Starbucks

Beverages, Food, Retail

Starbucks’ transformation approach highlighted by the CEO in 2008, had a heavy focus on customer experience, with no mention of digital considerations at this time. From there the business has used technology as an enabler to achieve its objectives. For example, its online ideation tool has 211,336 product, experience and involvement (Corporate social responsibility) led ideas generated by employees and consumers.

In 2014, Forbes published an article that discussed how, in March 2008 a gathering of 200 senior-level company leaders, Schultz (CEO) unveiled a transformation agenda that included seven “Big Moves”:

  1. Be the undisputed coffee authority;
  2. Engage and inspire our partners;
  3. Ignite the emotional attachment with customers;
  4. Expand our global presence—while making each store the heart of a local neighbourhood;
  5. Be a leader in ethical sourcing and environmental impact;
  6. Creative innovation growth platforms worthy of our coffee;
  7. Deliver a sustainable economic model.

Starbucks made significant organisational and customer value proposition changes to enable its digital transformation. As part of the company’s 2008 turnaround, the then CIO Stephen Gillett created Starbucks Digital Ventures, which focused on “an internal, venture capital-style incubator for digital technology. The unit remained separate from the company’s Marketing and IT groups, but collaborated closely with both to drive innovation in the company’s digital strategy”.

Starbucks Coffee Company (UK) Ltd. ~dt*

Commenced Digital Transformation
2008
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Financial Performance

YearProfit Margin % Gross Margin %EBITDA Margin %ROCE Margin %
2006-1.87233.27-8.84
2007-0.4324.045.67-2.3
2008-7.0520.831.32-150.39
2009-13.4517.96-5.63245
2010-8.6419.370.35-120.5
2011-8.2619.72-1.82
2012-7.3617.07-2.46-56.18
2013-5.1219.970.02-43.39
20140.2624.175.22.78

Customer Satisfaction

 

Maturity Analysis

Starbucks have built a new set of capabilities around the transformed customer value proposition and operating model in lock-steps.

Starbucks appear to be the more digital mature firm, compared to the other two focal firms, making sense as its digital transformation commenced in 2008. Starbucks’ strategic direction has very much been from a customer focus. The use of digital technology, such as mobile payment and mobile apps, is applied to complement their customer value proposition and streamline operations simultaneously.

Leadership
92
Business Strategy
72
People Teams and Culture
92
Data and Metrics
92
Cross-Channel Integration
92
Customer Value Proposition
86
Customer Experience
92
Growth
86

Summary

Interestingly Starbucks have seen a continued positive effect in the NPS after commencing their digital transformation programme. Starbucks saw a gradual 4-point growth from 2010 to 2013. Starbucks first ventured into mobile with the myStarbucks app in 2009, allowing customers to locate the nearest store, learn more about the company’s coffee and even build their own drink. In January 2011, Starbucks took its loyalty program digital with the introduction of its Starbucks Card Mobile app.

The Profit, Gross and EBITDA margins follow a similar path since 2011, suggesting that although the path to digital transformation has been a longer one for Starbucks, that it has slowly started to improve its financial health and also retaining more sale revenue after incurring direct costs associated with producing the goods and services sold by the company. 2014 was the first time in 8 years that the profit margin was positive. Likewise, the Gross Profit margin is also in the positive, after being in a negative state since 2010. Of course the way the business operates and the changing of its models, reducing supplier costs and global expansion has a direct reflection on the Gross Profit margin. The Return on Capital Employed (ROCE) saw a huge spike in 2009, indicating a more efficient use of capital, however this quickly reverted to a negative value, as per the previously value in 2008. Starbucks have only effectively employed their use of capital in the first year of digital transformation programme.

Starbucks have seen a steady improvement 2 years after commencing their digital transformation programme. Interestingly the 2 year mark could be an indicator of the amount of time it takes for a firm to start seeing improvements in this area.

 

About Starbucks Coffee Company (UK) Ltd.

Sector Beverage, Food & Retail
First store opened 1971
Target Audience Youth market in the middle and higher income groups looking to go to have a coffee and snacks at a hangout place
No. of UK Employees 7,726
UK Stores 791
Positioning A place where you can have a great coffee along with a great experience
Unique Selling Point (UPS) Commitment to the highest quality coffee in the world
Main Competition Pret A Manger, Costa and Café Nero
Percentage of online / mobile sales (2013 / 2014) 11% (Forbes, 2014)(Mobile Wallet Transactions)
Commenced Digital Transformation 2008
Digital Business Unit Starbucks Digital Ventures