Dive Brief:
- Starbucks CEO Kevin Johnson told BNN Bloomberg last week that the company will open a pickup-only store in New York City this fall, building off the success of its Starbucks Now concept, which first opened this summer in China.
- Like the Starbucks Now concept, the New York store will let customers order in advance on their phones and pick up their orders without the wait. Johnson told Bloomberg the express stores could eventually expand to other dense urban areas, such as Boston, Chicago, Seattle, San Francisco and Los Angeles.
- Johnson said the express concepts are not meant to replace Starbucks' traditional cafes.
Dive Insight:
A pickup-only concept makes plenty of sense for Starbucks, a brand with a mobile-savvy customer base. Earlier this year, the company's mobile app rewards membership hit 16.8 million people, accounting for over 40% of sales in U.S. stores.
While Starbucks has long touted its "third place" in-store experience, perhaps a bigger opportunity exists to cater to busy, on-the-go customers who don't want to linger. There's a reason carryout and delivery are growing at such staggering paces.
By opening a similar format in New York, Starbucks must like what it sees from its new express footprint in China, which was launched this summer in an effort to compete with fast-growing Luckin. Luckin's success underscores the demand for speed and convenience, as it operates almost exclusively as a pickup or delivery concept.
Interestingly, however, Chief Financial Officer Patrick Grismer told the crowd at the Goldman Sachs 26th Annual Global Retailing Conference last week that Luckin is going after a different occasion.
"Their occasion is not a third-place occasion. They don't have cafes the way ours are and I think that's reflected in their very low average unit volume," he said.
Still, Starbucks has the deep pockets to tinker with a new store model, just as it has done with its Reserve Roastery concepts. Unlike those large footprints, however, any on-the-go units will be far more economical from a real estate and staffing perspective, with much higher unit economics.
Further, coffee by its very nature is habitual, and perhaps nothing helps form a habit better than speed and convenience. This is why Peet's has expanded its Order Ahead options, and The Coffee Bean & Tea Leaf, Philz an Caribou Coffee have rolled out mobile ordering apps. Panera revamped its coffee program in late spring and started testing Panera Tap, allowing customers to use their phones to pay for grab-and-go coffee. For Starbucks to continue growing its successful order-ahead feature while maintaining a competitive advantage in the coffee space, including over fast-growing Luckin, it has to have the convenience and speed piece nailed down.
Don't expect the chain to abandon its traditional cafes, however. The brand's customers still want that coffeehouse experience, and Grismer noted last week that the brand is investing in customer experience improvements where there is high volume from mobile orders.
"We're deploying additional labor in front of the counter to help direct traffic, to guide Mobile Order and Pay customers to where those orders are accumulating and to handoff those orders to customers as they come in," he said.
The brand will likely roll a few of these express formats where they won't cannibalize traditional stores, while continuing to smooth out its operations at those traditional stores. It wouldn't be surprising for these express formats to also act as ghost kitchens to fulfill the company's growing delivery footprint as well, something Grismer hinted at in June.
