Starbucks' Big Bet: Is It Worth The Investment?

Starbucks is a dominant force in the coffee industry, with the highest market share of any coffee shop at 40% as of October 2019. The company has been investing heavily in its business, with plans to invest $1 billion in its U.S. company-operated stores in fiscal 2022, including over $200 million in training, wages, and equipment. However, there is a debate about whether Starbucks should invest $40 million in labor to improve its service and convert satisfied customers into highly satisfied ones. This decision is crucial as the company faces challenges such as the impact of the COVID-19 pandemic, changing consumer behavior, and competition from low-cost providers.

Improving customer service

Starbucks, the world's most recognizable coffee brand, is considering investing $40 million in its stores. While the specifics of this investment are unclear, improving customer service is likely a key goal. Here are some ways Starbucks can enhance its customer service with this investment:

Empowering Customer Service Representatives:

Starbucks should invest in training its customer service staff with the necessary tools and knowledge to effectively address customer inquiries and issues. This includes providing comprehensive product knowledge, teaching active listening and empathy skills, and ensuring they have efficient systems to understand customer history, emotions, and intent.

Omnichannel Approach:

Starbucks should strive for a unified customer service strategy across all touchpoints, be it in-store, online, or via social media. Customers expect quick responses, and Starbucks can ensure they receive consistent, timely, and personalized assistance regardless of the channel they use.

Prioritize Customer Issues:

Starbucks should implement efficient systems to prioritize customer issues. This means going beyond a first-come-first-served approach and considering the urgency and impact of each case. By addressing issues promptly and effectively, Starbucks can enhance customer satisfaction and reduce the risk of losing customers due to long wait times.

Enhance Customer Interactions:

Starbucks staff should be encouraged to build connections with customers by identifying common ground, using positive language, and demonstrating empathy. Greeting customers by name, asking open-ended questions, and reflecting on their feelings can create a more positive and personalized experience.

Feedback and Complaint Systems:

Starbucks can benefit from establishing user-friendly feedback and complaint systems. This could include post-service surveys, feedback forms, or easy-to-access complaint channels. By analyzing this feedback, Starbucks can identify areas for improvement and make necessary changes to exceed customer expectations.

By focusing on these strategies, Starbucks can utilize its investment to enhance its customer service, build brand loyalty, and ultimately, increase customer retention and satisfaction.

Investing in labour

Starbucks should invest $40 million in labour to improve its service. This investment can significantly increase sales by converting satisfied customers into highly satisfied customers. However, to achieve this, Starbucks must be able to provide better service to customers through both partners and shortened service times.

To improve service speed, Starbucks could build a dedicated customer service team or invest in updating its production machinery. This investment in labour could also help Starbucks nurture its customer relationships and improve customer satisfaction.

Starbucks has about 60,000 partners worldwide, and each one is given health insurance and stock options. This has created an extremely high employee satisfaction rate and a very low turnover rate. The special training that employees go through is also an important part of Starbucks' image. They undergo both hard skill and soft skill training, learning how to mix drinks, run the cash register, and more.

By investing in labour, Starbucks can ensure that its employees are well-trained and able to provide excellent customer service, which can lead to increased sales and customer loyalty.

Drive-thru and mobile order & pay

Starbucks has been adapting to the changing demands of its customers and employees, especially in the wake of the COVID-19 pandemic. Drive-thru and Mobile Order & Pay (MOP) have become increasingly popular, now accounting for over 70% of Starbucks' US store volume. This shift in consumer behaviour has put a strain on operations, with stores struggling to keep up with demand.

In response, Starbucks has decided to invest $1 billion, including over $200 million for US company-operated stores in the fiscal year. This investment will include new technology and equipment upgrades, such as more handheld devices and equipment improvements, to increase efficiency and speed of service. The company also plans to launch Starbucks Web 3.0 and a platform for NFTs, which they believe will create substantial new revenue streams.

The decision to focus on drive-thru and MOP is a strategic one, as 90% of new Starbucks locations will have a drive-thru option. This is in line with the current consumer preference for convenience and speed. Starbucks has recognised that their stores and systems were not initially designed for these new customer behaviours, and as such, they are taking steps to transform and reimagine the customer and partner experiences.

The company is also addressing issues with its mobile ordering strategy, which has proven challenging. While Starbucks used to be a leader in mobile app ordering, they are now facing competition from other quick-service restaurants, with mobile app sales in this sector up 57.2% year over year. Starbucks has acknowledged that their mobile pick-up area can be hectic and overwhelming, with long wait times. They have since fixed their algorithm for mobile order ETAs, improving order-ready accuracy by nearly 50%.

By investing in drive-thru and mobile order & pay, Starbucks aims to increase store productivity and efficiency, reduce strain on partners, and ultimately deliver an elevated experience to their customers.

Employee demands

Starbucks' $1 billion investment plan includes over $200 million for US company-operated stores, with a focus on training, wage and equipment improvements, and a new partner app for direct communication with all store partners. This investment aims to address the challenges faced by Starbucks during the COVID-19 pandemic, including dramatic shifts in customer behaviour and record demand, which have put a strain on employees.

Starbucks employees have expressed the need for better training, higher wages, and improved equipment to handle the complex beverage customisation and surging demand. In response, Starbucks has committed to the following:

• Training Enhancements: Barista training will be expanded from 23 to 40 hours to accommodate the increasing complexity of beverage customisation for both hot and cold drinks. This will ensure employees are equipped with the necessary skills to meet customer expectations.
• Wage Increases: All hourly employees will receive a pay increase to address the pressure and recognise the value of their contributions.
• Enhanced Digital Tipping: Currently, only customers paying with a Starbucks Card can leave a cashless tip. Starbucks plans to enhance digital tipping options based on employee feedback, making it more accessible for customers to show their appreciation.
• Equipment Upgrades: New tools and equipment will be provided to relieve the pressure on employees, improving efficiency and reducing the strain on partners. This includes handheld devices and equipment improvements to increase speed of service.
• Labour Scheduling Algorithm Updates: Behind-the-scenes updates to labour scheduling algorithms will help optimise staffing based on shifting customer patterns and demand.
• Digital App Enhancements: Enhancements to the Starbucks digital app will provide customers with more accurate estimated pickup times, reducing potential delays and improving the overall experience.

These investments in employee-focused areas demonstrate Starbucks' commitment to supporting its workforce and creating a positive work environment, which can lead to improved employee retention and satisfaction.

Store productivity

Starbucks is planning a $1 billion investment, including $200 million for US company-operated stores. This investment is designed to increase store productivity and efficiency.

The company is experiencing high demand, with sales in North America increasing by 12% year-on-year and 23% compared to Q2 2020. This demand is driven by drive-thru and mobile order and pay, which now account for 70% of US store volume. Starbucks is struggling to keep up with demand, and the strain on store partners has increased.

To address this, Starbucks plans to invest in new technology and equipment to improve efficiency and speed of service. This includes handheld devices and equipment improvements. They will also invest in a new partner app that will communicate directly with all store partners.

Additionally, Starbucks will focus on retaining and maintaining its workforce. They plan to provide better training, wages, and equipment to improve employee satisfaction and retention. The company will also introduce enhanced digital tipping for its employees, allowing more customers to leave tips.

These investments in store productivity are expected to enable Starbucks to handle increased demand, deliver increased profitability, and enhance the customer experience.

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