Company introduction
The Starbucks Corporation is considered to be the most successful coffee company and coffeehouse brand in the World. The company was founded in Seattle, Washington with just one location in 1971. Today, Starbucks operates more than 27,000 locations around the world and plans to further expand to new markets worldwide. Due to its dominance and success, Starbucks is credited with revolutionizing the coffeehouse experience and considered as one of the most well known and recognized brands in the world today.
Business Model
Besides popularizing and selling variations on coffee as a beverage, Starbucks also sells teas, blended and dessert like beverages to suit nearly every taste. Their other products include whole-bean or ground coffee, teas, juices, and pastries. Most locations also sell pre-packaged items, sandwiches, and various branded merchandise. Starbucks branded retail items, such as bottled drinks, instant and ground coffees are sold through grocery outlets as well. To Starbucks’ credit, they have leveraged their popular brand and loyal customer base, to tap into other areas of revenue, beyond selling coffee at one of its 27,000+ locations.
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One of the main strengths of Starbucks is their ability to effectively use their brand equity to offer products at premium prices relative to other coffee products. An important part of their brand equity is accomplished by providing a distinctive “Starbucks Experience”, which includes a personalized, neighborhood coffee shop experience, combined with consistent quality and convenience. This is all a part of a goal to create customer loyalty. Another notable strength is its leverage as one of the largest coffee buyers in the World, and builds strong relationships with their suppliers in order to deliver a consistent product while maintaining strong profit margins.
Current information systems configuration
Starbucks skillfully utilizes information systems in all aspects of its business. This summary will introduce and briefly describe the primary information systems in use, from determining when and where to purchase their coffee bean supplies, and to connecting and understanding its retail customers at the point of sale and through the Starbucks App.
- Inbound logistics – Sourcing coffee from diverse coffee bean producers with whom they have great relationships and built up efficient supply chain management system.
- Operations – They have operation in 60 countries with their stores being modeled on company operated stores and licensed stores.
- Outbound logistics – Most of its product mix are sold in-store and some through large box retailers.
Payment through point of sale, prepaid Starbucks Cards and mobile payments. Marketing and Sales – Traditionally, investment in marketing activities have not been significant and relied mainly on the growing reputation of premium quality product mix and superior customer service to give the ‘Starbucks Experience’ to drive customers to their stores and products.
Service - Starbucks has a reputation for providing supreme level of customer services to their consumers.
In 2019, Starbucks operates more than 27,000 locations around the world. It can be very complex to manage a supply chain at this scale, with the added risk of minor inefficiencies that can appear throughout the supply chain, which can compound when multiplied by 27,000 locations. This can limit the company's ability to deliver a consistent and satisfactory experience to its customers, while capturing sufficient profits. As an increasing amount of the world’s population enters the middle class, with access to artisanal or upscale consumption of coffee, the wholesale demand for high quality coffee has exceeded supply in recent years. This has been further exacerbated by climate change, as well as labor costs and shortages, which have further impacted coffee suppliers. The combination of increased demand, and external pressures on supply, such as climate and labor costs has created much variability in the availability and cost of quality coffee. Starbucks has adapted to these changes by investing in supply chain technology. The ability to adapt to variations in supply and demand. Added with their leverage as a key purchaser of the world’s coffee supply, has given them a decisive advantage over their competition. Automated monitoring of supply chain, through their centralized logistics network, which monitors demand levels by each individual store, as well as integrating warehouse inventory and delivery schedules, has provided the company the ability to achieve a greater efficiency, to minimize waste, and allocate inventory in the most effective and timely manner. Since the concept of freshness is a vital factor in this industry, Starbucks has created an important advantage over its rivals by investing in an automated supply chain monitoring network.
Similar to its investment in automated supply chain monitoring, Starbucks also leads the industry in retail and customer engagement. The most commonly known information technology system for customers is the Starbucks App’s ‘Rewards Program’ and ‘Mobile Order’ system. On the surface, for customers these may appear to be simple and convenient tools for customers to utilize alternative forms of payment, to save their favorite drinks for easy repeat orders, to obtain discounts on promotions, and to save time by ordering ahead. The reality is that these information systems provide much more value for Starbucks. The ability to collect data from customers, who willingly provide all of this information through their agreement to access the convenience of the app, can provide a valuable tool to further increase profitability. They may be able to determine the effectiveness of certain items, based on various demographic data, such as geography, local weather climate, as well as promote new items and increase loyalty from its customers through collecting rewards and bonuses. demand fluctuations in product mix related to customization further enhances the responsive capabilities of their digital supply chain systems. The increased ability to improve efficiency and profits will not go unnoticed by its rivals, and the company will need to keep innovating in areas of customer engagement.
Potential opportunities using information technologies
As a company that has grown through scale and leveraging of information technology, Starbucks can be considered as a type of tech company, rather than as a simple coffeehouse chain. With the goal of achieving growth by increasing market share, profitability, and expansion, Starbucks is developing ‘reinforcement learning’ technology, which is a simple form of artificial intelligence that allows the system to learn and make decisions in complex, variable situations based on data gathered from the customer. The goal of this technology is to increase satisfaction and enjoyment for the customer by anticipating and predicting what the customer may desire at a given time of day, or situation. Customers can receive customized recommendations based on the technology's ability to make decisions based on the customer’s data, such as preferences, and buying habits. This can increase customer satisfaction by providing the value of convenience by simulating the experience a customer may have with a neighborhood barista, who can remember their unique preferences.
Starbucks is also developing technology to improve the drive-thru experience for its customers. By leveraging the features of the Starbucks app, and its ability to deliver a personalized experience, the drive-thru experience is being revamped to offer personalized recommendations that may suit a busy driver, and even the digital menu board that each customer sees when they approach the window, can change based on the individual customers’ preferences and habits. As recommendations get more personalized and attractive to customers, this can also increase the potential for more profitable sales of new, and higher margin products. In addition, another feature that will continue to be developed is the ‘order ahead’ feature, which can appeal to busy customers who value convenience and shorter wait times.
Each Starbucks store has many pieces of vital equipment that must be in use throughout the day. A breakdown in any of the equipment can impact profitability. By minimizing the time and resources necessary to make service calls, as well as minimizing the loss of sales due to unavailability of an important piece of equipment, Starbucks will be able to reduce the costs associated to equipment breakdowns and repairs. More significantly, equipment problems can potentially interfere with Starbucks’ primary goal of providing a consistently high-quality customer experience.
To minimize the impact of equipment issues, Starbucks is developing a cloud based monitoring system, through the use of IoT (internet of things) capable machines that can allow it to manage, maintain, and minimize disruptions due to equipment that may require maintenance, or replacement. These IoT machines can gather a variety of data throughout the day, to monitor conditions such as temperature, the type of coffee beans used, and even the rate of use throughout the day and lifetime of the machine. This can provide Starbucks with the ability to minimize disruptions and loss of sales due to equipment breakdowns, by anticipating the need for upcoming maintenance, or by shipping out replacement equipment automatically in order to reduce down time.
In addition, the IoT ability can allow Starbucks to update equipment with new recipes, rather than requiring manual updates from the store employees. Therefore, when a new product is introduced, Starbucks will have the ability to update all of its locations simultaneously, and improve customer satisfaction by offering consistency and excitement through new products in all of it locations at once. This can further create efficiencies as there can be less down time for each location to manually train and update their staff, thus allowing for more efficient use of staff time to focus on more profitable activities. The goal is to move away from reacting to maintenance issues, to predicting and anticipating the issues.
The trend in the industry in terms of using IT and E-commerce technologies
The coffeehouse industry has embraced the use of IT and E-commerce technologies in several ways. An increasing amount of coffee consumers are choosing specialty or gourmet coffees, and younger consumers, with disposable income, are primarily behind this growth in coffee consumption outside of the home. Even though consuming coffee at home may be more cost effective, an increasing amount of coffee consumers choose to spend more for the quality, convenience, and experience of consuming a gourmet, specialty product. More people are buying coffee at a higher price point for the perceived quality and distinctiveness. In order to adapt to this trend, other coffee chains besides Starbucks have invested in IT and E-commerce technologies as well.
In the realm of E-commerce, the source of the coffee beans, whether the grower or roaster, can also receive promotional recognition through social media, or messaging apps, as well as loyalty programs similar to Starbucks’ rewards program. By portraying coffee as a specialty item, and highlighting subtle nuances in flavor or roasting methods, and in some cases, highlighting the grower’s environmentally conscious growing methods, can all create a better perception of quality and distinctiveness for each brand.
Some coffee chains are experimenting with improving customer experience and engagement through investment in IT and the use of connected devices, whether through Apps like the Starbucks App, or through in-store interactive ordering systems. These in-store systems are designed to appeal to younger customers who prefer to avoid human contact, but can also reduce staffing costs for the operator. These systems can promote and offer more profitable items without appearing to pressure the customer, based on the customers demographic and past history. In addition, these types of customers tend to follow trends, such as avoiding dairy products, or paying a premium for the addition of nutrient rich supplements in their beverages.
In essence, the industry is increasing its use of IT and E-commerce as another way to keep the line short, and moving fast and streamline routine operations with a membership program tied to their point of sales. By tracking a wealth of data from its own operations, such as equipment condition, and quality of coffee roasts, to increasing personalization and engagement with customers, the goal is to satisfy customers and create loyalty.
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