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Journalism of Courage
How would Starbucks’ sudden global leadership change potentially impact the world’s largest coffeehouse chain’s Indian partnership – Tata Starbucks – or the consumer experience of users in different markets, including India?
Not by much, if assertions by the Tata Consumer Products top brass are anything to go by, especially with regard to the coffee chain’s plans to expand its retail footprint in India, a largely tea-drinking nation.
There are, however, indications of at least three areas where there could be likely changes from a customer experience point of view:
Going forward, there is likely to be a streamlining of some operational issues that have been cited as the reason for the American chain’s sluggish sales in recent quarters.
One of these interventions could be aimed at fixing the company’s mobile app, which Howard Schultz, Starbuck’s former CEO said has become “the biggest Achilles heel for Starbucks,” on an episode of the “Acquired” podcast earlier this year.
The mobile app has been blamed for relaying inaccurate wait times to customers, and is partly faulted for what has become a regular sight at Starbucks cafes: a counter crowded with mobile orders that baristas struggle to keep up with even as dine-in customers wait for the drinks and food they ordered.
In April, the outgoing CEO Laxman Narasimhan had said the company’s stores in the US were struggling to meet demand in the morning and that the long wait times was scaring away consumers.
For Brian Niccol, fixing this issue could be high up on the agenda when he takes over as the Starbucks CEO on September 9, given both his record at streamlining order flows at his current employer, Mexican fast food major Chipotle, and the fact that Schultz, who does not have a management seat at Starbucks but continues to have an influential role in operational matters, has flagged this as an issue.
For customers across geographies, including India, if Niccol does get down to fixing this problem, it could translate into a better experience on both the mobile app and at the store counters.
In most markets, the market for cold brew is growing, while the demand for hot drinks is somewhat flat. Another growing sub-segment across markets is health and energy drinks, which are also a segment where very competitive pricing can be commanded.
Starbucks is very closely identified with coffee, especially in markets such as North America or Europe, making it important for the new management to try and signal that it is as much a contender in some of the newer drinks segments that are driving up growth in the industry, including cold brews and energy drinks.
Increasingly, Starbucks seems to have a positioning problem. Given that it is primarily identified as a coffee place, it has to compete with other cafe chains and independent coffee shops. Also, given that it is also bracketed in the QSR or quick services restaurant category, Starbucks finds itself in direct competition with a McDonalds or a Burger King. So, it is evident that customers would compare prices, in which case Starbucks does appear to be way more pricier than competition.
Given that it is a massive chain – with over 38,000 stores globally and nearly $36 billion in net revenue – the size and scale of the coffee giant means it lacks the flexibility that smaller local cafe chains or independent coffee houses have in terms of introducing newer menu items suited to customers’ demand. This is something of a handicap for a chain like Starbucks. This is more pertinent in a relatively enduring high inflation scenario, where consumers turn increasingly price conscious.
The question for the new management team would be whether to continue positioning Starbucks as a distinctly premium offering or pivot more in favour of a value proposition by offering a menu that comprises more discounted pairings of items – food and drinks – something that it has started in some markets. Niccol has some experience in successfully doing that at Chipotle, while ensuring that the chain manages to charge a premium pricing for bundled offerings.
A change in strategy in this area could also be replicated in other markets such as China, where sales declined at an even stronger rate in China than North America last year. Starbucks was previously the largest coffeehouse chain in China, but that changed in 2023, when another coffee chain called Luckin Coffee took the top spot.
Starbucks is still focusing on opening stores in markets such as India, which entails a relatively newer expansion market plan for the chain and also involves a local partner with great insights into the Indian retail market. How the impending strategy changes in Seattle, where the company has its global headquarters, translates down into relatively newer markets such as India will have to be seen in the coming months.
