EP089 Starbucks' Digital Fail: Failing to Balance Efficiency with Experience
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[00:00:06] DARIN NEWBOLD: Well, good day and welcome to Commerce Today. My name is Darin Newbold and as always, Josh Warren is here with me. And we are, we have a, uh, a caffeinated episode today about, uh, it's about America's, uh, favorite. Well, I shouldn't say that that's probably not accurate. I'll just,

[00:00:23] JOSHUA WARREN: that might be Duncan. You might start a fight.

[00:00:24] DARIN NEWBOLD: I will. I will back up, but basically Starbucks digital fail, failing to balance efficiency.

[00:00:30] DARIN NEWBOLD: See? with experience. Now that's a fun one and it's caffeinated. So with that, Josh, set the stage, please.

[00:00:37] JOSHUA WARREN: Yeah. So there's just been a lot of, a lot of news out with Starbucks having a rough year in 2024 and then hiring a new CEO. And I just thought it'd be fun to, to look at kind of a case study of What Starbucks did right with their digital transformation and what they did very, very wrong.

[00:00:53] JOSHUA WARREN: And now I've hired a new CEO to fix and I think what Starbucks did right is they made it super easy to buy from them. [00:01:00] Like they made the mobile ordering, the, um, the loyalty program, the way it's integrated into the mobile ordering just made it so easy for people to buy. Um, but they were so focused on how do we get.

[00:01:10] JOSHUA WARREN: As many customers through our store as possible, they lost their user experience. And so now they're coming back around, pivoting back to their roots.

[00:01:20] DARIN NEWBOLD: Well, that's always a good thing sometimes is to get back to the roots, but all right. So Starbucks started this or began this digital transformation journey. So tell us about that. Where did this kind of come from?

[00:01:32] JOSHUA WARREN: Yeah. So, um, and trying to, to not sound incredibly old, I'm realizing that we have listeners out there that probably don't remember Starbucks before mobile ordering, but before mobile ordering, um, Drive thru lines, but especially in person lines, um, when you would go to a Starbucks, they could just start to really stack up.

[00:01:51] JOSHUA WARREN: Um, I know in a lot of different cities that I've spoken at, I'd be kind of in the downtown area in the morning and say, Hey, I'm going to go walk over to Starbucks. And there'd be like [00:02:00] 20 people in front of me in

[00:02:00] DARIN NEWBOLD: Absolutely.

[00:02:02] JOSHUA WARREN: a lot of fun. Um, so Starbucks said, Hey, very early on before a lot of other companies did this well before the pandemic, they said, We have a mobile app.

[00:02:10] JOSHUA WARREN: We're going to make it real easy to order. You're going to be able to customize your drink however you want. Um, you won't have to wait in line. Your drink will be waiting for you right there. And they even found a way that you can, um, use it in the drive thru in a lot of the stores. And so, the mobile app, um, the digital transformation was incredibly successful.

[00:02:27] JOSHUA WARREN: It actually now contributes to over 70 percent of their sales.

[00:02:32] DARIN NEWBOLD: Well, and, and the unintentional consequence of all of that is customers just felt like a number and weren't part of a, they were no longer part of this Starbucks community.

[00:02:43] DARIN NEWBOLD: So tell us about that downside of that transactional 

[00:02:47] JOSHUA WARREN: Yeah, so definitely and um, even myself, I'm thinking about how.

[00:02:52] JOSHUA WARREN: It became a commodity. It became, you know what, I have the Dutch Brothers app. I have the Duncan app. You know, it doesn't really matter where I'm getting

[00:02:59] DARIN NEWBOLD: money from. We're naming [00:03:00] names today.

[00:03:00] JOSHUA WARREN: Oh yeah, we are, we are. Um, but whenever you feel like a, a number, you basically, that means that company's kind of commoditized the experience and it's really easy to go somewhere else.

[00:03:11] JOSHUA WARREN: And so, but on top of that, They focus so much on speed and volume, they overwhelm their staff. There are some Starbucks employee subreddits on Reddit that over the years have gotten real interesting when you read about some of the behind the scenes of this big surge in mobile orders. It created long waits.

[00:03:30] JOSHUA WARREN: The whole idea was, hey, you do mobile order your drinks waiting for you, but lots of times it wouldn't be again because of that overwhelmed staff. I mean, when 70 percent of the orders are coming through the mobile app, It's no longer really a shortcut. Um, and really where that hit them the hardest is really, um, inconsistent experiences, but also more than anything, inconsistent product quality.

[00:03:52] JOSHUA WARREN: So they were known for, and coffee connoisseurs will probably say they're not known for the best espresso, but they were known for very consistent. [00:04:00] level of quality of you go and you get, say your pumpkin spice latte every fall and every fall, it's going to taste the same way and it's going to be what you expect.

[00:04:07] JOSHUA WARREN: And that just started really, really slipping.

[00:04:12] DARIN NEWBOLD: So, all right, you had mentioned earlier they had to get back to their roots or at least begin that process. So they're bringing in some new leadership, this pivot under Brian Nicole, I believe, if I'm pronouncing that correctly.

[00:04:24] DARIN NEWBOLD: So tell us about this, uh, this pivot.

[00:04:28] JOSHUA WARREN: Yeah, so it's interesting because he actually comes from Chipotle, but a big part of what they're doing is trying to get away from, they'd created kind of a fast food experience and they want to get back to that.

[00:04:40] JOSHUA WARREN: And they used to always talk about the third place of this is the place where you come to gather, not just to grab and go. And so they want to get back to that and to that. Um, Kind of those handcrafted drinks and experiences. Um, and he has actually, um, put out, I think just yesterday, the day before an open letter, not only to the Starbucks employees, [00:05:00] but to all the customers about how he wants to restore their core identity and.

[00:05:04] JOSHUA WARREN: Some of it, um, people are kind of making fun of because one of the things he announced is they're going to get better seating, more comfortable chairs. He thinks that one of the things in commoditizing the experience was they just put in the cheapest seating possible, not, not the most comfortable.

[00:05:20] JOSHUA WARREN: You, you, uh, you have experience, don't you?

[00:05:23] DARIN NEWBOLD: We forgot that

[00:05:24] JOSHUA WARREN: We forgot that at the top of the episode that you are a big Starbucks fan.

[00:05:28] DARIN NEWBOLD: been. I have been. Not necessarily as much just the drinks, but it was the place to go.

[00:05:33] DARIN NEWBOLD: I held lots and lots of meetings. I mean, In fact, many people who work from home or have kind of entrepreneurial jobs and stuff as Starbucks is their office in a way. And it did for me.

[00:05:45] JOSHUA WARREN: Yeah. I mean, even some of our earliest meetings I remember were in a Starbucks.

[00:05:48] JOSHUA WARREN: So, um, but also he wants to make a clear distinction between to go and for here service. right now it's kind of just, it's an assembly line of get drinks out as fast as you [00:06:00] can for both the, the to go orders, the mobile orders and the for here orders. Um, and I remember back in the day when a for here service would be very different again, naming names.

[00:06:11] JOSHUA WARREN: There's a coffee shop, um, called Sweetwaters that we go to sometimes as well. And they're really big on, if you tell them you're eating, you're staying in the restaurant, they serve you in a really nice, um, uh, ceramic cup and they don't just give you the plastic to go cup. And so little distinctions like that to kind of up level the experience.

[00:06:31] JOSHUA WARREN: Um, and it's really, it's, it's about getting back to the customer experience that made them what they were, um, versus just this focus on, okay, how do we churn as many orders through as quickly as possible?

[00:06:42] DARIN NEWBOLD: Have they, have they ever considered maybe lowering their prices just a skosh? I don't know that about anybody else, but for me, that'd make a difference for sure.

[00:06:51] JOSHUA WARREN: definitely. No, they um, I remember jokes back in the late 90s about how expensive Starbucks was. So,

[00:06:59] DARIN NEWBOLD: it's brutal [00:07:00] now.

[00:07:00] JOSHUA WARREN: yeah, yeah.

[00:07:01] DARIN NEWBOLD: Well, all right, moving on. What are, what are some of the lessons that other brands, you know, our listeners can kind of take from this digital transformation that While wildly successful, actually created wildly great problems in a way.

[00:07:17] DARIN NEWBOLD: So, what are the lessons there?

[00:07:18] JOSHUA WARREN: Yeah, so first of all, um, While starbucks is a food and beverage brand. I do feel very strongly that these lessons from this digital transformation they apply to any sort of online transactions. Um, so don't don't think just because we're talking about coffee b2b business, um, or your d2c business.

[00:07:38] JOSHUA WARREN: So, um, And really so much of it was the focus they had on efficiency over all else, increasing revenue, and really increasing profitability over all else. And if you make that the core of your digital transformation, you're going to get the results they got, which were great for a few quarters, but not in the longterm.

[00:07:59] JOSHUA WARREN: [00:08:00] So kind of how you avoid that. Um, there's three main lessons I wanted to talk about today. The first one is technology should not replace the essence of your brand. You can have a really cool app and it can have your brand colors in it, but if it basically becomes the entire experience the user has, And it's not enhancing the experience with the brand.

[00:08:23] JOSHUA WARREN: Um, it is not going to go well. And we even talked in our, um, episode last week about, um, when we talked about strategy and tactics about how, if you don't have a strong brand voice and if you don't bring that brand voice into all your digital solutions, as well as your, your store and in person experiences, um, it's not going to go well.

[00:08:43] JOSHUA WARREN: So, and I, I think that's what they missed is they said, Hey, this app will make it more efficient. Yeah. And it looks like a Starbucks, but they didn't think about what's the actual user experience like the fact that you're probably never going to interact with a person and especially in kind of the later iterations of their mobile ordering, they designed it to [00:09:00] where you never have to talk to a person.

[00:09:02] JOSHUA WARREN: And I know some of us like that.

[00:09:03] DARIN NEWBOLD: I'm to see the problem here.

[00:09:06] JOSHUA WARREN: But, I mean, when you think about the Starbucks experience of especially the, the late nineties, the early two thousands, the baristas knew your name or they at least, yeah, exactly. Which going way back there.

[00:09:18] DARIN NEWBOLD: me there, but yeah.

[00:09:20] JOSHUA WARREN: Um, and. You know, we're talking, I'm talking a lot about stores, but this goes for like, I mentioned B2B brands.

[00:09:27] JOSHUA WARREN: Um, if you're a B2B brand and your sales have been primarily through sales reps, especially if you have sales reps that have been with you 10, 15, 20 years, and you have buyers that are used to those sales reps. When you go digital, you can't just flip the switch and completely replace those people with a website.

[00:09:44] JOSHUA WARREN: it'll be the same. Problems that Starbucks has had because people will expect that same experience they've had with you. That same, you know, personal interaction, knowing each other, that kind of thing, and they won't get it. And so you have to, again, that's where this lesson is all about [00:10:00] enhancing the experience with the digital tools.

[00:10:02] JOSHUA WARREN: Um, not trying to replace it or dilute it.

[00:10:06] DARIN NEWBOLD: Well, definitely. And looking at kind of the next lesson that you're mentioning here, you know, you've said, Hey, the things that you're doing, the efficiency can't come at the cost of that customer experience.

[00:10:19] DARIN NEWBOLD: how does a brand. Balance that digital convenience while maintaining the personal connection. I know you mentioned a couple of those

[00:10:26] JOSHUA WARREN: Yeah, well the scary answer that a lot of people have, and get your bells ready, scary answer that a lot of people have is personalization at scale using AI.

[00:10:36] DARIN NEWBOLD: Oh my.

[00:10:37] JOSHUA WARREN: So it's no longer the human connection. And it's arguable if it's a personal connection or not, but, I think there's some some cases where that works really well.

[00:10:45] JOSHUA WARREN: If you're a very big brand, you're interacting with so many customers, especially the DTC brands out there. You know, I could see segmenting off your top repeat customers versus kind of everyone else and the everyone else utilizing AI to provide it. [00:11:00] As personalized and experience as you can and a very personal experience.

[00:11:03] JOSHUA WARREN: Um,

[00:11:04] JOSHUA WARREN: But

[00:11:05] JOSHUA WARREN: again, it really depends on your business. If you're a smaller business, um, getting to know your customers, I actually saw a LinkedIn post from an entrepreneur here in North Texas that has a, Brand of cookies and that are very well known in Dallas because she has been building this brand herself and really getting to know her customers.

[00:11:24] JOSHUA WARREN: Even when they're placing online orders, they're buying through a restaurant. She's making sure she gets to know them. She's actually in Washington DC right now, um, at a food hall there doing a little expo. And because she has built that personal experience and kind of that brand, um, there's people coming up to her saying, Hey, we're actually from Dallas here on vacation.

[00:11:43] JOSHUA WARREN: We remember you, we recognize you. So she is a solopreneur that is building an amazing brand, kind of balancing efficiency and the customer experience.

[00:11:53] DARIN NEWBOLD: That is, that is amazing. And that kind of leads into that having the, the staff, or if you're a [00:12:00] solopreneur, I mean, kind of our third lesson here. Having your staff being empowered to be able to make, uh, make that customer experience special, different, and memorable.

[00:12:11] JOSHUA WARREN: uh, make that customer experience special, different.

[00:12:21] JOSHUA WARREN: Apply the lessons from that book. Um, as far as empowering employees to notice maybe what someone's going through, what their day is like, and finding ways to just make their day a little bit better. And again, that's something way back in the day baristas were allowed to do that.

[00:12:37] JOSHUA WARREN: And then they started being measured on. All right, are you getting your mobile orders out in time? Are you getting, you know, an increase in mobile orders? Just orders, orders, orders. Um, And I think some of this, like we didn't talk a lot about the employee piece, um, but that is such an important piece. Um, I know that from some of those baristas that like to vent online that another downside for them for mobile ordering [00:13:00] is if you go into a Starbucks and especially again, in the past, you go into a Starbucks and you want a caramel macchiato, you might say, Hey, I don't want, I want nonfat milk, or I want, you know, this adjustment, that adjustment.

[00:13:12] JOSHUA WARREN: In the app, you can super personalize your drink. You can just sit there and say, okay, no two shots of espresso instead of three. Okay. Add this seasoning, add that, add this, add that, which is nice, like being able to personalize it. But then people started taking it a little too far and they're getting these drinks where there's like 20 different modifications of the drink.

[00:13:30] JOSHUA WARREN: And now the barista with still this push on efficiency and how many drinks are you making? They're having to take these extra steps. They're having to do things that sometimes don't even make sense. 

[00:13:39] DARIN NEWBOLD: And how does it fit on that

[00:13:41] JOSHUA WARREN: and yeah, exactly. Yeah.

[00:13:43] DARIN NEWBOLD: of.

[00:13:44] JOSHUA WARREN: The two sticker drinks. Um, and it, it burned their employees out and Starbucks didn't really listen.

[00:13:51] JOSHUA WARREN: Like it took a long time. And you know, they're, they're a Pacific Northwest company that was kind of known for being Employee friendly. and then the last few years, [00:14:00] you see a lot of union activity taking place in Starbucks stores because they've gotten away from some of that employee empowerment and friendliness.

[00:14:07] JOSHUA WARREN: and that's a big thing I see on digital transformations as well. Um, and again, to use the B2B example, if you expect your existing sellers to go from selling the way they were selling before to just servicing, um, digital orders, you might have a bad time. I think it's really important that you find a way that you're still empowering them to deliver that personal service and that personal sale, um, without just making them kind of glorified web order

[00:14:35] DARIN NEWBOLD: order takers.

[00:14:36] DARIN NEWBOLD: Yeah. Yeah. That's interesting. Well, what a, uh, What an interesting caffeinated episode we have here. So Josh, as we kind of bring this, uh, bring this all together, what are, what are two or three kind of key takeaways that you'd want, want to make sure that everyone got from this?

[00:14:56] JOSHUA WARREN: think the biggest thing is Don't just look at a digital [00:15:00] transformation as here's a way we can increase our profits.

[00:15:03] JOSHUA WARREN: Like we're going to become more efficient, increase profitability, really think about the experience that your employees will have and think about the experience your customers will have. And if you do that, then you will get those, you know, gains in your profits, but you'll do it in a way that's much more sustainable than much more scalable even than what Starbucks has experienced.

[00:15:22] DARIN NEWBOLD: Alright, well we'll have to, uh, Have to have a future episode where we have the successful digital transformation and we can talk all about that.

[00:15:30] DARIN NEWBOLD: Well, we always, uh, have a call to action. Josh, I will let you, uh, bring that forward as we, as we close ourselves out.

[00:15:36] JOSHUA WARREN: So first and foremost, I would love to hear from y'all about kind of how your balancing efficiency with that customer experience.

[00:15:44] JOSHUA WARREN: Um, or if you just want to vent about your recent experiences at Starbucks. Um, you can find me on LinkedIn. I'm Joshua Warren. Um, you'll see a creativity gold background behind my headshot. Send me a connection request. Let me know you're listening to the podcast and uh, you can also [00:16:00] request a free 30 minute e commerce problem solving session with me.

[00:16:03] JOSHUA WARREN: So if you're, you're facing some of these challenges in your customer experience with your digital transformation, just go click that link, book that a meeting with me, and I'd love to help you out with it.

[00:16:13] JOSHUA WARREN: As always, 

[00:16:13] DARIN NEWBOLD: we love to hear from you. Definitely reach out to, uh, Josh. And as always, we appreciate you listening. Look forward to connecting next time. Until then, take care. Have a great day. 

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