Starbucks’ new CEO: ‘We can enhance our tech stack to lower costs and reinvest’

By Larry Dignan

Starbucks CEO Laxman Narasimhan, who took the helm March 20, said the company is revamping processes in stores as well as the supply chain to enable a strong customer experience. The goal: Enable human connections digitally.

Narasimhan said Starbucks is starting to see a payoff from its digital transformation and efficiency efforts outlined last year. "There is more work to do to tailor our stores for the demand that we see, advance our technology, advance how we innovate our equipment and more fundamentally get back to focusing on fundamental operations and executing better," he said on Starbucks' fiscal second quarter earnings conference call.

"We see significant efficiencies in our supply chain, support systems and processes," added Narasimhan, who noted that Starbucks is trying to simplify. For instance, the company currently has more than 1,500 cup and lid combinations across its network. Starbucks has 36,634 stores globally.

In front of that efficiency drive, Starbucks is leveraging its digital footprint and Starbucks Rewards membership. In the first quarter, Starbucks added 400,000 members for 30.8 million members in the US. That membership program creates a data flywheel for Starbucks to personalize customer experiences. "Starbucks is uniquely in the business of human connection," said Narasimhan.

In the second quarter, Starbucks Rewards accounts represented 57% of US company-operated revenue. Mobile orders represented 47% of US sales. Narasimhan added that Starbucks will continue to invest in its technology stack and roll out tools like scheduling applications that improve employee and customer experiences.

Narasimhan said Starbucks is just starting to see the payoff from its digital transformation efforts and has a long runway ahead. "We can enhance our tech stack both to lower costs and reinvest it back into the tech stack to support the large digital push we are making," he said.

Starbucks is a confirmed ServiceNow, AWS, SAP and Salesforce customer based on job listings and vendor case studies.

Here's a look at Starbucks digital transformation plans currently underway.

The process optimization effort

The second quarter earnings and debut of new CEO come a few months after Starbucks outlined a far-reaching overhaul at its 2022 Investor Day. Starbucks outlined how it is revamping processes across its stores and supply chain, deploying more automation and simplifying work for its all-important baristas. The takeaway: Starbucks is planning to continually improve technology and processes to hit its targets for 2025.

In September, Starbucks projected earnings per share growth of 15% to 20% annually over the next three years with global and US same-store sales rising 7% to 9% annually. By the end of 2025, Starbucks expects to have 45,000 locations worldwide. Starbucks reiterated its 2023 outlook on its second quarter earnings call.

Deb Hall Lefevre, Starbucks Chief Technology Officer, said during Investor Day that the company's technology strategy and processes will revolve around enabling partners as well as customers. "We will never replace our baristas," said Lefevre. "We are instead laser focused on how we enable our partners. Our job is to automate the work and simplify it, so their job is easier and more joyful."

Lefevre said Starbucks will leverage real-time data to automate store tasks, provide task management tools and build playbooks for shifts. "Things just need to work," she said.

The customer experience plan

The returns on digital transformation at Starbucks clearly intersect with customer experience.

Frank Britt, Executive Vice President and Chief Strategy and Transformation Officer at Starbucks, said the company approach is designed to include the lifetime value of a partner (employees) as well as a customer. "If we create more value for partners, the benefits are enormous. We spend less money to acquire relationships because we have higher retention, and we get more value. This idea is very much in the new thinking of Starbucks," said Britt.

Starbucks created an experience innovation center with complementary store and operations processes, said Britt. Starbucks will reinvent its stores to be more purpose-built for demand shifts such as cold brew, mobile ordering and drive-through.

"We are reimagining the future of our stories and what it looks like for our partners as well as customers," said John Culver, group president of Starbucks North America and Chief Operating Officer.

Culver added that Starbucks would "reduce complexity and make work easier for our partners" so they can spend more time with customers. To get there, Starbucks will simplify tasks tied to preparing drinks and food and leverage automation. Culver added that Starbucks will invest $450 million in its existing US store base in fiscal 2023 with continued investment in fiscal 2024 and 2025.

The art of simplification

To simplify processes for front-line workers, Starbucks is simplifying tasks across beverages and food as well as modernizing its IT architecture.

Lefevre said the company will focus on multi-tasking tools, multi-use hardware and supporting shifts with technology to speed up service, remember customer favorite orders and automate tasks. "We have a number of things in flight that automate tasks and streamline processes," said Lefevre, who added that handheld ordering, automated receiving and counting and automated ordering are efforts that will free up partners to connect with customers.

Other transformation efforts include:

New processes that will enable a barista to make a Mocha Frappuccino 51 seconds faster than the 86 seconds for the current process today.
A new brewing system called Clover Vertica can freshly grind and brew a cup of coffee in 30 seconds with improvement in quality and waste reduction.
Faster cold brew technology. Cold brew today is steeped for 20 hours and takes more than 20 steps to make. The new process automatically grinds and presses coffee beans and cuts waste by 15%. Culver said: "Across 16,000 stores, 365 days a year, (cold brew) takes a lot of time. When you consider that we spend more than $50 million a year on labor to brew our cold coffee this is a significant game changer for us. From 20 steps to 4 and from 20 hours to a matter of seconds we are completely reinventing the experience for our partners and customers."
Supply chain automation. Culver said Starbucks has implemented automated ordering for merchandise and food in stores. Culver explained how automation in the supply chain would free up time for partners.

Culver said:

"We implemented automated ordering across all of our stores for food, as well as merchandise. This work we've done on automation has enabled us to reduce the time spent by partners doing manual counting of SKUs daily. In addition, we're leveraging our analytics and insights team to get the right products in the right stores at the right time."

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