What Has Starbucks Been Up To?
We hear a lot of talk on Peeptrade’s message boards about Starbucks (NASDAQ: SBUX). The other week a user commented on their new innovative efforts to capture market share. Among other things, he brought up Starbucks’ new delivery program. To answer his questions and to respond to others, we thought we’d take a deeper look at the company.
Last week, Starbucks (NASDAQ: SBUX) announced that they would be collaborating with delivery service Postmates for a pilot program based in select Seattle neighborhoods that would deliver customers Starbucks food and beverages straight to their homes. There’s a huge catch, though. Each delivery comes with an expected 30-60 minute wait time and a delivery fee of $5.99—and that’s not including tip! This isn’t the big move Starbucks has made in the last several months, either. A few months ago, Starbucks also launched it’s Evening Stores that sell wine, craft beer, and small plates. With all of these big steps, shareholders are beginning to question whether or not these big decisions make financial sense.
First, let’s talk about deliveries. Now, critics of this new delivery system first point to the fact that the service is relatively slow. An hour is a long time to wait for your morning coffee, especially for Seattle java-heads who rely on that caffeine boost in the morning. Critics also point out that with a delivery fee of $5.99 a consumer could, in fact, buy two cups for the price of one if they had simply driven to their nearby neighborhood Starbucks. There’s one thing critics are ignoring, though, and that’s that going to your neighborhood Starbucks requires pants. So, it’s a toss up.
Cartoon by bizarrocomics.com
Seriously, though, this high delivery price won’t necessarily drive customers away. Starbucks CEO Howard Schultz said in a New York Times interview in 2006 that their target customer is not the teenager or middle aged to senior citizens we imagine, but rather young urban adults aged 18 to 45. Schultz explained that their “core customers” are an average of 42 years old and have an average income of $90,000. So, while it isn’t cheap, a six dollar delivery fee isn’t really out of the price range of these customers.
One top priority with Starbucks moving forward with this program won’t be delivery time or cost, but quality. Starbucks customers are notorious for their complicated orders, as is highlighted in this Huffington Post article. When rolling out this new service, it is going to be essential that Starbucks maintain the same level of service its customers are familiar with at stores with their deliveries, especially if they’re expected to wait an hour for their cup of joe.
Cartoon by cartoonaday.com
Despite these concerns, Starbucks’ delivery decision has so far appeared to have had a positive effect on their stock with prices surging up 3.8% in the week after the announcement was made. Whether or not this rise will continue is still up in the air, given the fact that prices have since fallen. One thing’s for sure, though, Starbucks is changing things up and connecting with customers who are increasingly engaged in mobile ordering. They’re also changing things up in another way—by selling alcohol.
Beginning five years ago in Seattle, Starbucks began selling wine, craft beer, and small plates to customers in an attempt to get them to socialize in their establishments in the evenings. Think about it. It makes sense. Even now, Starbucks aren’t really just coffee shops at all. They’re meeting places. They’re where you go to meet with your friends to chat before work or to meet up with fellow students to work on assignments. This wasn’t by accident, it was by design. Starbucks wants to be the first place everyone thinks about to plan a get together of any kind, and that’s why they’ve created their Evenings Stores.
cartoon by Milt Priggee
Starbucks doesn’t just want to be a place where you go to get work done. They want to be a place you go to after work, a place you would go to relax. This idea captures way more customers than before, also, because who needs a cup of coffee after work? Honestly, the only thing I want after work is a glass of wine, a fireplace, and good company—and Starbucks knows this. In fact, they built this entire business model on that concept. At 4pm, Evenings Stores begin selling alcohol and small plates, but continue selling coffee for those that need a jolt of caffeine after work for whatever reason.
There’s data to back this concept, too. According to Mintel Reports 2014, 70 percent of Starbucks customers drink wine compared to the general US average of 30 percent. Starbucks customers are also twice as likely to drink craft beer compared to the national average. They’ve clearly thought this through. That’s why they’re currently expanding their Evening Stores program major metropolitan areas like Atlanta, LA, and Chicago.
When you think about it, delivery and Evenings Stores make sense for Starbucks’ overall goal of world domination. They bring you in for your morning cup of over roasted, caffeine-loaded coffee before work, then they’ll deliver you a mochafrapalatte-thing at lunch, and then invite you back for a glass of Chardonnay after work. It’s really pretty genius. Innovative ideas like this are why Starbucks’ stock price has increased nearly 50% since last year and why time and again analysts reiterate a strong buy on it. Whether or not they’ll dominate the world by next December, I don’t know, but they’ll almost certainly have more ideas like these rolling out.