Digital Transformation at Starbucks

Digital Transformation at Starbucks
Case Code: ITSY123
Case Length: 16 Pages
Period: 2008-2021
Pub Date: 2022
Teaching Note: Available
Price: Rs.400
Organization: Starbucks Corporation
Industry: Food & Beverage
Countries: United States
Themes: Digital Transformation, Artificial Intelligence, COVID-19,Digital Ecosystem
Digital Transformation at Starbucks
Abstract Case Intro 1 Case Intro 2 Excerpts

Abstract

This case discusses the digital transformation initiatives at American multinational coffee giant Starbucks Corporation (Starbucks). The company offered a loyalty program known as the Starbucks Rewards program wherein customers registering for the program received a card to pay for their purchases at the stores. For every purchase, users earned stars, which they could later redeem for a free drink. This was followed by Starbucks launching its mobile app, which allowed the consumers to pay for their purchases using their smartphones at Starbucks stores. To enable consumers to pre-order and pay though their phones and pick up their items at Starbucks stores, Starbucks launched the Mobile Order & Pay feature, thus saving its consumers time. In 2017, the coffee giant integrated its rewards program, mobile order, payment, and personalization as part of its Digital Flywheel strategy that collected the order history of the consumers to make personalized recommendations to consumers through its smartphone app. Taking its digital initiatives forward, in 2017, Starbucks in association with American multinational technology giant Microsoft Corporation, launched Deep Brew, an Artificial Intelligence (AI) engine that offered customizable menu boards to drive-thru consumers wherein the engine suggested items based on the purchase history of consumers, time of day, weather, community preferences, popularity, store inventory, etc. In addition to this, Deep Brew automated time-consuming tasks such as management of inventory and did preventive maintenance of the company’s espresso machines connected through Internet of Things (IoT).

Analysts appreciated Starbucks for implementing several digital initiatives as part of its company philosophy and said these initiatives had helped it improve its sales and operational efficiency, enhance customer service, etc.

Some critics pointed out that though the company’s digital initiatives helped it survive the pandemic in its US stores and other global markets, Starbucks was facing declining sales in China – the company’s second largest market after the US, due to Covid-19 related restrictions, Starbucks was facing increasing competition from Canadian coffee and doughnut chain Tims China, which was aggressively expanding in the country by opening its 300th store in October 2021, and local Chinese coffee chain Luckin Coffee Inc. Industry analysts believed that Starbucks could cash in on the trend of work-from-home in China attributable to the Covid-19 pandemic, and increase its sales.

Starbucks President and CEO Kevin Johnson remained optimistic about the growth of Starbucks in the US, China, and other global markets due to the company’s digital-ecosystem and robust innovation pipeline, which would be rolled out in the coming months, thereby further enhancing the experience of consumers with Starbucks while increasing its sales and efficiency.

Issues

The case is structured to achieve the following teaching objectives:

  • Understand how digitalization enables a company to improve its operational efficiency, sales, and customer experience.
  • Appreciate the digital initiatives at Starbucks and how they improved efficiency and sales and customer engagement at the company.
  • Discuss how Starbucks could tackle challenges in China – its second largest market after the US, using its digital initiatives.
  • Discuss how the prior investments in digital technologies helped Starbucks overcome the challenges posed by the Covid-19 pandemic.
  • Explore how Starbucks could further improve its customer service and sales using AI and IoT.

Contents

Keywords

Starbucks; Digital initiatives; Starbucks Rewards program; Mobile Order & Pay; Digital Flywheel; Deep Brew; My Starbucks Idea; Starbucks Digital Network; Digital Order Manager; Digital-ecosystem; Machine Learning; operational efficiency; customer service; Covid-19; Starbucks Production Controller

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