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04/30/2021

Starbucks Gives a Glimpse of Artificial Intelligence’s Increasing Role

In an earnings call with analysts Starbucks execs explained how the coffee retailer is using AI and predictive analytics. Plus, the coffee retailer's investments in drive-thru and off-prem.
Anna Wolfe
Senior Editor - Restaurants
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In a Q2 21 earnings call with analysts, Starbucks President and CEO Kevin Johnson riffed on the increasing role that artificial intelligence is playing in the growth and success of Starbucks, an initiative called Deep Brew.

Deep Brew drives the pandemic dashboard used by Starbucks’ retail leaders across the U.S. One way the coffee retailer is using AI and predictive analytics is to monitor vaccine progress. This work in AI is providing Starbucks the underlying predictive models, “enabling us to fuel the great human reconnection by freeing up partners to do what they do best, connect with customers and deliver a world-class customer experience,” said Johnson.

Starbucks continues to leverage its most loyal customers: Starbucks Rewards tops 22.9 million active members amid “a full sales recovery in the U.S.,” said Johnson.  More than half of Starbucks’ U.S. sales come from Starbucks Rewards Members.

A Shot in the Arm

As vaccination efforts gain steam around the globe, Starbucks is using the technology in international markets as well. "We're now using our Deep Brew AI technology to start to monitor and look at the vaccination progress of every country around the world and use predictive analytics to give us a view and correlation to how that's going to pace the recovery and the acceleration of our growth in international business," explained Johnson.

Demand for Drive-Thru

During the early days of the COVID-19 pandemic, QSRs and fast casual brands of all sizes saw increased demand for drive-thru. Many brands updated their store development plans including Taco Bell’s new store design that doubles down on drive-thru and Taco Bell Plans Minnesota Outpost with Four Drive-Thru LanesNot to be outdone, Shake Shack is adding drive-thrus to its fast casual conceptto name a few.  And then there’s Starbucks' transformation. Demand for drive-thru has been growing at Starbucks. 

Last June Starbucks announced it was closing 400 stores and is fast-tracking off-prem formats -- pickup-only stores, curbside and drive-thru-- to meet consumers’ evolving needs of convenience, connection and personalization offered through a digital experience.

It’s a move that is paying off for the coffee retailer. “The drive-thru channel has improved quarter over quarter since the onset of the pandemic,” said Johnson. "We continue to invest in several initiatives to increase the throughput of our drive-thrus, including updated operational standards, handheld order devices, more efficient warming ovens and accelerated deployment of our more efficient Mastrena espresso machines.”

Speed of Service

In Q2 out-the-window drove more than 50% of net sales, increasing more than 10% from pre-pandemic levels, “unlocking capacity and enhancing the customer experience by reducing wait times, ultimately fueling our business recovery,” he added.

Starbucks’ off-prem plan (referred to as the Americas Trade Area Transformation) “has positioned us extremely well for the future,” said Johnson. “We called this early, and in just nine months we have already completed 70% of the strategic store closures, clearing the way for the development of new, innovative and more efficient retail store formats over time,” Johnson said.

 

... I think that's boding very well for us because it's actually helping us improve the customer experience by having the right store in the right location with the right format for customers.
Kevin Johnson, president and CEO

“The plan leverages new store formats like Starbucks Pickup in dense metro areas … and also enables us to balance continued growth in high volume and high-margin locations, primarily cafes with drive-thrus.”

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Starbucks is rolling out drive-thrus and new store formats like Starbucks Pickup in dense metro areas.

The plan calls for repositioning 800 stores in North America this year, about 200 of the new stores are open.  “And I think that's boding very well for us because it's actually helping us improve the customer experience by having the right store in the right location with the right format for customers,” said Johnson.

Safety & Mobile Ordering

Customers have an ongoing desire for convenience and safety, which bodes well for contactless and low contact transactions in the drive-thru and pickup locations.

“Our pioneering digital capabilities not only successfully transform our digital relationships to drive mobile ordering but also amplify convenience and safety, which are both very much top of mind for our customers,” said Johnson. “We continue to leverage the advantages of our mobile app to elevate the personalization of the customer experience and deepen customer engagement.”

In Q2 mobile orders represented 26% of U.S. company-operated transactions up from 18% a year ago.

In the U.S., “our sales fully recovered in the quarter, average ticket remains meaningfully higher than pre-pandemic levels,” said Johnson. “This is true even as transactions have improved significantly quarter-over-quarter, given the shift in sales mix toward drive-thru where average spend tends to be higher, partially due to a higher incident of group orders.”

U.S. ticket comp growth of approximately 21% in Q2 was driven by a combination of increased beverage add-ons, premium beverage mix, increased customization and upsizing, and all-time high food add-ons. However, in the U.S. sales comps dropped 10%. 

In addition to wellness beverages, cold beverages led by cold espresso, Starbucks refreshers, and Cold Brew, were hot menu items in Q2. The coffee retailer is seeing increased demand for plant-based milk alternatives such as oatmilk.

“Importantly, affinity for Starbucks has strengthened as measured by improvements in our customer connection scores and growth in customer loyalty, which further reinforces the strength and resilience of the Starbucks brand and healthy optimism for the future,” said Johnson. 

ICYMI:  part 1:  Loyalty Program Pays Off for Starbucks
Starbucks Rewards tops 22.9 million active members amid “a full sales recovery in the U.S.” More than half of Starbucks’ U.S. sales come from Starbucks Rewards Members.

A full earnings release is available here.