When Starbucks first appeared on the café scene in 1971, it seemed inconceivable that a simple cup of coffee could be morphed into more than just a couple of flavor variations; with or without cream and sugar, and two distinguished choices; regular or decaf. But Starbucks arrival came at a time when a new digital revolution promised to change everything, including consumer demands. Suddenly the new generation of tech-savvy consumers embarked on an era of experimentation on everything from online purchasing to expanding their choices for an age old staple beverage. At the time, coffee was the main-stay of independent diners and donut shops at every corner of America, where three-bits and a quarter-tip could buy the best cup of “Joe”, freshly brewed and served with a spoon and a smile, maybe. Most, who made the morning trek to the local cafe for their cup of “wake me up” beverage, would have thought it crazy for anyone to pay as much as five-bucks for their favorite brew in any one or so of a hundred flavors and recipes. But as so often the case, the unthinkable has a way of becoming reality.
Recently it was announced that global same-store sales for Starbucks rose 7% in the quarter that just ended. In its biggest division, the Americas, Starbucks posted 8% same-store sales growth, beating estimates of 6.3%. Total net profit in the period jumped 22%. Even in a strained economy and rising prices, Starbucks continues to garner envious success by establishing a unique cultural presence that transcends its product, coffee. “As a marketer, Starbucks is a cultural crusader that has been extremely successful at creating a lifestyle brand,” says Jonah Disend, founder and CEO of innovation agency Redscout. “With its own lingo, menus and services, Starbucks didn’t set out to create and market a chain of coffee cafes. They focused on creating a lifestyle experience with the much-heralded ‘third space. In some ways,” says Disend, “Starbucks represents a brand that uses innovation as marketing. They invest in products and brands that have a life outside their cafés.” But gambling the brands future on the whole service experience can prove to be risky. To be successful, it is imperative to deliver on the brand promise, flawlessly, every time.
The view from the business cycle trail for Starbucks has not always been from the top down. Just like every other business, remaining on top of your market can be a bumpy and precarious journey. Not that long ago the company saw its fortunes plummet as it became complacent. As the largest specialty coffee retailer in the world went public it began to lose its way. Corporate leadership focused its efforts to maximize profits and gross margins instead of focusing on creating new products, polishing store atmosphere and solidifying its company’s core values.
Howard Schultz returned as CEO in early 2008 just as business prognosticators lamented the demise of the café giant. Stunned by the near death experience, Schultz embarked on a new bold approach to reinvigorated staff, modernized technology, and streamlined operations. Today Starbucks is a place where innovation and experimentation thrive. Constantly reinventing itself, the company mantra is to never look back. Teaming up with other companies to increase its customer base, Starbucks offers ride-sharing service through Lyft Inc. and music-streaming service via Spotify. In the U.S., digital initiatives are helping attract new customers. The number of active users in the company’s loyalty program in the U.S. grew 28% from a year ago to 10.4 million, and 20% of U.S. transactions now are made using mobile devices, up from 9% two years ago. The company has begun testing a mobile app that allows customers to order and pay for their drinks ahead of time so that they can bypass store lines.
New breakfast sandwiches, better staffing and procedures intended to improve workers’ efficiency helped to give customers reasons to come back. With new bistro boxes, snacks, iced tea drinks and Frappuccinos, Starbucks is encouraging customers to revisit their establishments during afternoon and evening off-peak hours. At the center of the company’s efforts to innovate are its integrated mobile platforms, which include a three-year-old payment program and the loyalty program. Both give Starbucks “a direct, real-time, personalized, two-way digital relationship with its customers,” says chief digital officer Adam Brotman. “Everything we’ve done around social and digital media has put us in the lead of almost every brick-and-mortar retailer,” Schultz says. “We’ve created a core competency in these multiple vertical platforms, which has added value to the retail experience.”
Starbucks also plans to experiment with big-data sensors in their “for here” ceramic coffee cups, which will track the acidity of the coffee, and even monitor how much coffee is in the cup. Another promising experiment is wireless charging mats. Currently available at dozens of Boston and Silicon Valley area stores, the wireless charging mats work with specific smartphones and tablets designed to charge the devises wirelessly
Such focused experimentation and innovation is leading many to compare today’s Starbucks with Amazon, another innovator who is experimenting their way to sustaining a leadership position and extending their stay at the top of the business life cycle. Sitting back, playing it safe to protect a lead is not part of either of the game plans.