Starbucks Doubles Down on Modernizing Tech Amidst Teavana Failure

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Starbucks Doubles Down on Modernizing Tech Amidst Teavana Failure

By Jamie Grill-Goodman - 07/31/2017

"Digital relationships are becoming increasingly important to Starbucks' growth," declared Matthew Ryan, EVP, global chief strategy officer, Starbucks, amidst news the company will shutter all 379 Teavana mall stores. According to Ryan, the retailer will begin rolling out "a new generation of digital innovation" aimed at improving its loyalty rewards and ordering capabilities, starting this fall.

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"This fundamental modernization of our technology stack will replace legacy rewards and ordering functionality with the new scalable cloud-based platform for rewards and ordering, improved customer data organization, and tighter integration with store-based operating systems, including inventory and production management," said Ryan.

The first phase of the platform rollout is expected to give Starbucks the ability to flexibly change and configure rewards programs and become more nimble in creating new benefits for its customers. The tech will also allow Starbucks to award exclusive benefits to subsets of customers. The first application of the new technology will support the rollout of Starbucks Rewards in Japan this fall, with other markets following thereafter.

The second phase of the rollout will focus on new ordering functionality, a move the retailer believes will result in digital relationships with a new pool of customers who have Starbucks accounts and payment credentials on file, expanding the number of shoppers the company can target with offers.

"We will still require stored value accounts for customers to receive stars with every purchase, but we'll no longer require customers to use a stored value account to place an order, removing a barrier to expanding usage of Mobile Order & Pay, a service that is highly incremental to our business," said Ryan.

"New ordering capabilities also means transforming our store operations," noted Ryan. To that end, Starbucks is adding the Digital Order Manager (DOM) present in 1,000 of its busiest Mobile Order & Pay stores, as well as making improvements to its inventory management technology. The company is also working on tools that will enable associates to recognize customers that deserve differentiated treatment, such as shoppers celebrating birthdays or regular customers from one store who show up at a new store.

Starbucks will also test a guest checkout feature for first-time users of the app early in 2018.

Foundation of a Tech Platform

This is the beginning of Starbucks work towards developing a retail platform. Ryan noted eventually the company's new technology platform will also flexibly interface with inventory and point-of-sale systems in both company-owned stores and inventory and licensed partner locations.

"This new foundational technology will also enable even more convenient ways for customers to order their beverages and food, providing even more reasons for customers to set up digital relationships with us," said Ryan.

U.S. Starbucks Rewards membership rose to 13.3 million active customers in the company's third quarter 2017, up more than 8% from last year and 28% from two years ago. Spend per member was up 8% compared to the previous third quarter. Meanwhile, 36% of U.S. revenues came from Starbucks Rewards members in the quarter, driving the 41% of revenues that are prepaid on the company's own proprietary payment platform.

Starbucks also said it is expanding personalization by offering new offer constructs, real-time triggers and push notifications to engage customers more deeply. It is also working to remove friction in the sign-up process, improve the digital interface and registration flow, and is in the early days of testing solutions to streamline rewards sign-up.

"We're not complacent and recognize that digital relationships will increasingly be the key drivers of demand generation, even in physical stores," said Ryan. "By leading in the combination of physical and digital, we not only drive superior business results in the short term, based on rewards, ordering, and personalization, but we also make it very challenging for digital companies to outmaneuver us in the physical world. While digital companies may win in other sectors, we will be the digital company that wins in ours."

Starbucks suffered its biggest stock decline in almost two years after cutting its forecast, according to Fortune. In addition to its digital efforts, the company is also setting its sights on China. As it looks to enable long-term growth in China, Starbucks said it will continue to open 500 new stores there every year at a rate of growth that will accelerate over time. The company also plans to buy out its East China joint venture for $1.3 billion, allowing it to take full control of 1,300 cafes.