Starbucks plans $600 mn investment in store-based digital transformation

Starbucks CEO Laxman Narasimhan, presenting financial result, has revealed key strategies to enhance efficiency and one of the tools is digital transformation.
Starbucks retail store digital transformationStarbucks is facing two major issues. Starbucks revenues fell 2 percent to $8.6 billion during January-March 2024. Starbucks’s operating margin contracted 240 basis points to 12.8 percent. Lower margin was due to investments in store partner wages and benefits, promotional activities, as well as costs primarily in support of Reinvention. This decline in margin was partially offset by pricing and in-store operational efficiencies.

Laxman Narasimhan said the first strategic pillar is to elevate the Starbucks brand by driving product innovation, building great stores, and operating great stores. Starbucks’s team is working with speed and agility to create a product innovation pipeline that includes new flavors, textures, and functional benefits. Investments in product development are already showing benefit.

The US-based retail giant is investing in supply chain to lower cost and ensure products are available and in-store for customers. Starbucks is growing store footprint. As part of the growth plan, Starbucks’s store development team will design and build more than 3,000 new stores globally.

The second strategic pillar is strengthening and differentiating leadership position in digital. Starbucks Rewards and the Starbucks app play a central role in driving value for customers. Starbucks says its MOP set another record in the U.S., representing 31 percent of all transactions in the quarter.

Starbucks Rewards members in the U.S. grew by 6 percent to nearly 33 million members. The stickiness and evolution of digital position provides a structural advantage. Starbucks is mapping additional ways to engage customers as its works to double rewards members over the next five years.

Starbucks will begin opening the Starbucks app for all in July. This addresses the gap in its ability to reach non-Starbucks Rewards members allow it to deliver more value for the occasional customers and improves ability to convert them to rewards members. It drives a better experience for customers. Starbucks rewards customers visit more often and spend more. Upgrades in queue include a guest checkout feature and sequential improvements that make app an even more appealing gateway for all customers.

Starbucks plans to invest $600 million over the next three years to digitize stores and target customers in more personalized ways. This includes the installation of digital menu boards across the footprint of all company stores in the U.S. and China.

Starbucks CIO Deb Hall Lefevre is driving its investment in digital transformation to improve customer experience and enhance efficiency. Starbucks did not reveal its total investment in digital transformation. The $600 million is its investment in digital focus of stores.

Starbucks is making additional investments in Deep Brew AI and machine learning platforms to digitize and fine-tune how it operates stores while delivering an improved digital customer experience and more personalized customer offers. Starbucks said its investments in a revenue management system are foundational to execution.

Starbucks is revamping and investing in Deep Blue technology to improve wait time estimates and provide more transparency for customers. Their efforts began last quarter and build on the many improvements it made to the Starbucks app over the last 12 weeks with introductions now on a four-week upgrade cycle.

Starbucks is working to drive offer awareness with omnichannel marketing. This campaign will remind customers that the best offers are in the app and will target occasional and non-rewards customers.

Starbucks is executing China strategy, offering more coffee, locally relevant product innovations, making significant investments in technology to increase omnichannel capability and digitize stores, and increase the percentage of new store openings in lower-tier markets, and new county cities where it sees stronger new store economics.

Starbucks has significant above-the-store opportunity to realize efficiencies in supply chain. Starbucks aims to extend its goal from $3 billion in added efficiencies over three years to $4 billion over the next four.

Baburajan Kizhakedath

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