Starbucks is taking inspiration from Chinese VCs

  • Starbucks has revealed plans to introduce delivery-only locations in the US
  • Convenience channels now contribute to nearly three-quarters of Starbucks’ revenue in the US
  • VC-funded Chinese brands have pioneered the convenience segment, with Luckin Coffee introducing a coffee delivery service in 2017

FOR OVER five decades, Starbucks has been a pioneering force within the coffee industry. However, the global brand is now taking inspiration from other corners of the world.

Starbucks has revealed plans to introduce delivery-only locations in the US this year, responding to the surging demand for convenient formats and aiming to optimise capacity in its largest market.

Chief financial officer Rachel Ruggeri said recently that Starbucks is exploring new store designs that meet the increasing demand for convenience. “When we think about our opportunity in the future, it’s how do we leverage our portfolio to unlock capacity, but also in a way that best meets the customer needs and demands,” she said.

“And so that’s going to be different versions of drive-thru stores. It’s going to be delivery-only stores, as well as different versions of pick-up stores.”

With a current store count exceeding 9,300 in the US, 70% of its locations feature drive-thru services and 1% function as pick-up-only sites. As consumer behaviours change, it is likely that these figures will increasingly align with a portfolio centred on convenience.

It could be argued that this transition is motivated mainly by the emerging consumption patterns of younger consumers. According to a 2022 study, 29% of surveyed US consumers had ordered a coffee shop beverage for delivery, rising to 45% among individuals under 35.

Convenience channels now contribute to nearly three-quarters of Starbucks’ revenue in the US. In the coffee chain’s second quarter of 2023, mobile ordering, drive-thru services, and delivery collectively constituted 74% of the total sales in the country.

convenience channels make up three-quarters of Starbucks' revenue in the US

Chinese brands lead the charge

This comes three years after a letter to customers and partners from then-CEO Kevin Johnson, reasserting Starbucks stores’ function as a “third space”.

Consumption behaviour has changed considerably in those three years – markets around the world that have demonstrated rapid growth are increasingly meeting consumers in online spaces rather than physical ones.

This time, it isn’t the US that has been leading the charge.

Chinese coffee companies have been global leaders in the race for convenience. Domestic brands have achieved remarkable success by introducing delivery, pick-up, and drive-thru systems.

Furthermore, brands have positioned themselves ideally within the digital ecosystem that young consumers have come to expect. Platforms like WeChat and Alipay streamline consumer experiences and provide the ultimate convenience-based experience.

Luckin was one of the first to the mark, introducing a delivery service in 2017. However, independent coffee shops quickly followed suit. By 2020, these businesses accounted for over 60% of all coffee deliveries in China.

Manner Coffee began as a 2-meter squared shop in Shanghai in 2015. As they expanded, they ventured into pick-up and delivery services. Their success attracted four rounds of investment by 2021, which pushed their value beyond $2 billion.

Starbucks has also adapted to the Chinese market. Entering the pick-up and delivery segment slightly later than Chinese brands, their first Starbucks Now store opened in Beijing in 2019. Over 1,300 Starbucks Now stores operate across China with mobile order and pay experiences.

As such, the coffee delivery concept has been pioneered and scaled by brands in China; global companies such as Starbucks are now following their lead.

Coffee culture has traditionally emanated from the US and Europe to other parts of the world. However, Starbucks’s recent shift in focus towards coffee deliveries marks a reversal of this dynamic. It could signify a meaningful change, as China and other emerging markets may now define the fourth wave of coffee.

Starbucks is taking inspiration from Chinese coffee brands

Young consumers hold the power

Western markets have typically been shaped by a set of guiding values based on coffee quality and, more recently, traceability. However, those opting for delivery options may have other priorities.

Starbucks’ launch of delivery-only sites represents a shift in what the modern consumer considers important. A 2021 study found that 80% of consumers value convenience more than ever. More than 80% of survey respondents also expected more flexible shipping and pick-up options – including at coffee shops.

Deliveries and other convenience-based ordering methods are well suited to rapidly expanding segments such as RTD cans and cold coffee. A recent study found that 60% of young consumers prefer RTD coffee over traditionally brewed coffees.

By launching delivery-only sites, Starbucks demonstrates a strategic commitment to leverage the rapid growth seen in these market segments. Moreover, it is a recognition of the growing influence of young consumers in today’s market.

Ultimately, Starbucks’ recent announcement signifies a departure from the values that have been central to Western markets for decades. To stay relevant in this incredibly dynamic environment, brands must continually innovate to bring a convenience-based experience to their customers, as China has shown us.

One thought lingers – the US may no longer be the prime mover.