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After relatively disappointing results in the most recent quarter, Starbucks has announced a plan to begin offering delivery service in the US through its mobile payment platform, a combination CEO Howard Schultz is calling, “delivery on steroids.” As early as the second half of 2015, customers in select cities will be able to order food and drinks from their mobile phones to be delivered to their homes, offices, or even directly to their desks.
In theory, this strategy sounds promising. The on-demand economy in developed markets is only gaining momentum, and foodservice customers are demonstrating more and more that they want what they want, when and where they want it, and requiring as few clicks as possible. Online and mobile ordering has been growing rapidly in foodservice markets all over the world, and delivery demand is growing just as quickly among high-income consumers who can afford to spend a few extra dollars on convenience-based luxuries.
Starbucks delivery has the potential to take this benefit to an extreme, encouraging new loyalty among existing customers by streamlining transactions to the point of being practically non-existent. Rather than visiting a specialist coffee shop outlet each day on their way to work, such customers could instead create a standing delivery order at Starbucks that would simply result in their coffee appearing at their desks each morning as they settle in to work. Such orders—essentially morning coffee subscriptions—would offer Starbucks a consistent, dependable source of sales and maximise order frequency. Delivery also offers Starbucks a new potential revenue stream via entry into the corporate coffee market, carving out new sales from business customers who could upgrade their standard break-room perks to include barista-prepared Starbucks coffee on-demand.
In practice, however, any deeper examination of this plan reveals a number of potential pitfalls, both operationally and in terms of its effects on Starbucks’ branding. Starbucks has so far promised the service will be operated internally by store employees rather than being routed through a third party, begging questions as to how the new service will affect in-store throughput.
Even further, there is also a question of profitability, and whether the specialist coffee shop business model can support the added cost of delivery service. Average spend per transaction in the US specialist coffee shop market was just over US$5 in 2013, and since delivery includes relatively high labour costs that must be balanced by a surcharge to the consumer, low cheques make it difficult to offer a price for delivery that is both profitable to the operator and acceptable to the consumer. It’s feasible to assume the delivery of a single beverage could result in consumers paying double the cost they would in the store, a fact that could trump the convenience of coffee delivery for all but the least elastic of demand groups.
Of course, this issue could be alleviated by taking larger delivery orders, such office orders placed by offices; however, these orders, while undoubtedly more appealing from a cost perspective from both sides of the transaction, would also be the most likely to cause efficiency issues in Starbucks stores. Starbucks outlets asked to fulfil large delivery orders in the middle of busy morning dayparts would likely run into a host of operational issues, including a shortage of baristas and equipment , in a way that could ultimately threaten the much larger revenue stream of core in-store sales. As a result, coffee delivery service seems to offer a Catch-22: small, individual orders can easily be absorbed operationally, but they may not be profitable enough to cause the bottom-line boost Starbucks is looking for. Conversely, larger group orders may be highly profitable, but they will be difficult to handle operationally without alienating customers or requiring significant investment in new infrastructure.
However, this issue hinges on the assumption that Starbucks is looking at delivery as a direct driver of incremental sales, when this very well may not be the case. Instead, this could be a simple branding play, helping consumers to see Starbucks as operating on the cutting edge of on-demand technology, positioning that could result in a more indirect sales boosts over time.
Branding is important, and the upside to this potential benefit shouldn’t be underestimated. Consumers in developed markets see the brands they patronise as a reflection of who they are, and thus they seek out brands that they feel will reinforce their own desired self-image. If Starbucks can use mobile ordering, mobile payment, and now mobile delivery to make its brand appear modern, relevant and influential, it could stand a real chance of strengthening its engagement with customers and therefore improving its long-term results.
That said, there’s another potential pitfall when it comes to the branding benefits of delivery, and it’s one that goes back to the heart of Starbucks’ current value offer. Since its successful US turnaround in the wake of the recession, Starbucks has taken great care to show that a trip to one of its stores is about more than just the coffee—in fact, it’s as much about the experience, or the ritual, of getting the coffee, as it is about drinking it. With this in mind, emphasising delivery could eventually undermine one of Starbucks’ most basic benefits, or the ability for its stores to serve as de facto community centres and modern corporate water coolers. The question may one day need to be asked: Once you’ve removed a prepared cup of Starbucks coffee entirely from the Starbucks outlet, is there enough value left to make it worthy of the purchase?
Ultimately though, the answer may not even matter. The evolution of US consumer preferences is headed in a very clear direction: everything mobile, everything on-demand, and technology as an integral part of every transactional experience, foodservice or otherwise. Ordering a pizza for a delivery is now a one-click experience, whether from one’s phone, one’s gaming console, or even one’s car. Table-top tablets are minimizing contact between customers and wait staff in casual dining outlets, restaurants that once built their positioning almost entirely around the promise of a particularly engaging customer experience. And while the finer details of exactly how this will work from an operational standpoint remain to be seen, what Starbucks has undoubtedly achieved is getting ahead of the technology trend and buying itself some measure of control as to how it plays out. While the effects of the on-demand economy on experience-based industries like foodservice may not be entirely clear for many years to come, the worst thing any foodservice chain can do is give the appearance of falling behind. And with this step, Starbucks has assured itself a place at the forefront of the mobile tech movement – no small feat, with no small implications for its long-term success.