Starbucks redefined the art of making coffee and the brand is also redefining the art of profitability in the times of global economic slowdown.
Lately, Starbucks, an American coffee making company managed to make 27 per cent profit, irrespective of the economic slowdown. However, this is not entirely surprising if we compare it to what Starbucks pulled off in 2008, to survive a financial crisis amidst the economic slowdown.
Heads Up! Starbucks’ secret to profits and surviving economic slowdowns
- 2008 slowdown and return of Howard Schultz
- The store count and community building
- Financial reports speak a million words
- Digital payments app was a clear winner
- Partnerships with Uber Eats and Alibaba
- Key focus on economic sustainability
Back in 2008, due to the economic slowdown, things became strenuous for Starbucks. But then, the company didn’t give up. They fought back the slowdown by going against the wind. The company decided to open fewer stores in the U.S market, focused on cutting down costs and expand its brand.
With Howard Schultz’s return in 2008, the company restructured and engaged with customers online by building a community. In addition to that, the company had also decided to open 1020 stores in 2008, which is less than the previous year. Although, the company tried to remain constant by opening beyond 1000 stores every year, i.e. from 2009 to 2011. By the end of 2011, the number of stores was 21,500.
As per the reports of Statista, there are 31,256 Starbucks stores all over the world. Some reports of Scrapehero state that there are 15,130 stores located alone in the U.S itself. Now, as per the Starbucks Q1 Fiscal 2020 reports, there are 31,795 stores, of which 539 net new stores were opened in the first quarter of 2020. It is increased by 6 per cent compared to the previous year.
Reports speak a million words
According to the Starbucks Q1 Fiscal 2020 reports, the company’s Comparable Store sales went up by 5 per cent, which was increased by 4 per cent in Q1 fiscal 2019. But, in Q3 Fiscal 2019, the Comparable Store Sales fostered by 6 per cent. Also, the International comparable sales went up by 1 per cent and China comparable sales went up by 3 per cent. The consolidated net revenue grew by 9 per cent when compared to its previous year.
The net revenue for Americas alone surged up by 13 per cent i.e. $1.1 billion in Q1 FY20 from $1.0 billion in Q1 FY19, and 4 per cent internationally, making a net revenue of $1.6 billion in the first quarter of the fiscal year 2020. The GAAP operating margin spiralled 190 basis points in Q1 FY20, against 90 basis points in Q4 FY19.
Digital Payments App is a winner
With the Starbucks app, you can order your favourite coffee at any point in time. This is one of the reasons for Starbucks making extra revenue. Earlier, the company used to concentrate more on investing and restructuring. In 2008, the company turned customer-friendly by making its social media presence. To regain the customers, Starbucks has used digital platform effectively and also efficiently by engaging on a consistent basis. Also, a big hit of ‘My Starbucks Idea’, led the company to understand the regular demands of customers.
From advertising to the kind of ambience required at a coffee spot, customers actively engaged in community debates. Gradually things changed. Furthermore, Starbucks started to solve customer demands by making a note of all the opinions and ideas shared by the customers on these community platforms. In January 2011, the company launched its mobile payment system. 30% of the transactions were made using the Starbucks app. Besides, the company also offered numerous freebies like free drinks, drink upgrades, etc.
In January 2011, the company launched its mobile payment system where 30% of the transactions were made using the Starbucks app.
Likewise, after the huge success of digital payment process, the company launched Mobile Order & Pay in the US in 2015 to enhance the sales and revenue. The company also spend an additional amount on social media to stay updated with the requirements, demands and needs of the customers. Having a major market in the US, the company witnessed early adoption of ‘order and pay’ process, also receiving 9 per cent of the orders in advance. That transcended into margins and profits for Starbucks despite the ongoing economic slowdown.
Mingling with Uber Eats
Now, with the partnership with Uber Eats, the company expanded its reach to 49 markets all over the U.S. Customers can now order the same way they did by using the Starbucks app for ordering their favourite beverage. This feature is available for both Android and iOS users, but customers need to check the location availability before ordering.
Mingling with Alibaba
Back in 2019, with voice assistants like Alexa and Google nest were becoming increasingly popular. So, Starbucks followed the digital trend by partnering with China’s biggest e-commerce giant Alibaba. The company introduced voice ordering, where customers get their order in the 30-minute time gap.
Key Focus on Environmental Sustainability
Constant innovation and consistent usage of digital platform, like social media, helped Starbucks. It was able to boost its productivity and market sales. Consequently, Starbucks turned out the profit despite an economic slowdown.
In fact, in the coming days, the company has some big ideas. It plans to expand its zone to plant-based and environment-friendly consumable products. Also, the company decided to invest more in innovative agriculture, waste-management and eco-friendly practices.