• Olympus Insights

Starbucks Resorts to Digital to Drive Sales During Pandemic

As nationwide shutdowns have forced people to work from home the stereotypical stop at Starbucks on the way to work seems to be a thing of the past. To get people out of their homes and into the line of their drive-thru the Seattle based coffeehouse has been pushing hard with their mobile app and rewards program, hoping to maintain their customer’s morning routine of spending $5 a day on sugar-infused espresso.


In their third quarter alone Starbucks added 3 million new members to their Starbucks rewards program.


“As we see customer visits shifting from urban cafes to suburban drive-thrus, customers are also purchasing multiple beverages and food items on a single order.” said Kevin Johnson, Starbucks’ CEO, in their most recent earnings call. He went on to say the average order price has increased by 25% over the last quarter.


Nevertheless, Starbucks has been hit hard by the coronavirus pandemic as falling incomes and stay at home orders have made people less likely to go out for morning beverages. Global revenue this quarter fell to $4.2 billion, a 38% drop from the year before.


With over 31,000 stores globally Starbucks controls 30.5% of the retail coffee market, more than double the 11.5% controlled by its closest rival Dunkin’ Brands. Their expansion over the past decade comes largely as a result of Howard Schultz’s return during the wake of the financial crisis in which he led a mass layoff of executives and retraining of employees.


Not long after his return, Starbucks began an aggressive expansion into international markets; particularly in eastern Asia. The company now has over 4,400 stores in China alone, with 100 of those stores being added in just the last quarter.


Helping Starbucks expand in the Chinese market has been their digital partnerships with WeChat and Alibaba to make mobile ordering and digital payments easier and more streamlined. By the end of June, 99% of Chinese stores were reopened, giving a positive sign that China has passed the low point of the pandemic.


In the U.S., a full recovery seems a long way away. Even with 96% of stores reopened, comparable store sales declined 41% in the third quarter. To adhere to state regulations contactless ordering such as drive-thru and entryway pick-up are being implemented across U.S. stores, with a small percentage of locations starting to allow limited seating.


“We expect comparable store sales for Q4 and for fiscal 2020 to decline between 12% and 17%” Chief Financial Officer Patrick Grismer said in their recent earnings call.


Social distancing regulations will likely continue until vaccines are distributed and with more companies considering extended work from home options the habits of daily coffee drinkers seem more likely to change. Starbucks will need to develop more than just a rewards program to get their customers to forego their home espresso maker and drive to their nearest Starbucks for a $4.15 latte.


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