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Starbucks’ recent performance has been very strong, but that hasn’t prevented the company from seeing the writing on the wall. Scores of super-premium, third-wave coffee competitors are rising up in all of the most important developed markets. To keep them at bay, Starbucks is taking consistent steps toward staying ahead of evolving consumer preferences.
In its most recent move, Starbucks has added a subscription-based service for its small-lot Reserve brand coffee, promising delivery of the rare beans within days of roasting at its new Seattle Roastery and Tasting Room. In one fell swoop, the service provides a small but stable revenue stream, solves a distribution issue, and most importantly, helps to cement Starbucks’ new branding as a purveyor of third-wave coffee—offering the quality of coffee typically found at an independent coffee shop, with the benefits and services of a massive global chain.
Though Starbucks was already offering an option for customers to “subscribe” to monthly supplies of coffee or tea for a 5% discount, the new service is a decidedly different offering, with markedly different goals. While Starbucks has been rolling out its brewed Reserve coffee platform to select outlets for years (both domestic and international), the line is not necessarily conducive to broad distribution over a large network of restaurants. Third-wave coffee is built on the idea of taking single-origin to the next level—sourcing from the farm rather than the region, providing a tasting experience based on comparing nuanced flavour profiles. This method clearly presents a challenge to a brand that operates 21,000 outlets.
A reserve subscription service neatly sidesteps these issues, preventing the supply and distribution hassles that might come with large-scale implementation while still providing large-scale access to customers who really want to partake. More broadly, it offers the branding benefits of small-lot, third-wave coffee offer without any of the added costs or operational headaches.
Even more generally, Starbucks’ new service taps into the modern consumer trend of surprise subscription boxes: curated monthly shipments of anything from clothing to beauty products, or even ingredients for a home-cooked meal. While this trend has indirectly touched the dining space, offering consumers a chance to make dining at home an event with subscription boxes like Blue Apron or HelloFresh, Starbucks may be the first to fully integrate the business model into its brand’s retail component.
Subscription boxes are exciting for consumers for reasons that go beyond convenience to deeper psychology. The boxes are a monthly ritual that offers the thrill of anticipation, the thrill of surprise when the box arrives, and finally the thrill of discovery as customers are able to try out new brands, flavours, and products. But the real value in the subscription box trend is for businesses, who have cleverly figured out a business model that cuts costs and maximises margins, all under the guise of adding value to consumers.
In the case of Starbucks, a subscription service allows the company to not only receive payment for goods up front, but also to have a concrete idea of demand before sourcing decisions are made. The surprise element is also particularly beneficial, because it relieves Starbucks of the need to source a certain amount of any one particular blend. Consumers are promised something special, but not something specific, giving the company much more leeway when it comes to small-lot logistics.
Finally, such a service has the ability to pull Starbucks customers—already a particularly loyal group—even further into the fold. Subscription boxes play directly to the need for consumers to view brands as an extension of their identities, offering them an “insider status” that directly validates that bond. Starbucks’ subscription Reserve coffee is promised to be even rarer and, in the company’s words, more exclusive than the Reserve blends sold in stores, offering consumers a way to level-up in loyalty and in experience.
To rein things in a bit, it’s important to note that this is a niche offering that’s unlikely to become a significant part of Starbucks’ bottom line; however, that’s not the point. Starbucks’ Reserve subscription is a prestige product designed to elevate the rest of the brand, in line with the same long-term goal driving each of the company’s recent strategic moves. Rather than trying to compete on the level with newer boutique chains or third-wave independents, Starbucks is fighting on two fronts—both elevating its brand to qualify for third-wave demand and doubling-down on the services and amenities (drive through, mobile ordering and payment, delivery) that set it apart from smaller players fighting for the same share.
Ultimately, Starbucks isn’t trying to reinvent itself, but rather, continuously evolve ahead of the market to maintain its overwhelming lead. So far its working, with 6% global comparable store sales growth in 2014, but the toughest competition is still to come.