Marketing Profile: Starbucks

January 20, 2023 / Jay Leon

In April, Howard Shults will step down as Interim CEO of Starbucks. He left Starbucks the first time in 1983, and has come and gone several times in between. The new CEO, Laxman Narasimhan, will have many challenges ahead of him. Turnover amongst employees other than his predecessor will be pressing. Today, LinkedIn shows 4,700 open positions (probably not including front line retail jobs) and Glassdoor shows 20,291 open positions. There could be some overlap between the lists, but either way, hiring to fill open positions at Starbucks in the US is a giant priority, and likely an issue worldwide. Making this very big job even bigger, labor unions have now won approval at 260 stores.

Keeping investors happy is on any CEOs list and doing so at Starbucks will be made more difficult by recent history where Starbucks has outperformed its peers turning in a return of 74% for those that held the stock for the last 5 years. Starbucks has also grown faster than its peers generating 36% more revenue than five years ago. Investors expect Starbucks to outperform even further because the stock is currently trading above its peers with a PE of 37. It is better to start a CEO gig when the stock is in the tank!

Starbucks Marketing

Starbucks is a worldwide brand with 402,000 employees generating $32B in revenue from over 35,000 stores (18,254 owned) in 83 countries. The Starbucks brand is valued at $50 billion, behind only McDonalds in the industry, and about 30th in terms of brand value worldwide. Chief Marketing Officer (CMO) Brady Brewer manages a $400+ million advertising budget, and a fully formed marketing team. There aren’t any interns making social media posts at Starbucks.

Starbucks has positioned itself as the “Third Place” for its customers. A place other than home or work to incorporate into regular travel patterns. Since travel patterns were reshuffled during the pandemic, no one is quite sure what is going to happen to the “Third Place” concept. To balance against this risk, Starbucks is testing a partnership with DoorDash in several US cities to deliver orders from the third place to the other two places.

Starbucks has made a big bet on China. At 6,000 stores now and growing to 9,000 in the next three years, China is top of mind for Starbuck’s leadership. China is also top of mind for US politicians and voters. Managing the messaging about the China strategy back home will be as challenging as managing government relationships in China.

Last year, Starbucks, Coca-Cola, and McDonald’s had to figure out if they should stay in Russia after its invasion of Ukraine. Starbucks decided to leave its 130 stores in Russia behind, after which they were reopened as “Stars”, a look alike run by a Russian rapper. See the links below, I am not making this stuff up!

We expect Starbucks to serve us our favorite drink quickly and consistently, in an environment we have grown to accept as our “third place”, anywhere in the world. We also expect Starbucks to lead the world on a full spectrum of social of issues ranging from the wellbeing of coffee farmers, to the waste created by plastic straws, and giving the public access to safe restrooms. It may not be fair to expect so much from a company, but we do.

To say that Brady Brewer has a lot to think about doesn’t really capture the layers upon layers of moving parts at Starbucks today. Hopefully he is meeting frequently with Laxman Narasimhan to create alignment on strategy so when Laxman takes over as CEO in April, they both know they see the opportunities and threats the same way. It is going to take supreme alignment with the board and all top leaders to navigate the next few years.

So instead of imagining Brady Brewer’s daily dashboard. Let’s consider one aspirational initiative: The Starbucks Marketing Data Community. Empowering the front line partners to be part of the marketing team and adopting a “Let’s Try It!” mindset.

Starbucks has long been a leader at using technology and data to improve its business. It introduced its mobile app over 10 years ago and was an early adopter of AI tools. They use these tools to pick new store locations and measure the impact of new products. They even figured out a way to track bathroom availability during the pandemic. They named their AI initiative “Deep Brew” after “Deep Blue”, the IBM computer that won the first chess match against a reigning world champion.

Starbucks appears to be amazingly good at sucking up data and sending back guidance on everything from staffing when there is a winter storm or a football game nearby to the amount of half and half to order this week.

Starbucks appears to be amazingly bad at using technology to build lasting relationships with their retail front line. In the beginning these employees, called “partners” at Starbucks, were the foundation of the business. They still are, but either due to a change in the Starbucks culture, or a change in employees expectations about their jobs, (probably both) the relationship is breaking down.

Let’s Try It!

I propose that Brady Brewer build an army of 100,000 partners in the stores equipped with an internal mobile app, running experiments in all areas of marketing from campaign creation to social media to special events to hours of operation to who knows what. The slogan could be “Let’s Try It!”

This is not intended to be a minimization of the great work Starbucks has done in data and technology. In fact, it is only possible because it builds on the rich tradition of data and technology at the company. Reversing the flow of innovation is made possible by the fact that there is a flow to reverse.

Starbucks already has what it calls a “digital flywheel. The model, built around the customer mobile app, uses rewards, personalization, payment, and order processing to deepen the relationship with the customer. It’s cool, but it is the same model of sucking data from the edge to the center, doing some things to it with machines, and then pushing something like an offer back out to the edge.

This internal mobile app would be a “partner flywheel”. It would take some doing to get going, but at speed would touch every part of the company. Instead of taking data from the edge and combining it at HQ, it would push data and AI enhanced capabilities out from HQ to the edge. A store manager could say to the app: build me a promotion where a customer gets stars added to their account when they visit my store a second time in the same week and run it until we have awarded $100 worth of stars, then tell me if we gained or lost on the idea.

Initially there will be great friction to overcome. The store managers already feel overworked and underappreciated. Their pay regularly fails to rise to the level of their responsibilities. They are perpetually understaffed, particularly since the pandemic, and they are routinely told to run their stores as an owner would. But they don’t feel like owners should. Giving them tools to experiment with, and maybe some incentive if their ideas get picked up by other stores, and it may improve the relationships.

There has been a big wave of departures from Starbucks headquarters in 2021 and 2022. Many of the departures have been in the data and AI teams. With other tech companies currently reducing staff, there is a big opportunity to recruit for and build a team that would follow in the footsteps of the people that built the Mobile App, Deep Brew and the Digital Flywheel, and build better relationships and innovation with the partners in the stores.

I would love to hear your comments. Do you think this would work? Is Starbucks already doing this? Are other companies doing it successfully?