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1414 Views | 2 min | Published On: September 19, 2023 Last Updated: January 3, 2024
Starbucks is a name that has become synonymous with coffee for many people. It is a leader in the premier rostering, marketing, and retailing of specialty coffee in the world. As of February 2023, the coffeehouse giant provides services across 83 countries and over 36,000 locations.
The primary objective of Starbucks is to maintain itself as one of the world’s most recognised and respected brands. Consequently, it invests in its operations to achieve long-term targeted revenue and income growth. Starbucks achieves so by:
- Adding stores in both developed and rapidly developing markets
- Expanding its global store base
- Optimising the mix of company-operated and licensed stores
- Working on improving its mobile app (since 2009)
Starbucks is a perfect example of a business taking notes from its experiences and then using that knowledge to continuously drive innovation in its offerings, business processes, and services.
Moreover, it has been able to early identify the vital role of technology in retail business and capitalised on it by launching and continuously innovating its immensely popular mobile app.
In this blog post, we will look into the Starbucks mobile app, the features it provides to entice customers, and its role in making the brand even bigger, and commercially more successful.
We will also take a deep dive into the business model of Starbucks, and know how it makes money while delighting customers with its trademark coffee and ever-increasing roster of beverages, food, serveware, and other offerings. So, let’s start roasting.
The History of Starbucks
Launched in – March 30, 1971
Founders – Gordon Bowker, Jerry Baldwin, Zev Siegl
Company evaluation – $112.61 billion (FY22)
Countries covered – 83 (FY22)
Locations available – 35,711 (FY22)
Employees – 402,000 (FY22)
Starbucks is the world’s largest coffeehouse chain. It was founded in 1971 by Jerry Baldwin, Gordon Bowker, and Zev Siegl. It opened as a coffee bean store in Seattle’s Pike Place Market.
The original founders sold it to Howard Schultz in 1982, who joined as the Director of Retail Operations and Marketing. After visiting Italy in 1983, Schultz decided to convert the store into a coffee shop serving espresso-based drinks. This was the birth of Starbucks as we know it today.
At present, the coffeehouse giant not only buys and roasts handcrafted and high-quality coffee drinks but also tea, other beverages, and an array of high-quality food items via its company-operated stores.
Other than its flagship brand of coffee, Starbucks sells goods and services under a slew of brands that include Ethos, Seattle’s Best Coffee, Starbucks Reserve, and Teavana.
The Impact of the Starbucks Mobile App on Its Commercial Success
Starbucks launched its mobile app back in 2009, which helped customers to make interactions with the business easier. It introduced in-app payments in 2011. Today, its mobile app plays a significant role in generating business opportunities and sales.
The Starbucks mobile app works in line with the coffeehouse company’s focus on increasing digital adoption in light of the increase in mobile orders and the demand for contactless order pick-ups.
The Starbucks mobile payment app was the most popular mobile payment app even before the advent of mobile payment apps like Apple Pay and Google Pay. Even today, the Starbucks Mobile App is the 6th most popular mobile payment app in the US with over 30 million users.
This is no simple feat considering the fact that while mobile payment apps can be used to pay at all types of retailers, the Starbucks mobile app allows making payments only at Starbucks stores. To make things even more creamier, a humongous more than 25% of Starbucks payments are processed via its app.
The Starbucks mobile app offers a convenient way for customers to do many things, ranging from ordering ahead for pickup and checking earned stars to claiming free drinks and food. Let’s take a brief look at the various features it offers to keep the customers coming back for more:
1.Earn and Redeem Rewards
The Starbucks mobile app makes it easy for customers to join the Starbucks Rewards program which offers them exclusive benefits by earning stars with purchases.
These stars can be easily redeemed via the mobile app for complimentary drinks, food, and more. The app also offers other ways to earn stars like earning double stars on certain days dubbed “Double Star Days” and completing “Bonus Star” challenges.
2.Gifting
Starbucks mobile app allows customers to purchase and gift their loved ones with digital Starbucks Cards, which can be redeemed via email or the mobile app itself.
3.Locate a Nearby Store
With this feature, the customer can find nearby Starbucks stores and get directions to reach them. The feature also enables customers to check store offerings prior to deciding to visit the same.
4.Order Placement and Payment
This feature allows customers to place their orders without actually visiting a Starbucks store. They can ensure that they get it right after they reach a nearby store. Therefore, no waiting time is involved. Moreover, it also benefits the coffeehouse company by reducing in-store congestion.
5.Pay in Store
The mobile app makes it easy to pay for various services. Support for multiple payment options ensures a smooth and delightful payment experience that ensures customer delight and increases brand loyalty.
6.Starbucks Card Management
This feature allows customers to manage their Starbucks Cards easily. This includes checking balance, adding money, viewing recent purchases, and transferring balances between cards.
7.Tip Your Barista
Starbucks customers can show their appreciation towards exceptional service by tipping the barista directly from the app.
Key Takeaways from Starbucks Mobile App that Led to Its Business Growth
- Early identification of the smartphone revolution and capitalising on the same by adding relevant features.
- Providing in-app payments since 2011.
- Offering a pre-order option from the mobile app in 2014.
- Implementing AI and machine learning – Deep Brew – to deliver personalised user experiences since 2019.
- A close tie-up between Starbucks’ loyalty program and its mobile app.
- Digitally engaged customers purchase 2 to 3 times more products than traditionally engaged customers.
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Starbucks Business Model: How Does Starbucks Make Revenue?
Starbucks generated $32,250 million in the financial year 2022-23. It was the first time the coffeehouse giant crossed the $30 billion mark in revenue. At that time, the company had 51% of company-operated stores and 49% of licensed stores.
Starbucks mobile app has played a phenomenal role in boosting the revenue generated by the coffeehouse giant. It not only made it easier for the consumer to pay for orders but to do it quickly and even ahead of time.
The global coffeehouse company decided to monetize the mobile market by launching two mobile apps – Starbucks Card Mobile and MyStarbucks – in 2009.
Initially released for the App Store, these are now available for Android users as well. In fact, by August 2023, there were 900k+ downloads for the iOS app and more than 2.1 million for the Play Store app.
The apps allow the consumer to check nearby stores, reserve an order by paying in advance, check nutrition details, build a customised drink, and more.
In addition to these two big sources of revenue, the coffeehouse company also generates revenue from royalties and selling packaged foods and beverages. Let’s know about them in detail in the following section.
1.Company-Operated Stores
The company-operated stores of Starbucks are often located in locations that are instantly recognisable and receive a lot of footfall.
Starbucks has the ability to build stores that fit perfectly with the accompanying architecture including office buildings, university campuses, suburban retail centres, and off-highway locations. This gives the coffee company a huge advantage in entering new markets.
Revenue generated from company-operated stores accounted for 82% of the total net revenue generated by Starbucks in the financial year 2022-23.
The Starbucks mobile app was launched in 2009, but the in-app payment feature was added in 2011. Starbucks was one of the earliest adopters of in-app payment technology, which helped it greatly over the years to boost its revenue.
The retail objective of Starbucks is to be the leading retailer and brand of coffee and tea in its targeted market. It does so by offering the finest quality coffee, tea, other beverages, and complementary foods, and ensuring a unique and fulfilling Starbucks Experience.
The Starbucks Experience aims to deliver convenience, safe, clean and well-maintained stores, superior customer service, and a seamless digital experience that can help to build a high degree of customer loyalty.
Reinvention Plan is Starbucks’s new strategy to enhance the efficiency of its business model all the while enhancing the partner and customer experience. This includes:
- Investing in partner wages and training to increase retention and productivity.
- Speed up purpose-built store concepts and technological innovations to provide additional convenience and connection with customers.
Starbucks focuses on increasing digital adoption to uplift customer experience and convenience. This is due to the rise in mobile orders and demand for contactless pick-ups. Starbucks offers it all with its fast and interactive mobile app.
Starbucks focuses on increasing digital adoption to uplift customer experience and convenience. This is due to the rise in mobile orders and demand for contactless pick-ups.
The coffeehouse giant offers its customers a convenient and quick way to make payments using the Starbucks Card, which is a branded stored value card program. It also promotes the frequency of user store visits and facilitates gifting Starbucks offerings.
2.Licensed Stores
Following the licensed store business model, Starbucks sells coffee, food, tea, and other products to its licensees, who then resell them to customers. The coffeehouse company receives royalties and licence fees in return.
Additionally, Starbucks sells coffee equipment like coffee brewers and espresso machines to its licensees to facilitate their operations.
Compared to company-operated stores, licensed stores have a lower gross margin and a higher operating margin. They contributed 11% of the total revenue generated by Starbucks in the fiscal year 2022-23.
According to the licensed business model, Starbucks gets a small share of the sale of each branded product and item sold to the licensed store operator, and receives a royalty on retail sales.
Although Starbucks receives lower revenues under the licensed store business model, licensees take care of capital investments and operating costs.
Starbucks exchanges its expertise in operating and store development for knowledge of local partners with the licensees. A vast majority of these licensees are popular local retailers with extensive market access and knowledge. Hence, it is a win-win deal for both parties.
3.Others
Other revenue sources for Starbucks include:
- Sales of packaged coffee, tea, and ready-to-serve beverages sold outside its company-operated and licensed stores.
- Royalties received from Nestlé under the Global Coffee Alliance and other partnerships.
- Starbucks Rewards program via its mobile app.
Starbucks Business Model Canvas
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Conclusion
Starbucks is a business that has carved its own market. With a strong presence in more than 80 countries, it is one of the few businesses that have achieved this remarkable feat.
Its unparalleled global success – contributed most notably by its ever-evolving mobile app in the early 2010s and later – is a great source of inspiration for many businesses across the globe. If you’re also looking forward to opening a coffeehouse business then you should definitely study the Starbucks mobile app and its business model to get cues on doing it right.
Your business should be easily available online with a fast and enticing website while a feature-loaded mobile app will make it easy for your customers to check your offerings and place orders directly from their mobile devices.
To help you realize a powerful website and mobile app, you can hire mobile app developers who will understand all your requirements and then present you with the best options as per your budget constraints and project development requirements. Godspeed!
Frequently Asked Questions(FAQs)
Q 1.What kind of business model does Starbucks use?
Starbucks follows a chain business model where most of its revenue comes from company-operated stores followed by licensed stores. It also generates revenues via royalties, selling goods and services, and sales of packaged coffee, tea, and other beverages.
Q 2.Why is Starbucks successful?
Continuous experimentation and incessant innovation are major factors contributing to the success enjoyed by Starbucks. Good management of its innovation timeline helped the coffeehouse giant to increase store sales.
Q 3.What is Starbucks target market?
Health-conscious professionals and high-income spenders form the majority of Starbucks’ target market. Its high-end customers fall in the age group of 22 to 50. The coffeehouse giant targets youngsters and people seeking a peaceful space for drinking coffee.
Q 4.Why is Starbucks so unique?
Starbucks has a reputation for continuously experimenting with its drink combinations and exotic seasonal tumblers. Over the years, the coffeehouse giant has also pioneered numerous technological innovations.
Q 5.What was the original business model of Starbucks?
Starbucks started out as a coffee bean shop in 1971. A decade later, it was converted into a coffee shop serving espresso-based drinks. Today, it serves a wide variety of coffee, tea, food, and other beverage offerings.
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