the brand’s personalization engine, optimizes store labour allocation, and manages inventory in stores. With AI now a compulsory item on the corporate ‘to do’ list, this positions Starbucks well, suggests Narashiman: 

We have a fundamentally amazing capability called Deep Brew inside the company. It’s where we have made investments in Machine Learning and Artificial Intelligence. I think the ability for us to be at the vanguard of this and to early adopt what we do in this area furthermore, given all the innovations that are going on and the re-platforming that’s going on, just gives me greater confidence in what we do in digital. This will be a key area of growth for us.

He adds that digital remains a priority area for investment across the company: 

Starbucks has had a long track record of industry-leading digital innovation. As we approach the fundamental platform transformation underway with AI, we intend to invest to lead in this area using a foundational Deep Brew capability as the launching pad. Our focus in these investments will remain on improving the partner experience while elevating the customer experience and delivering productivity gains.

And enhanced personalization is also a major goal: 

In fact, that is where we're making a big investment as well in digital because we see that as a way not just to strengthen our relationship but also to drive results through what we do with digital. So I think overall, this is a big area. It's a big area of focus for me. And it's part of the second big priority for us around strengthening and scaling digital.

My take

We have a range of formats where we can deliver [Starbucks] 'Third Place' experience, but also deliver experiential convenience powered by digital in an omni-channel way.

Experiential convenience powered by digital in an omni-channel way? That’s certainly fully buzzword-compliant at any rate. It’s still early days on this much-vaunted, tech-centric re-invention of Starbucks, but Narashiman’s point about Deep Brew being a foundational platform for change in the current AI-dominant climate is well-made. 

Loading
A grey colored placeholder image