Starbucks closing

On October 1st, Starbucks is closing its online store! Starbucks sells mugs, glasses, coffee and espresso makers, in addition to coffee, tea, and beverage syrups online. At the same time, in the US, 30% of Starbucks consumer sales involved the Starbucks mobile app. With some much success with their mobile app, why close the online store?

starbucks closed online store accounts

Starbucks mobile app has three key features: rewards, order and pay. The mobile order and pay feature accounted for 7% of transactions. The app as a whole was a key part of 30% of the transactions, largely due to the Starbucks rewards programme.

Mobile app is winning

Starbucks needs to remodel retail destinations. The usage of the Starbucks mobile app in the US is growing much faster than expected and is leading to growing pains.

“The company believes that in some of its busier stores, employees had a difficult time keeping up with rising mobile orders. This in turn created bottlenecks at pick-up areas that likely led to walk-in customers leaving before ordering a drink.”
Source: Business Insider

In response to this, in January, founder Howard Schultz said the company planned to redesign new stores and existing remodels. To catering for the fact that Mobile Order & Pay “is obviously going to be a significant part of the morning business.”

Close the online store

With all of this success with the Starbuck mobile ordering app, why a company with the resources of Starbucks close its online store? Especially since Schultz said that, in order to make this growth a reality, the company is banking on two strategies: becoming a “destination” and investing in digital.

Let’s take a look at the main areas, retailers focus on for their digital offerings and why it might work or not work for Starbucks.

Order-ahead vs Click-and-collect vs Home delivery

1. Order-ahead

This is taking off among quick-service restaurants and take-aways, where there’s a wait time to fufilling the order in-store (to prepare the food/coffee etc). The model has been proven over the past 10 years, firstly by food ordering services like Grubhub and Just Eat and more recently with large food chains adopting their own branded app.

  • Main benefits: is shorter queuing time, and since you’re not in a queue, more time/convenience in placing the order. It’s often backed by a rewards program for consumers ordering through the app.
  • Fulfilment: In-store or home delivery: This is about ordering and collecting/receiving the order within 20-60 mins.

Analysis: This is working big time for Starbucks and makes a lot of sense for quick-service restaurants. According to this report, Mobile order-ahead is still in its early days, but will be a $38 billion industry by 2020, accounting for 10.7% of total quick-service restuarant industry sales.

starbucks click and collect
2. Click and collect

This is similar to order-ahead, in that the consumer collects the order in-store. Traditionally the order is for something that’s not always in stock in the local store. The order is placed via the retailer’s online store.

  • Main benefits: useful where items that are not-stocked in the local store can be ordered online and then collected in-store in a short amount of time. Often means savings for the consumer in terms of reduced/no shipping charges on the items. Great for furniture, sports equipment, fashion
  • FulfilmentThis is about ordering, and collecting the order in-store within a day to a week.

Analysis: This feeds back into the more traditional idea of an online store. For Starbucks, the sales they want to promote are order-ahead sales of a fast-moving inventory of coffee/tea and food. Click and collect usually applies to bigger ticket items, let’s say at a minimum over 50 euros/usd/gbp. Ordering a rare type of coffee for 10 bucks to be collected in-store is something that would be logistically difficult to do in a cost effective way. It’s not impossible to imagine it, but the cost of shipping individual bags of rare coffee from a warehouse for an individual customer would be high and the rewards would be low.

3. Home delivery direct from online store

This is the traditional model we think of with eCommerce. Some of the biggest benefit for consumers is to buy things that aren’t available or as affordable locally.

  • Main benefits: useful for things you can not buy locally. Or where it is much cheaper to buy online. This often means savings for the consumer on the total price including shipping
  • FulfilmentThis usually requires a wait time of a week or more.

Analysis: There’s usually a Starbucks store nearby, so why would people buy a Starbucks mug or bag of coffee online? Also buying things like tea, coffee and mugs is often about the shopping experience- smelling the coffee, buying the mug as a souvenir of a place. With so many similar products available locally why buy online? That said, we can see that Starbucks still sees a benefit to selling online, as the will continue to sell via third party sellers like Amazon and Starbuck’s grocery partners. With this model, the ‘last mile’ of fufilment is handled by a third party, making things easier and more cost effective for Starbucks.

Different strokes for different folks

This article analyses Starbucks current consumer strategy when it comes to digital. It seems like a reasonable ‘quick-service restaurant’ digital strategy. For food service in general, online ordering is growing rapidly, and before you ask, yes we’ve got an app for that! 🙂

That said, even within the food sector, a completely different mix of digital offerings might be appropriate. And furniture and fashion is likely to have a completely different mix for example.

Any questions? Feel free to contact us.

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