STARBUCKS: MAKE COFFEE A

CLICK AWAY
Zheng Zeng Global MISM

INTRODUCTION
We all enjoy a good cup of coffee in the morning, but the way we enjoy it has changed drastically. Rather
than hit a physical coffee shop, the majority of Starbucks’ target customers – young adults who pursuit a
life of high quality, would simple just order drinks and snacks on their phones now. It is a characteristic of
industry revolution 4.0, where Starbucks face challenges from online coffee service providers who surf
the unstoppable wave of mobile ordering and payments. To survive the ever-changing digital world,
Starbucks equip itself with digital wings that can branch out vertically into the industry as well as
horizontally into a bigger customer pool.

Digital Transformation Individual Project

Starbucks Online: To Go or Not?
This is not a question for Starbucks. As a world-wide coffee shop chain, with more than 32,000 stores in
80 countries, it has covered major market globally. However, in the era of the fourth industry revolution,
Starbucks smell the e-platform competition in the food and beverage industry as well as the operational
issues related with brick-and-mortar entities. In 2008, Starbucks CEO Howard Schultz decided to reform
its supply chain management and see how it can be improved.

Competition Escalation

Since the coffee market has stable continued demand and low entry barrier, there are many competitors of
Starbucks in the market, that all set out to distinguish itself and earn a piece of the pie. In the era of
digitalization, the form of coffee shops has also evolved from a physical shop around the corner to the
digitalized menu on your phone. Many new e-commerce coffee shops utilize the technologies to make
coffee more reachable for people with less coffee choices. Luckin Coffee, for example, is a Chinese
coffee company and coffeehouse chain founded in Beijing in 2017. It started as an application that sells
coffee online majorly to white-collar workers and students whose income level is low, but now it has
adapted to larger customers’ preference.

Starbucks’ Products & Services

Beverages & Food

Starbucks provide four major types of products: drinks, food, at-home coffee and merchandise. Under the
catalog of drinks, they provide a variety of beverages from hot coffee, hot tea to Frappuccino. They also
implement a membership policy where more bonus points are collected when a member makes an order.
In physical stores, baristas make coffee or tea beverages at the time of orders, and the cozy environment
brings soothes and convenience to customers. They also have instant bottled up coffee on the shelf in
convenience stores or supermarkets.

Starbucks: Make Coffee One Click Away

Online Business

With the occurrence of delivery ordering platform as well as Starbucks own application, they started to
offer coffee and food deliveries provided by their own delivery men or collaborate with a third-party
delivery team such as Cainiao Delivery. Platforms such as Taobao also open up their online store selling
merchandise as well as at-home coffee. They also have instant bottled up coffee on the shelf in
convenience stores or supermarkets.

Third-
Online On
In store party
store application stores

drinks handmade
instant drinks drinks bottled coffee
delivery
food

advance
ordering and branded
merchandise merchandise
coffee beans
pickup
in-home
coffee
co-name gift cards and co-brand
products e-coupons products
workshops

Figure 1 Starbucks' Products & Services

Starbucks’ Market Structure

Starbucks serve as a cook as well as a delivery man of drinks and food to customers. Starbucks control the
information and material flow from the very beginning, as their description goes, “The Starbucks
Experience starts at our plant locations where we have an opportunity to work with green coffee beans,
full-leaf tea and fresh juice ingredients…”. The major players in the market are its suppliers and
customers.

Starbucks: Make Coffee One Click Away

 • Plants of coffee beans, cocoa Starbuck • Third-party ordering platform Customers
and tea • Third-party delivery
• Workhouse of toasting and • In-store pick up
packing • Handmake coffee in store • in-store order experience
• Warehouses to store • E-platform selling • at home delivery pickup
• Manufacturers of cups, • Co-brand products
merchandise • shopping in mall or on e-
aprons…
• keep inventory of expendables platform
• Real estate of commercial
property • Train employees

Suppliers Deliveries

Figure 2 Starbucks Market Structure

Starbucks Suppliers

At first, Starbucks relied on outsourcing supplement transportation to third-party logistics and producing
items with contracted manufacturers. Those contracts and agreements greatly increase operational
expenses and thus the quality of products and services. Therefore, Starbucks start to collaborate with
diverse suppliers who share their values of providing products and services under the Diverse Supplier
Program.

The company generally brings coffee beans from Latin America, Africa, and Asia to the United States and
Europe in ocean containers. Apart from farmers’ plant, Starbucks have also been supplied with other
direct and indirect materials to produce their final offers. For instance, Dean Foods is one of the dairy
companies that provide Starbucks with milk. In 2015, Starbucks reached an agreement with Tingyi
Cayman Islands Holding Corp., which would manufacture and market Starbucks’ ready-to-drink products
in China.

As for logistics, Starbucks runs five regional distribution centers (DCs) in the United States; two are
company-owned and the other three are operated by third-party logistics companies (3PLs). It also has

Starbucks: Make Coffee One Click Away

two distribution centers in Europe and two in Asia, all of which are managed by 3PLs. Coffee, however,
is only one of many products held at these warehouses.

Starbucks’ Customers

Customers’ need for coffee has been changing. Nowadays coffee is more than just a beverage to wake you
up in the morning. it is a lifestyle, a social tool and even possibly a career or habit for coffee enthusiasts.
Despite people’ growing and expanding need for various coffee, coffee intake has also increased. Two
billion cups of coffee are consumed every day. In western countries, more than 60% of adults drink about
3 cups of coffee every day. Young, urban adults are the core target, and Starbucks coffee set out to appeal
to upper-class and nouveau-riche (people who are rich but less educated). Starbucks use their mobile
order and payment platform to gather customers’ information and promote their marketing events, deploy
a membership model and better analyze their purchasing behavior.

Starbucks IT structure
In 2017, Starbucks embarked on a digital transformation strategy called “the Digital Flywheel” that built
around four pillars—rewards, personalization, payment and order. The way they digitalize those key
elements in its business model becomes a milestone in their journey of digitalization.

reward

order personalization

payment

Starbucks: Make Coffee One Click Away

Information Flow in Starbucks

Starbucks manage and collect data from the source of its supply chain to the end customers. In 2008 it
divided its supply chain management into four groups of operations: plan, source, make and delivery. In
the plan group, decisions to launch new products or replenish coffee beans are made

•production planning, source •own coffee facilities delivery

replenishment •self produce and self
•identify cost drivers •3PL performance
•new product launches consume model
•reduce costs and •CDC for daily product
expenses deliveries

plan make

Figure 3 Information Flow

On the customer side, Starbucks launched its own ordering platform—Mobile Order and Pay which has
occupied more than 20% transactions. Starbucks uses technologies such as IoT and blockchain to record
data in the process of coffee bean productions and transportations, sales all around the world and
consumer trends. It cooperated with Microsoft on a device that connect its data to Microsoft’s platform,
where its data are safely stored.

Information analytics

Starbucks implement machine learning and AI technologies in multiple scenarios to provide seamless and
comfortable customer experience as in the physical shops. Data analytics are performed on the Microsoft
platform, and later display on consumers’ screen information on new products and coupons,
recommendations of coffee based on their purchasing history.

Starbucks: Make Coffee One Click Away

 Figure 4 Decision Making Flow

Information dissemination

Starbucks make full use of popular social media platforms to disseminate its products and ideas. In China,
it propagates newly launched products on WeChat, Eleme and Alipay. It also cooperates with KOLs
online, invite them for new product tasting events and thus attracting KOLs’ fans to come.

Starbucks’ Digital Transformation

Data of the suppliers and the customers used to be lying around uselessly. But with IT, Starbucks now
turn those unstructured and highly scattered information into their ERP and computing system to better
control the product process and manage customer relationship. With the mobile platform Starbucks
somehow dodged a fatal bullet of the pandemic, after which brick-and-mortar businesses were struggling
to get back on their feet. Starbucks also tried to restore its sales level, but with its heart-wining customer
personalization services, they managed to increase the amount people spend on each order despite of the
drop in total sales.

The primary role of CIO at Starbucks is a strategist, aiming at making sure the process of digitalization
adds values to its goal of building a better community through coffee and human services. The CIO at

Starbucks: Make Coffee One Click Away

Starbucks not only consider the short-term requirements of certain revenue, but also the continuous
existence of the brand, being symbiotic with the environment, the community and the cultures.

Through the transformation, Starbucks extinguish itself from those pure brick-and-mortar coffee business
but also shielded from those Internet coffee retailers that lack physical support and streamlined supply
chain management.

Starbucks Prospect
With IT, Starbucks transformed from selling mere coffee offline to selling them online and through many
other channels with a lot more ease.

It is not the end of their digital transformation. In the next five more years, Starbucks may expand their
business to provide services to other businesses with the best practice solutions gathered or derived from
the data collected. Starbucks started as a barista shop that serves high-quality coffee and experiences, and
it has gained certain level of customer loyalty and trust. Respected as the first mover in serving coffee and
offering lifestyle options globally, Starbucks have also succeeded in transforming its mobile ordering
platform, and this platform and business model can become another revenue point in the future.

Starbucks: Make Coffee One Click Away

REFERENCE

Mixson E. (2021, Apr 21), Starbucks: A Masterclass in Digital Transformation. Retrieved from
https://www.intelligentautomation.network/transformation/articles/starbucks-digital-transformation

About Us, Starbuck at :https://www.starbucks.co.uk/about-us

Cooke, J. A. (2010,Dec 15), From bean to cup: How Starbucks transformed its supply chain. Retrieved
from https://www.supplychainquarterly.com/articles/438-from-bean-to-cup-how-starbucks-transformed-
its-supply-chain

University of Hong Kong, Asia Case Research Center (2017), Starbucks China: Managing Growth
Through Renovation,

Starbucks: Make Coffee One Click Away