Innovations Brewing at Starbucks

Assignment
Table of Contents
Innovations Brewing at Starbucks.........................................................................2
Key Issues and need for Innovation:......................................................................2
Key Innovations:.................................................................................................... 4
Starbucks Verifies 99 Percent of Coffee Ethically Sourced...............................4
Honouring Coffee Artistry and Craft through New Beverages.........................4
Product Innovation.......................................................................................... 5
Relevant Store Design..................................................................................... 5
Creating First-of-Its-Kind Digital Experiences...................................................6
Mobile Order & Pay.......................................................................................... 7
Delivery........................................................................................................... 7
New partnerships that enhance the customer experience..............................8
New innovation methods................................................................................. 8
Bibliography........................................................................................................... 9

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 Innovations Brewing at Starbucks
Name: Starbucks
Headquarters: Seattle
Revenue: $14.9 billion

Starbucks is considered the main representative of "second wave coffee",

initially distinguishing itself from other coffee-serving venues in the US by
taste, quality, and customer experience while popularizing darkly roasted
coffee.

Key Issues and need for Innovation:

The key issues facing this firm was its attempts at massive expansion and
creating new value innovation. The need to expand could cause the
company to become over exposed and risk its ability to change.

Increasing Prices of Its Products

Starbucks has been leveraging its consumer loyalty and lack of elasticity
among its consumers by continuously passing on increases in costs, due
to wages and coffee prices, to its customers. As a result, in the period
between 2014-2016 we have seen four price hikes on its products, two of
which were in 2016 alone. The rise in prices has been mainly aimed at
protecting the companys operating margins. There is a very serious
concern, however, about how long consumers decide to stick with
Starbucks before choosing one of the many competing coffee shops if
prices continue to increase at this pace.

Higher Wage Payment

The increase in prices of end product is propelled due to higher cost of

raw material and labour. It is argued that an increase in the federal
minimum wage will adversely impact the company and its already thin
margins, especially at licensed stores. However, the argument fails to
consider that labour costs are the smallest portion of the companys
operating expenses.

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A core philosophy that customers and partners (employees) are at the
centre of everything Starbucks does drives innovation throughout the
company and helps shape the future of retail.

A focus on technological based innovation to drive loyalty and

engagement and ensure on-going customer relevance (with the added
benefit of super-sizing operational efficiency) has always been part of
Starbucks strategy of promoting its stores as the third place the other
two being home and work. The place where you can hang out without
being moved on, complete with comfortable chairs, music, free Wi-Fi and
power outlets for laptops.

Pair this with their strategy of being wherever you are. They have a global
network of 23,043 owned and franchised coffee stores across 68
countries, with an almost inescapable concentration in high wealth and
traffic neighbourhoods in cities around the world. Seoul is the most
Starbucks-filled city in the world with 284 locations, followed by New York
at 277, then Shanghai at 266 and London at 202.

Starbucks passion to innovate in 2015 was apparent in the way the

company sources its coffee beans, develops new beverages, and creates
unique store concepts and digital breakthroughs.

Overall Starbucks has maintained a competitive advantage since creating

its original blue ocean of bringing quality, bistro-style coffee choices to the
masses. In order to stay current, it will need to focus on its core
competencies and avoid spreading themselves to thin. To avoid
competitors such as McDonalds and other coffee chains, they will need to
create new value innovation by enhancing the customer experience by
investing in online content and interactivity. (Innovation at Starbucks,
2016)

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Key Innovations:
Starbucks Verifies 99 Percent of Coffee Ethically Sourced

Starbucks, which buys hundreds of millions of pounds of coffee in a year,

began 2015 with a milestone achievement 99 percent of Starbucks
Coffee supply chain is verified as ethically sourced. Starbucks also
announced critical advancements in research and transparency benefiting
the entire specialty coffee industry by making a decade of agronomy
research available, in collaboration with the Costa Rican Coffee Institute
(ICAFE). This research will benefit more than a million coffee farmers and
workers around the world and will have a ripple effect on 25 million people
around the globe who rely on coffee for their livelihoods.
In partnership with Conservation International, Starbucks intends to make
coffee the first sustainably sourced agricultural product in the world.

Honouring Coffee Artistry and Craft through New Beverages

Every Starbucks espresso beverage starts with the finest ethically sourced
coffees from around the world. These high-quality ingredients are
showcased in Starbucks Flat White, which became available in the U.S.
and Canada in January 2015. Flat White is an espresso beverage made
with two ristretto shots, combined with a thin layer of velvety steamed
whole milk and finished with a latte art dot. The Holiday Spice Flat
White is available through the season.

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In February, Starbucks launched its exclusive subscription delivery of
Reserve Coffee, giving online customers access to super-premium, small-
lot coffees roasted at the Reserve Roaster and Tasting Room in
Seattle and shipped within 48 hours of roasting.

Innovation continued in March, when Starbucks Cold Brew launched in

several regions, and later became available to Starbucks customers
throughout the U.S. and Canada. Cold Brew is coffee steeped using cool
water, while traditional iced coffee is made by brewing hot coffee at
double-strength and pouring over ice.

Product Innovation

Starbucks has always maintained its competitive advantage by being the

leader in product innovation. Pumpkin spice latte, one of the seasonal
favourites at Starbucks, was recently relaunched. The launch followed
more than 150,000 incremental visits on the first two days, as stated by
Sense360. As a result, Starbucks saw a share of its national QSR market
increase by roughly 30 basis points to 6.96%. On the other hand, its
competitors, McDonalds and Dunkin, which launched the same coffee a
week earlier, saw their market share recede.

Relevant Store Design

With more than 23,000 stores in nearly 70 countries, Starbucks design
and concept innovation leads to special customer experiences. Among the
years high-profile openings were the companys first store in Panama,
featuring Starbucks Reserve Panama Carmen Estate coffee that is sourced
from Panama's Volcn Chiriqu Valley; the Longmen Starbucks located in
one of the busiest shopping and fashion districts in Taipei, Taiwan; and
Londons Starbucks store at Upper St. Martins Lane which offers
customers a window into the world of coffee.

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In 2015, Starbucks introduced a new store format its first express store.
The store, just across from the New York Stock Exchange at 14 Wall Street,
is one of the most streamlined experiences in the companys portfolio. Its
designed for Starbucks customers who want high-quality beverages and
food, know exactly what theyll order, and want to receive it quickly so
they can get on their way. Simply put, this format is the espresso shot
version of the store experience Starbucks is known for.

In opening the New York express store, Starbucks vice president for Store
Design Bill Sleeth said, This location on Wall Street was intentionally
designed to take whats at the heart of our cafs and distil that for a
smaller space. It is the perfect example of how to balance high design,
attention to detail and efficiency, while maintaining what is unique to who
we are our coffee and the connection between our customers and
partners.

Creating First-of-Its-Kind Digital Experiences

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Starbucks continues to innovate with digital experiences that are valuable
for customers either in or out of Starbucks stores. In May, Starbucks and
Spotify established a multi-year relationship that will link Starbucks
7,000 company-operated stores in the U.S. and 10 million My Starbucks
Rewards loyalty members with Spotifys 60 million global users to offer a
first-of-its-kind music ecosystem. This interconnectivity will give
customers access to Starbucks music on Spotify and the ability to
influence in-store playlists.

In July, Starbucks unveiled an elevated digital news experience for the

Starbucks Mobile App through an expanded relationship with The New
York Times Company. The New York Times top news of the day and a
selection of other articles addressing key social, political and economic
issues will be available for free via the Starbucks Mobile App for My
Starbucks Rewards members. Also in July, Starbucks and Lyft, one of the
nations leading transportation network companies, announced a multi-
year deal that will increase value for current customers, attract new
customers, reward Lyft drivers and explore a transportation benefit for
Starbucks partners. (Innovation Cafe to Classroom, 2016)

Starbucks also announced the selection of Chase Commerce Solution s, the

global payment processing and merchant acquiring division of JPMorgan
Chase & Co., to transition processing of all non-mobile payments and U.S.
retail card payment transactions in company-operated stores.

Mobile Order & Pay

Starbucks digital ecosystem achieved significant milestones in 2015 with
the launch, nationwide rollout and international pilot of Mobile Order &
Pay.

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In December 2014, Starbucks Mobile Order & Pay was tested in Portland,
Oregon. Mobile ordering makes it easy for customers to place orders in
advance of their visit and pick them up at their chosen Starbucks store.
The feature is seamlessly integrated into the Starbucks Mobile App and
My Starbucks Rewards loyalty program. After a successful response from
customers in Portland, Mobile Order & Pay expanded in June 2015 to 3,400
additional stores in the U.S.

Customers nationwide began to use Mobile Order & Pay in September,

and internationally in select markets. What could be better than saving
time by ordering ahead to pick up at the closest Starbucks? Perhaps
having it delivered.

Delivery
It has been one of the most-asked-for services on the My Starbucks Idea
blog with customers inquiring, When will Starbucks just bring me my
coffee? For some, the answer was October 2015.

New York's Empire State Building is home to the first Starbucks Green
Apron Delivery service where Starbucks baristas bring customers their
favourite beverage or food item. A pilot project designed for a dense
urban environment, the building-specific service complements Starbucks
broad portfolio of stores from immersive coffee bars, to the familiar
neighbourhood store.

But customers arent just in office buildings. Theyre at soccer games with
their kids, at home with family, or gathering at a park with friends. In
many of cases, they also want the ease of getting Starbucks delivered
where they want it, when they want it. To bring this delivery experience to

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life, Starbucks is collaborating with leading on-demand delivery service
Postmates for a pilot program, where customers can have Starbucks food
or beverages delivered to them within designated areas in
Seattle. Starbucks Delivery by Postmates, is an extension of the Starbucks
Mobile Order & Pay feature.

Our customers are highly engaged with Mobile Order & Pay, placing 5
million transactions a month, so delivery becomes a natural extension
that provides another easy and convenient way to meet them where they
are in their day, said Adam Brotman, Starbucks chief digital officer.
(Innovation from Starbucks, 2015)

New partnerships that enhance the customer experience

These include collaborations with Spotify and Apple Music, an attempt to

create a next generation music ecosystem. Wireless charging in stores is
also being trialled in the US, thanks to a partnership with Duracell
Powermat sure to become a big draw for many customers.

New loyalty programs to reward customers based on their

cultural preferences

Touted as the model loyalty program, Starbucks loyalty program spans 28

countries and is customised for each. For instance, in China it relies on
gamification to drive participation, whilst the UK program has the highest
threshold to top-tier benefits but many more soft benefits, such as free
add-ons like shots and flavours. Meanwhile, the US is the only market
where Starbucks uses email targeting for promotions and offers.

New innovation methods

MyRewardsIdea was created as a crowdsourcing community website in

2008 to collect ideas, suggestions and feedback from customers. Other
users comment and vote on the ideas, and Starbucks informs them once
they have launched. Starbucks also pilots its most innovative ideas across
three stores in Seattle which Schultz describes as the companys
laboratory. The notion of selling alcohol was first tested here.

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Starbucks ability to gain and keep customer attention through innovative
reward programs and game changing concepts has been key to driving its
growth.

Bibliography
1. Innovation at Starbucks. (2016). Retrieved from Creativity and Innovation:
http://creativityandinnovation.blogspot.in/2006/12/innovations-rewing-at-
starbucks.html
2. Innovation Cafe to Classroom. (2016). Retrieved from Fortune:
http://fortune.com/2014/10/30/starbucks-innovation-cafe-to-classroom/
3. Innovation from Starbucks. (2015). Retrieved from Ogilvydo:
http://www.ogilvydo.com/topics/features/5-shots-of-innovation-from-
starbucks/

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