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Building an enduring company: innovation at Starbucks

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As Starbucks announces major investment into new foodservice technology, we talk to FCSI members about the brand’s emphasis on innovation

At Starbucks’ largest ever shareholder meeting earlier this month, the company revealed not only a rosy fiscal year in 2018 – with topline revenue growth of 10% – but also a major new investment plan.

The coffee giant has invested $100m into Valor Siren Ventures (VSV), a fund that will be managed by Valor Equity Partners. The latter is a private equity firm with a history of investing in food technology, and the major new investment fund will aim to identify and invest in companies that are developing tech, products, and solutions relating to food or retail.

Vertical innovation

Starbucks have set out a clear agenda with this investment that proves their intention to notice and nurture new talent in the industry.

One eye will inevitably be turned to finding potential commercial partners: but as well as looking for commercial ventures, the fund will also encourage the best talent in the industry to keep innovating.

Consultant Arlene Spiegel FCSI, founder and president of Arlene Spiegel & Associates, sees the investment in VSV as a fundamental reflection of Starbucks’ corporate culture. It’s a culture that thrives on a connection to the customer, she says.

“It mandates that they encourage exploration into the fulfilment of the brand’s promise – to be an integral part of the lives of the people they serve internally, their employees, and externally, their guests and partners,” Spiegel points out.

She leaves no doubt, though, that the fund will also facilitate significant insight into the industry competition. “It keeps them focused, and aware of the exponentially growing competition,” says Spiegel. “Starbucks is simply doing the responsible thing and leaving no stone unturned.”

Starbucks CEO Kevin Johnson, in a statement about the investment fund, similarly pointed out that the investment would have an impact on multiple aspects of the business: “Our long-term plan for growth with focus and discipline is built on the acknowledgement that the pursuit of profit is not in conflict with the pursuit of doing good.”

Keeping up with robotics

From a growth point of view, investing in up-and-coming technology and insight is vital in modern foodservice. Karen Malody FCSI, the principal of Culinary Options, emphasises the importance of developing new tech.

“As labour becomes increasingly challenged, both from an availability and cost perspective, automation and ‘smart equipment’ become essential to operators. Add to that the rampant demand for speed and convenience on the part of the consumer and you have a perfect storm of opportunity,” says Malody. From robotics to fast pickup and delivery, the companies who can afford to invest will remain viable – but also, as Malody points out, “they’ll be strategic and financial leaders.”

Operational tech is key, but Starbucks have been careful to couch the new investment in terms of listening acutely to customer feedback. Roz Brewer, Starbucks’ chief operating officer, made the clear point at the shareholder meeting that “reimagining the third place is about listening to our customers, so we can better position our business now and for the future.”

Grand designs

Bill Bender FCSI, founder of W.H. Bender & Associates, agrees that the $100m fund is “a great starting point – it’s a fantastic investment.”

For Bender, his base in Silicon Valley gives him a key perspective on both sides of the argument for new technology. “Everybody’s looking at tech for solutions,” he says. “And everybody’s looking for efficiency. That’s crucial, but you can’t lose sight of the importance of people.

“When I go to my local Starbucks, they know me, and I know them. Guests at Starbucks want the experience of talking to a friendly employee. No matter the tech, it’s about having someone there that serves you properly.”

Starbucks puts a lot of emphasis on the ‘third place’, which hopes to secure an association of the brand with comfort, relaxation, and convenience. But as Bender points out, “A guest has already made 50% of their first impression within the first three seconds of seeing a store. If the layout is badly designed, and it looks chaotic, then for all the good technology that they’re using, guests won’t stay.”

Starbucks’ mobile app ordering and pick-up system is a case in point, he says. A store needs to be designed to allow two areas, one for pick-up and one for over-the-counter orders. Bender is unequivocal: “everything gets back to the guest’s experience of being in the store.”

The ‘third place’ can be supported by convenience technology, but the nuts and bolts of foodservice design and layout can’t be ignored.

Generation game

Ultimately, the ‘third place’ aims to develop and retain a rock-solid customer base who associate coffee with the Starbucks experience.

In many ways, this has always been part of Starbucks’ offering: as Malody muses, those values have held firm throughout Starbucks’ history. At the same time, though, she points out, “Millennials began the shift in customer service expectation – it had to be faster, friendly, convenient. Generation Z even more so.

“Those who can deliver on convenience, consistency and experience – truly master that holy triumvirate – will not just win the foodservice game, but will place themselves in solid financial stead for the future. It simply means that the meaning and elements of attributes that make Starbucks the third place will, by necessity, change with the times.”

Spiegel agrees, and points out that an ambitious push for a modern and brand-defining third place is a tangible goal for Starbucks: “It’s a realistic concept because most people have had a ‘real, high-touch’ experience at an actual Starbucks location that they emotionally connect with when thinking of the brand. This can be seen in the K-Cup arena [single-serve coffee pods], where Starbucks Pods are sold everywhere retail.”

The store itself is a vital element of the brand. Spiegel references, as an example, a moment when former CEO Howard Shultz was leading the company. Walking into a store and realising that the ‘cooked on premises’ food was obliterating the smell of coffee, he refreshed the entire store promise to put coffee back to front and centre.

Investing in the future

Starbucks have set out clear intentions with this investment fund, and with their plans to modernise their store space. The customer experience is vital to their progress – as is new tech, which the customer base itself will demand as Generation Z gains purchasing power.

To keep their brand at the levels of successful growth they showed in 2018, this innovative and industry-focused new fund at VSV will give Starbucks an undeniable edge.

Frances Ball

 

Main picture: Starbucks

Inset pictures: Joshua Trujillo; Lindsey Wasson