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We will emerge from this global pandemic with new insights and capabilities that will make our business even stronger and more relevant.

That’s the declaration from Starbucks CEO Kevin Johnson and the proof point his optimism stems from is the recovery of the firm’s business in China, where 98% of stores are now reopened after lockdown there. As the coffee giant gears up to get its US outlets back up and running from next week, the Chinese experience is combining with the company’s long-standing digital transformation investment to create a post-COVID-19 playbook.

When the pandemic took hold in the US, Starbucks took the decision to shutter over half of its company-owned stores, limiting service to drive-thru and delivery for those that remained open. None of its outlets remained open for in-store takeaway unlike some of its competitors. Johnson explains:

We decided when we went into the shelter-at-home to only open drive-thrus and we did that for partner safety. We just decided rather than have any location that has a cafe opened during the period where the nation was sheltering at home and social distancing, we thought that was the safest way for us to ensure both our partners’ safety as well as out of our customers. That’s what drove the decision to close all those stores, whereas certainly others made different decisions and that’s fine. But we prioritize the health and well-being of our Starbucks partners and the customers, which is why we were more aggressive perhaps than others in closing stores.

But it’s now time to consider how to get some form of normality back into play and the firm’s commitment to digital transformation is going to help here, particularly in the area of Mobile Order and Pay. Johnson says:

In the US almost 60% of our company-operated stores include drive-thru and over 80% of our customer occasions before the crisis were on-the-go, with the majority of these orders being placed at the drive-thru or by using the Starbucks app to mobile order for pickup or delivery…. By augmenting the in-store experience with mobile ordering and contactless pickup, we can service significant volume of customers without having the cafe seating area actually opened.

China culture

That’s actually the opposite of China, observes Johnson, where the ‘cafe culture’ was predominant, although there has been a shift in behavior:

Traditionally we’ve seen 80% of our business be stay-in and enjoy their drinks in the cafes. As COVID hit, we hit a peak of nearly 80% of transactions being digital orders. Those digital orders were all set up with the contactless experience ,through walking in the stores and picking up your orders in Mobile Order & Pay and then the rest of it was delivery… What we’re seeing is that there is a higher percentage of to-go orders taking place in China and we expect that trend to continue. And if there is a silver lining, I think it is forming a new habit in China, where you are seeing more people take to-go orders and get used to doing that.

Nearly all the stores in China have now reopened, albeit with limited seating, reduced hours and health protocols in place, with only those in cinemas, airports and restricted high-tourism areas remaining closed. The company has even managed to open seven new stores this month! And there is still underlying demand for the sit-in cafe experience it seems as Johnson notes:

What we see today is that in the stores that we have open, we have roughly 83% of those stores have seating in them with social distancing in place, so we are seeing people come back into the cafes and sit there albeit not to the levels that we saw pre-COVID.

Monitor and adapt

China’s lockdown experience is now informing how Starbucks proceeds with the re-opening of its domestic US network with the goal of having 90% of company-owned outlets open by early June. Johnson argues that this is made possible by the use of the firm’s arsenal of digital tech to enabling a shift into the next phase of recovery which he calls ‘monitor and adapt’.

Our monitoring capability provides the input necessary for decisions that enable us to turn the dial up or down depending on the situation in a specific community, or a specific store…This monitor-and-adapt phase in the US is the inflection point for reopening stores and begins a recovery process that requires ongoing monitoring community-by-community to rapidly adapt and drive the recovery. We are well positioned to leverage our digital assets and new operating formats like contactless pickup and curbside to expand service to customers.

A key part of this process has been the creation of a decision modelling tool to provide a ‘big picture’ by analysing customer frequency in drive-thru stores as well as looking at sources from local government guidance, the infection curves by county, customer sentiment and partner sentiment. The outcomes from that are shaping modifications in the company’s go-to-market approach, says Chief Operating Officer Roz Brewer:

Those modifications will be drive-through stores. We will amplify delivery. We will have the Mobile Order & Pay channels open, and then the addition of a new concept, the entryway hand-off.  We will only have roughly 30 stores that will be ‘cafe open and order’ and in those 30 stores, there will be no seating.

We will monitor what happens as shelter-in is lifted in certain regions and areas and then begin to reopen the cafe stores. You’ll see later in the summer, we’ll also add curbside access to our stores. What we’re doing is managing what we’re learning and then opening the stores accordingly and applying our partners and our labor against the new entryway model and also to amplify drive-through. We’ll also be helping our customers use the app and make sure that they order ahead and pick up in store either ,through drive-through or those other channels.

One interesting stat from recent weeks is that the number of 90-day active Starbucks Rewards members, the most highly engaged and loyal customers with whom the firm can directly communicate digitally, increased to 19.4 million in the US, up 15% from this time last year. Brewer says:

One of the things that we’re seeing as we’ve been going through this COVID experience is our Starbucks Rewards members remain roughly 44% of our business…The majority, roughly about 70% of them, are our frequent Starbucks Rewards customers. And they’re still coming to our stores, just less frequently…There’s same frequency loss across all dayparts. It’s a little bit more pronounced in the morning but that’s to be expected because the routines have been disrupted. So we are encouraged by what we’ve seen so far in the US. We believe that these highly resilient customers will come back to us. The routines may look a little bit different. People remain in a work from home position. But even as local mandates get relaxed, we feel like we can monitor and adapt accordingly.

Trust

Looking beyond lockdown, Johnson argues that Starbucks recovery playbook will be assisted by trust in the firm’s brand:

When we look at consumer behavior on a global basis as it relates to COVID-19, after people have been sheltering at home in a lockdown situation for several weeks – in China, it was a little over three weeks; in the US, it’s been about six weeks – what they look for,  what consumer sentiment looks for, is something that is safe, experiences that are safe, familiar and convenient. And that is consistent around the world.

Again he points to Starbucks digital track record as being a major asset in this respect:

Pre-COVID, we had built a tremendous momentum in the business by focusing on three things – the customer experience, beverage innovation and digital customer relationships. – and that remains the powerful combination for us to continue to engage and drive frequency of customer visits. But we recognize coming through the COVID experience that everyone around the world is sharing, that really optimizing the initial store experience around these concepts of safe, familiar and convenient is what gets customers now to start. That’s kind of the on-ramp to that engagement.

Now certainly, we’re going to know a lot more 30 days from now in the US. But in the drive-throughs, just the number of drive-throughs we’ve had open without even the cafe open, we were delivering roughly 75% of prior year revenue in those individual stores. So that’s just an indication of the power of the brand and the strength of connection that we have with customers. Now I think over this next week when we open more stores…I think we’re going to begin that path of engaging.

I think 30 days from now, we’re going to have a much clearer view of how rapidly that goes. We’ve got a great beverage lineup that’s going to release. We’re going to market and evangelize that. We just grew digital customer relationships by 15% to 19.4 million in the US and we’re going to leverage that to communicate with our customers. And we’re going to be thoughtful and responsible with each step that we take and I think that’s the formula.

My take

It’s just over two years since Starbucks Mobile Order and Pay app was a pain point for the firm, simply by dint of being too popular and causing blockages in-store when customers came to collect their cups. It was the first problem that Johnson had to fix when he took over as CEO; it’s now proved to a major asset and likely to be one of the most powerful enablers to getting Starbucks back up and running to a working degree of ‘new normal’. The company, once again, has good reason to be grateful to former CEO Howard Schultz for his visionary belief in digital transformation all those years ago.