Starbucks’ biggest hurdle? It’s own success!
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Starbucks’ biggest hurdle? It’s own success!

Starbucks can’t handle the volume of orders it’s getting. And it’s only got itself to blame: its Mobile Order and Pay app has driven coffee-fiends from their homes and offices and into the comfort of Starbucks’ stores around the globe. Starbucks has always stood out as being more innovative than its competitors, but now its triumphant foray into ecommerce has put the rest of its business model under strain.

Starbucks worldwide revenue over the years

starbucks graph

SOURCE: Statistica.com

Starbucks is a high-end brand. That means it relies on significant customer spend as a trade off for time spent preparing fresh drinks and food. Starbucks’ customers don’t want to be rushed through a queue at breakneck speed to pay low prices for dishwater coffee. Starbucks’ customers wants a barista to prepare the kind of coffee that coffee-lovers drink, and they are generally willing to pay for it with both time and money.

This business model has worked incredibly well for Starbucks. Compared to McDonalds, the coffeehouse kingpin has higher revenue, but only a third as many customers. That’s because Starbucks customers, on average, spend three times as much as McDonalds’ customers.

Because Starbucks has geared itself to offer a product and experience that appeals to a more discerning element of the market, its stores are not fitted out to deal with the kind of footfall that a non-luxury brand might seek. The result is – when it witnesses a sudden influx of traffic – the company’s baristas struggle.

But attracting too many customers is a pretty great problem for any business to have. It’s a pretty easily fixable one, too, so we should expect Starbucks to figure out ways to handle these app-wielding coffeeholics in 2017.

The really interesting thing about Starbucks’ business model is what it implies about the brand’s growth. The company must learn to deal with the success of its app while deepening its luxury credentials. That’s why Starbucks is seeking to grow its revenues through its premium Reserve Roasteries, offering gourmet coffee and driving customer spend even further up.

Starbucks has had a phenomenal thirteen years. The combination of too many customers and a solid strategy to deepen its brand commitment to luxury suggest that it might have a few more of those phenomenal years in the pipeline.

Disclosure
Dominion holds Starbucks in its Global Trends Luxury Fund.


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