Starbucks sets out to "totally re-invent" itself, with digital and NFTs at the heart of the plan

Stuart Lauchlan Profile picture for user slauchlan August 4, 2022 Audio mode
Summary:
Starbucks has been a leader in digital transformation for over a decade, but it's time for more change, says interim CEO Howard Schultz.

coffee

A complete re-invention is brewing at Starbucks, despite the coffee giant having led the way in digital transformation programs for the past decade. The underlying message? There’s no finishing line, just ongoing need to adapt to grow.

Howard Schultz, the former CEO who overhauled the firm with his belief in investing in digital tech, now finds himself back in the hot seat on the cusp of a fresh revolution as he takes on the role of interim CEO while a full-team leader is sourced. He’s confident that the management team he leads has isolated what needs to be done:

We've been able to pinpoint the source of each of the issues and challenges confronting the company upon my return. Some are definitely COVID-related, some were a function of not focusing on the long term, and, unfortunately, many were self-induced. More important, we now have clear line of sight on what we need to do to totally re-invent the company and drive accelerated profitable growth around the world.

It should be pointed out at this stage that Starbucks isn’t showing many signs of external pain. Schultz states:

While we are sensitive to the impact inflation and economic uncertainty are having on consumers, it's critically important that you all understand we are not currently seeing any measurable reduction in customer spending or any evidence of customers trading down, reflecting the strength of the Starbucks brand, deep customer engagement and loyalty, pricing power and the premium nature of our beverage and food offerings.

Rewards

What's driving some of the increase in traffic and the strength in the business is the Rewards program, he argues. In the most recent quarter, active Starbucks Rewards membership totaled 27.4 million members, up 3.2 million or 13% year-on-year, with Starbucks Rewards members driving a record 53% of US company-operated revenue. Mobile Order & Pay and drive-through delivery - two of Starbucks other digitally-enabled offerings - drove 72% of overall US revenue.

But there’s work that needs to be done internally with employees, or partners as Starbucks calls them. Despite negative headlines around resistance to unionization, Schultz insists that the great re-invention plan that’s incoming has been shaped in consultation with the workforce:

What began as informal partner meeting soon evolved into focused co-creation sessions where Starbucks partners and leaders collaborated on how best to re-imagine the next Starbucks. We've since held over 100 co-creation sessions. And from these sessions, our re-invention plan has taken shape. Today, over 30 cross-functional teams are focused exclusively on executing the US re-invention plan you will see take shape over the quarters ahead. And in time, you will see best practices shared around the world.

Stirring up

OK, so that’s the pitch. But what’s in the cup? Digital, inevitably, is going to be a major plank, confirms Schultz, with, again inevitably, an NFT angle:

We have been working on a very exciting new digital initiative that builds on our existing industry-leading digital platform in innovative new ways, all centered around coffee and most importantly, loyalty.

We believe this new digital Web3-enabled initiative will allow us to build on the current Starbucks Rewards engagement model with its powerful spend-to-earn Stars approach while also introducing new methods of emotionally engaging customers, expanding our digital third place community and offering a broader set of rewards, including one-of-a-kind experiences that you can't get anywhere else.

Integrating our digital Starbucks Rewards ecosystem with Starbucks branded digital collectibles as both a reward and a community building element, this will create an entirely new set of digital network effects that will attract new customers and be accretive to existing customers in our core retail stores.

Chief Strategy Officer Frank Britt says there are “five major strategic shifts to pivot the US business in a new direction”. These will be revealed in more detail in September, but for now he says there’s a push “to further connect the company to truly operate as one global enterprise, enabled by new ways of working and a range of contemporary practices and tools”.

The in-store partner experience needs to improve, he admits. The first signs of this have been seen in activities such as wage increase, new training investment and the implementation of a new digital partner engagement platform.

The stores themselves need to be re-imagined, he goes on:

This starts with the core engine of production that must be better calibrated for the customer habits of today and deliver superior experiences through personalization across every format and in every channel. Innovations such as new bar configurations, patented coffee technology, novel store prototypes are high priorities in the plan designed to improve throughput and heavily customized beverages, along with both customer and partner experience.

He adds:

We will further evolve how we re-connect with customers, mindful that each individual consumer must be provided a uniquely personal experience that is unified across channels. Building on our strong track record of superior customer engagement, representative initiatives in this sphere include a re-imagined approach for customer-facing products and platforms, new models of effortless digital ordering and further growing the value proposition of our loyalty programs through novel and new strategic partnerships.

My take

We need to wait until Starbucks Investors Day next month to put more meat on the bones of all this, but it looks at this point like a combination of doing more of what’s been done before, plus some new digital ideas, as well as a public commitment to do better when it comes to the employee experience.

Of course, an immediate question is whether all of this will survive the transition to a new CEO, whoever he or she turns out to be? The answer is yes, says Schultz. His replacement will be selected on the basis that they buy into the re-invention plan. That might seem to be putting one hand behind the back of any CEO candidate, but Schultz insists:

There is absolutely no risk whatsoever to the re-invention and modernization plan that we've outlined in terms of CEO succession….We’ve got, in my view, an extraordinary slate of candidates who are very interested in the job. We've narrowed it down to a select few. The biggest piece of this puzzle, in addition to experience, domain understanding of the market and a global person, is an understanding of the culture, values and guiding principles of the company, someone who really has a conscience in terms of the humanity in Starbucks.

All the candidates that we are talking to, we are paralleling the re-invention and modernization plan, so there's no misunderstanding. And I can tell you that the candidates are extremely excited and positive and in agreement with what we're doing in terms of investing ahead of the growth curve, re-inventing the partner customer and store experience and the equity and power of the brand is apparent. No-one should think whatsoever that there's any risk in terms of this plan not being executed.

Better hope he’s got the plan right then…

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