Sem 8B - Starbucks AI Push

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Starbucks’ AI Push
A Game Changing Initiative?
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Starbucks’ AI Push: A Game Changing Initiative?
Author: Dr. Garima Ratna
Abstract: Starbucks, the Seattle based global coffee chain, was not only known to redefine
customer experience and human connection between baristas and coffee lovers but also to
serve as a ‘third place’ for humanity to hang out. Over the years, the coffee chain had carved a
niche in the café space based on the quality of its coffee beans and exclusive customer
experience. All the company’s business activities were aimed towards creating happy and
memorable customer experiences. In 2011, the company made a leap towards digital platform
when it launched its mobile payments and ordering services. Since then, all the Starbucks’

business activities were aimed towards leveraging technology, including AI, to further
augment customer engagement and making it seamless, quick and convenient. There were
risks involved though. Experiences in brick and mortar retail had shown that technology had
created a gorge between customers and retailers. In view of this, the logical question was
whether Starbucks was risking customer connect by delving too much into AI technology?
Case Study
“My day starts at 7AM. I get up, brush my teeth, throw on tinted SPF moisturizer, and leave my
Queens, New York apartment by, ideally, 7:30. My usual first stop is the Starbucks next to my
subway station, which inevitably adds at least 15 minutes to my commute because regardless
of what I order, living in New York means dealing with millions of people at all times. It’s the
best. Over the past couple weeks, however, I’ve changed my morning game. At the behest of
my dad, I started using the Starbucks app to order ahead. Now, as I’m walking out the door, I
put in an order for a turkey bacon egg white sandwich and a grande black iced tea lemonade
with no sugar and light ice. The app remembers my order, too. By the time I get to the coffee
shop, which is about 10 minutes from my place, my drink and sandwich are waiting on the
counter for me. I walk in, grab them, and walk out literally three seconds later. This means no
more dealing with lines of 15 people or interacting with anyone before 8AM. The high I get
from bypassing waiting people is fantastic. I’m always a little smug when I one-up waiting
customers by grabbing my order from seemingly out of nowhere. I’m a mobile ordering
convert, although I do have some trepidation whenever I do it.”1
– Ashley Carman, Senior Reporter with ‘The Verge’ and Starbucks Customer
S tarbucks, the Seattle based global coffee retail chain, made a huge leap to digital platform
in 2011 with mobile ordering and payments. More technology interventions followed with
1Carman Ashley, “I've discovered the magic of ordering ahead at Starbucks, and all the guilt that comes with it”,
theverge.com/2017/5/21/15665362/starbucks-mobile-app-order-online, May 21st 2017
“© 2020, Amity Research Centers HQ, Bangalore. All rights reserved.”
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a dedicated innovation space of nearly 20,000 square-foot called ‘The Tryer Center’, created
on the first floor of the company’s headquarters in Seattle.2 Initiatives such as ‘My Starbucks
Barista’, ‘Deep Brew’, Partnership with tech company Brightloom and installation of IoT
enabled Mastrena espresso machines, all pointed towards Starbucks’ intent to make major AI
push. According to the company, this AI push was in complete alignment with the company’s
mission statement of facilitating human connection. The company’s officials invariably
reiterated that it was leveraging AI to further augment human connection and customer
experience that the company had redefined and taken pride in. But analysts contended that
the technology was known to create a gorge between customers and brick and mortar retail
and eroded physical connect. In view of this, was Starbucks compromising on the glorious and
industry defining human connection and customer experience it had pioneered? Would
technology emerge as the game changer or game dampener for Starbucks?
Starbucks – Redefining Customer Experience
When Herman Melville, an American Author, penned down his novel titled, ‘Moby Dick’, little
did he realise that the name of one of the characters would resonate in the world as the

world’s largest coffee chain in years to come. Three academics - Jerry Baldwin (Baldwin),
Gordon Bowker (Bowker), and Zev Siegel (Siegel) - with a common love for coffee and tea
amongst them, founded Starbucks in 1971 and opened its first store across the historic Pike
Place Market in Seattle. (Annexure I). The trio were inspired by a Dutch immigrant, Alfred Peet
(Peet) who incidentally was a coffee-roasting entrepreneur. Peet imported fine arabica coffees
into the US during the 1950s and sold through a small store called Peet’s Coffee and Tea
situated in Berkeley, California. Baldwin and the other co-founders based their
entrepreneurial venture on the business model of Peet, and sold high-quality coffee beans and
equipment to the customers. Peet supplied these beans and equipment to Starbucks. The trio
eventually purchased used roaster from Holland on which Baldwin and Bowker experimented
with Peet’s roasting techniques to create their own blends and flavours. By the early 1980s,
Starbucks had not just identified its USP of good quality fresh roasted beans but also added
the store count to four in Seattle. During this time, Siegel left the company to pursue other
interests and Baldwin became the company President.
In 1981, a sales representative for Hammarplast, a kitchen equipment and housewares

manufacturer based in Sweden, paid a visit to Starbucks store. His name was Howard Schultz
(Schultz) and he was curious to assess the increasing orders for drip-coffee makers from
Starbucks. This was important as Schultz’s company supplied drip-coffee makers to Starbucks.
Schultz was immensely impressed with what he saw and joined the coffee company3 in 1982
as Director of Retail Operations and Marketing.4
Schultz was credited for taking the company from an identity of a small regional entity to a
national and later on an international brand. It did not happen overnight. A 1983 trip to Italy
which exposed Schultz to innumerable coffee houses in the country ignited a vision in his
mind.5 Schultz envisioned about “re-creating a European café for an American…clientele, a
2 Warnick Jennifer, “AI for humanity: How Starbucks plans to use technology to nurture the human spirit”,
https://stories.starbucks.com/stories/2020/how-starbucks-plans-to-use-technology-to-nurture-the-human-
spirit/, January 10th 2020
3 Bondarenko Peter, “Starbucks American Company”, britannica.com/topic/Starbucks
4 “Starbucks Company Timeline”, https://www.starbucks.com/about-us/company-information/starbucks-
company-timeline
5 O'Leary Christopher, “Howard Schultz American Businessman”,
https://www.britannica.com/biography/Howard-Schultz
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‘third place’ that’s neither work nor home, where you can take your time, and where you pay
more for coffee than you would at the deli down the street.”6 In addition, Schultz envisioned
to increase the count of Starbucks stores along the length and breadth of the globe.7 Schultz
was so driven and convinced about his business idea but when he realised that his bosses
were not on the same page as him, Schultz severed association with Starbucks and launched
his entrepreneurial venture – I1 Giornale. In 1987, Schultz returned to join Starbucks as CEO.8
During his tenure, in 1992, Starbucks went public and by the end of 1990s the company
boasted of 2,500 locations spanning across roughly 12 countries. Incidentally, Schultz resigned
as CEO of the company in 2000, continued as its Chairman and joined back at the helm in
2008. In his absence, the company was observed to undergo shaky times and when Schultz
joined back, he supervised closure of some 900 stores. But then, Schultz also put a revival
strategy in place which helped Starbucks rebound financially in 2012.9 By November 2019, the
coffee chain’s global store count was 31,25610 and by the Q1 of 2020, the revenues were $7.1
billion.11 (Annexure II). The company’s mission statement was ‘To inspire and nurture the
human spirit – one person, one cup and one neighborhood at a time’; core values being –
‘Creating a culture of warmth and belonging, where everyone is welcome’, ‘Acting with
courage, challenging the status quo and finding new ways to grow our company and each
other’, ‘Being present, connecting with transparency, dignity and respect/’ and ‘Delivering our

very best in all we do, holding ourselves accountable for results’. As underlined by Starbucks
“We are performance driven, through the lens of humanity.”12 There were many factors that
drove Starbucks’ success.
Identifying the USP and Gaining the Competitive Edge
Schultz identified the gap in the coffee culture of US. Drawing inspiration from the coffee
culture of Europe, he focused on selling experience and not just coffee and beans. As stated by
Thomas A. Stewart13 and Patricia O’Connell14 (Stewart & O’Connell), “As a product, coffee is a
commodity, literally: Beans trade on futures exchanges. But Schultz decommoditized its
consumption; Schultz knew that he was selling an experience, not just premium joe.”15
Besides, in 1970s, people were dissatisfied with the existing coffee options (cheap Robusta
beans of inferior quality). As Michael Porter (Porter), renowned Management Academic, once
stated, “A company can outperform rivals only if it can establish a difference that it can
preserve. It must deliver greater value to customers or create comparable value at a lower
cost, or do both.” Starbucks, following Porter’s doctrine, offered them superior quality and
authentic Arabica beans (specially trained ‘roasters’ roasted the beans) in addition to a unique
coffee drinking experience and pleasant Barista-customer relationship. In short, Schultz
offered greater value to his customers. In fact, quality was such a revered value proposition of
6 Stewart A. Thomas and O’Connell Patricia, “How Howard Schultz’s Angel Poised Starbucks for Success”,
https://www.strategy-business.com/blog/How-Howard-Schultzs-Angel-Poised-Starbucks-for-
Success?gko=05680, January 10th 2017
7 “Howard Schultz American Businessman”, op.cit.
8 Groth Aimee and Lubin Gus, “11 Things Starbucks Does Better Than Almost Any Competitor”,
https://www.businessinsider.com/starbucks-does-better-2011-7?IR=T, 2011
9 “Howard Schultz American Businessman”, op.cit.
10 “Number of Starbucks stores worldwide from 2003 to 2019”, statista.com/statistics/266465/number-of-
starbucks-stores-worldwide/, November 2019

11 “Quarterly revenue of Starbucks Corporation worldwide from 2009 to 2020”,
https://www.statista.com/statistics/218404/quarterly-revenue-of-starbucks-worldwide/, January 2020

12 “Our Mission”, starbucks.com/about-us/company-information/mission-statement
13 He is the Executive Director of the National Center for the Middle Market at Ohio State University.
14 She is President of Aerten Consulting, a New York City–based firm.
15
“How Howard Schultz’s Angel Poised Starbucks for Success”, op.cit.
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Starbucks that it never indulged in franchising model of business.16 There were many other
things Starbucks did differently from its competitors.17 (Exhibit I). The company also identified
a gap in busy office goers wanting a quick cup of coffee and no existing vendor serving them.
Hence, Starbucks came to drastically reduce the time span in ordering coffee and getting it on
the table.
Exhibit I
The Starbucks’ Differential*
With two registers and a full staff, From the moment a customer walks
Starbucks can churn through 220 through the door, we want to get
customers/hour (At Brooklyn's busiest them through in 3 minutes, or 3-5
Starbucks location). minutes if it’s busy.
Starbucks never serves coffee that has
Employees know the difference
been sitting for longer than 30
between a cappuccino and a latte.
minutes.

The store claims to serve 87,000 Starbucks baristas undergo over 30
different drink combinations, all of hours of training on everything from
which a barista can make without Frappuccino technique to the origins
hesitation. of coffee beans.
Most stores have upgraded to the Baristas who work at least 20

Swiss-made Mastrena, designed to hours/week are eligible for health
make the highest-quality, consistent insurance. This could have something
shot of espresso that will be second to to do with the famously cheery
none. demeanor of ‘partners’.
Starbucks provides free WiFi, and

Digital payments allowed.
there's no restriction on laptop use.
*Figures as of 2011
Compiled by the Author from Source: Groth Aimee and Lubin Gus, “11 Things Starbucks Does Better
Than Almost Any Competitor”, https://www.businessinsider.com/starbucks-does-better-2011-
7?IR=T, 2011
Furthermore, to gain competitive advantage, Starbucks worked towards establishing lasting

relationships with the coffee beans producing countries. The company signed mutually
beneficial and long-term contracts at fixed prices with coffee producing countries to obtain a
cover against price fluctuations. The company committed itself to purchase the entire yield
over a fixed period. In addition, Starbucks won a bid for Columbia’s highest quality and niche
‘Narino Supremo’ Bean Crop which had unique taste. There was a dedicated infrastructure in
place to procure the beans exclusively for Starbucks. The company had established an inhouse
Coffee and Farmer Equity (C.A.F.E) standards and Coffee Sourcing Guidelines (CSG) to monitor
if suppliers met the strict quality and ethical standards laid down by the company.18
16 Shah Mohammed, “How Did Starbucks Build Its Sustainable Competitive Advantage? -The Key Success
Factors”, https://medium.com/@shahmm/how-did-starbucks-build-its-sustainable-competitive-advantage-
79ff5eedb5ff, October 5th 2018
17 “11 Things Starbucks Does Better Than Almost Any Competitor”, op.cit.
18 “How Did Starbucks Build Its Sustainable Competitive Advantage? -The Key Success Factors”, op.cit.
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Emphasis on Strong Organisational Culture
Starbucks was credited for cultivating a strong, cohesive and congenial organisational culture.
The company was admirably invested in its employees whom it called its ‘partners’. The
company followed the doctrine that it should exceed the expectations of employees before
that of customers. As stated by Schultz, “We built the Starbucks brand first with our people,
not with consumers. Because we believed the best way to meet and exceed the expectations
of our customers was to hire and train great people, we invested in employees.”19 Schultz
once emphasised, “Quintessentially we are a people-based company. You couldn’t find
another consumer brand that is as dependent on human behavior as we are. We built
Starbucks not through traditional marketing or advertising but through the experience. And
that experience can come to life only if people are proud, if they respect and trust the green
apron and the people they are representing.” Starbucks was known to indulge in intensive
training and retraining of its employees20, offer them (part time employees included) heath
packages worth billions21, sponsor their tuition and higher education22, paid sick and parental
leaves, minimum wages, achieved gender pay parity,23 and took new ideas and suggestions
from staff.24 Paul Leinwand and Varya Davidson, Analysts with Harvard Business Review, spoke
about Starbucks’ organisational culture, “While most organizations somewhat support the

notions of diversity and inclusivity, Starbucks not only understands the importance of having
staff of diverse backgrounds in order to create a welcoming environment for customers of
diverse backgrounds; it has built the capability to deliver on that aspiration into its HR
processes. Together, these capabilities enable Starbucks to deliver on its strategic goal of
being that ‘third place’ that customers value.”25
Products
Starbucks’ product portfolio was amazingly diverse. (Exhibit II). Stewart & O’Connell rightly
explained the nature of Starbucks’ offerings thus, “Everything about Starbucks — from the
Italian names for small, medium, and large-size drinks to a carefully considered counter height
that lets you see the baristas work to hundreds of combinations like half-caf-latte-with-two-
shots that let you personalize your beverage to the nth degree — was designed to make the
customer slow down and smell the coffee, in a distinctly European way.”26
19 Moore John, “The Starbucks ‘Employee First’ Philosophy”, brandautopsy.com/2007/01/the_starbucks_e.html,

2007
20 Ignatius Adi, “The HBR Interview: ‘We Had to Own the Mistakes’”, https://hbr.org/2010/07/the-hbr-interview-
we-had-to-own-the-mistakes, July-August 2010

21 Ignatius Adi, “Howard Schultz on Starbucks’ Turnaround”, hbr.org/2010/06/howard-schultz-on-starbucks-tu,
2010
22 “How Howard Schultz’s Angel Poised Starbucks for Success”, op.cit.
23 Meyersohn Nathaniel, “3 times Howard Schultz saved Starbucks”,
https://money.cnn.com/2018/06/05/news/companies/starbucks-howard-schultz-coffee/index.html, June5th
2018
24 Lebowitz Shana, “2 brilliant management strategies Howard Schultz used to build the Starbucks coffee
empire”, https://www.businessinsider.in/strategy/management/2-brilliant-management-strategies-howard-
schultz-used-to-build-the-starbucks-coffee-
empire/articleshow/51245934.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst,
March 3rd 2016
25 Leinwand Paul and Davidson Varya, “How Starbucks’s Culture Brings Its Strategy to Life”,
https://hbr.org/2016/12/how-starbuckss-culture-brings-its-strategy-to-
life?referral=03759&cm_vc=rr_item_page.bottom, December 30th 2016
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Exhibit II
Starbucks: Product Portfolio
Products Consumer products available where Brand Portfolio
groceries are sold
 Coffee: More than 30 blends  Coffee and Tea: Whole bean and  Starbucks
and single-origin premium ground coffee (Starbucks and Coffee
coffees. Seattle’s Best Coffee brands),  Seattle’s Best
 Handcrafted Beverages: Starbucks VIA® Instant, Starbucks Coffee
Fresh-brewed coffee, hot espresso capsules available on the 
Teavana
and iced espresso beverages, Nespresso and Nescafé Dolce  Evolution
Iced Coffee, Cold Brew, Gusto systems, Starbucks® Coffee Fresh
Nitro, Frappuccino® coffee K-Cup® pods, Starbucks® and  Ethos
and non-coffee blended Teavana® Verismo® pods.  Water
beverages, Starbucks  Ready-to-Drink (RTD): Starbucks®  Torrefazione
Refreshers® beverages, and bottled Frappuccino® coffee Italia Coffee.
Teavana® teas. drinks, Starbucks Iced Latte, Single
 Merchandise: Coffee- and Serve Cold Brew, Doubleshot®
Coffee Smoothies, Teavana Craft

tea-brewing equipment,
mugs and accessories, Iced Teas, Teavana Sparkling Craft
packaged goods, books and Iced Teas, Starbucks Discoveries®
gifts. chilled cup coffees, Starbucks
 Fresh Food: Baked pastries, Discoveries Iced Café Favorites®,
cold and hot sandwiches, Starbucks Iced Coffee, Starbucks

salads, salad and grain Doubleshot® espresso drinks,
bowls, oatmeal, yogurt Starbucks Doubleshot® Energy
parfaits and fruit cups. Coffee drinks; Starbucks
Refreshers® beverages, Evolution
Fresh™ bottled juices.
Source: Compiled by the Author from — “Starbucks Company Profile”, starbucks.com/about-
us/company-information/starbucks-company-profile
Marketing Strategies
Starbucks was known to never indulge in huge advertising and marketing costs. Compared to
other brands, Starbucks marketing costs were minimal. In its early years (until 2006), the
company had not engaged itself in traditional marketing techniques like billboards, posters, or
print and television adverts. Instead the company focused on well-groomed and trained
customer facing employees and quality raw materials. The coffee company relied mostly on
word of mouth praise, better customer experiences through great looking stores and superior
quality coffee procured from exclusive farms. Ethical sourcing was an integral part of
Starbucks’ business strategy.27 (Exhibit III). Unlike many other similar brands, Starbucks
leveraged its storefronts in strategically marked places as its marketing avenue. As pointed out
by Jeremy Raynolds, a Blogger and freelance Writer, “Howard Schultz thought of their
storefronts as billboards. Local Starbucks marketing strategy and stores in densely populated
areas provided a sufficient enough customer flow at the time, allowing the word of mouth and
convenient placement be the main driving force for expansion. A bold move, not giving much
thought to traditional ad campaigns. Their shops became more of a social phenomenon, a
27 Pratap Abhijeet, “Marketing Strategy of Starbucks”, notesmatic.com/2017/01/marketing-strategy-of-
starbucks/, August 25th 2019
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place of gathering and a recommendation hub.”28 However, roughly from 2006 onwards, the
company increased its marketing spend and took to social media platforms to promote the
brand.29
Exhibit III
Starbucks’ Marketing Strategies
 Quality based differentiation – premium quality tea and coffee.
 Excellent customer service.
 Consistent brand experience.
 Use of unconventional techniques for marketing and branding.
 Image of an ethical brand.
 Excellent brand merchandise.
 Customer orientation.
 High brand equity.

 Unconventional social media techniques of establishing consumer connection.
 Creating real customer value.
 Near no or less use of traditional methods for marketing.
 Good quality products and customer service – higher word of mouth marketing.
Source: Compiled by the Author from – Pratap Abhijeet, “Marketing Strategy of Starbucks”,
notesmatic.com/2017/01/marketing-strategy-of-starbucks/, August 25th 2019
Store Designs/Customer Experience
All the company stores fell into four categories broadly; all aimed at enhancing customer
experience. (Exhibit IV). As narrated by analysts, Schultz took deep interest in the store design
and layout. He emphasized on the fact that each Starbucks store should emanate a coffee
aroma that was characteristic and exclusive to Starbucks brand. For precisely the same reason,
smoking was not allowed in stores, lest it interfered with coffee aroma. Shah Mohammed, a
Business Growth Consultant, Design Thinker based in India, explained, “Howard carefully
designed every store to enhance its quality and provide a multisensory experience to the
customers including what they saw, touched, heard and tasted. He gave particular attention to
‘Aroma’ as it plays a vital role in the store experience. He made sure that the smell of brewing
coffee alone was always lingering to welcome the consumers. He didn’t allow his associates to
use perfumes as the beans could absorb the odor and that would take away from the smell of
freshly brewed coffee. Besides, he made sure the food variety was limited so that the aroma
of coffee in the store was maintained at all times. He trained Baristas on the art of making
happy conversations with the customers and build personal relationships with them.”30 The
store designs were standardized and replicated all across the globe.31
28 Raynolds Jeremy, “Starbucks Marketing Strategy: It’s About More Than Just Coffee”, pcskull.com/starbucks-
marketing-strategy/, September 1st 2019

29 “Marketing Strategy of Starbucks”, op.cit.
30 “How Did Starbucks Build Its Sustainable Competitive Advantage? -The Key Success Factors”, op.cit.
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Exhibit IV
Starbucks’ Store Designs
These coffeehouses reflected the mercantile roots of the first store in
Seattle’s historic Pike Place Market with worn wood, stained concrete or tiled
Heritage
floors, metal stools and factory-inspired lighting. Large community tables,
club chairs and wooden blinds created a turn-of-the-last-century feeling.
These stores reflected the industrial past of urban markets, taking inspiration
from the Modernism of the 1930s. The motif celebrated simple materials like
Artisan
exposed steel beams, masonry walls, factory casement glass and hand-
polished woodwork in a creative gathering place for culture and the arts.
These entailed a trend-setting style that was comfortable and welcoming.
Regional Bright, loft-like, light-filled spaces were punctuated with regionally inspired
Modern furniture and culturally relevant fabrics to create a calm and contemporary
respite from the clamor of the fast-paced world.
These stores were unique environments created to explore innovations within
the coffeehouse. Termed as ‘design sandboxes, they created a sense of
Concept
exploration in whoever visited the place, through daily coffee and tea
cuppings, artistic events and community gatherings.

Source: Compiled by the Author from - “Store Design”,
https://www.starbucks.in/coffeehouse/store-design
According to Stewart & O’Connell, “Starbucks is but one example of how specialty retail on a
vast scale has triumphed because of service design… create a special experience their rivals
can’t match — a combination of product offerings, physical design, and brand image that
make customers feel that the store is theirs, even as it serves millions of others.” Schultz was
so deeply committed to customer experience in Starbucks’ stores that when he came back as
CEO of the company in 2008, his primary focus was to recreate the same experience which he
felt had been lost in his absence.32 The store staff was trained extensively to engage
customers, strike a healthy and cordial relationship with them. Schultz valued customer
interaction so much that in one of the inhouse leadership congregation, he stated, “…we have
to leave here understanding that everyone has got to be personally accountable and
responsible for the outcome of every single customer interaction.”33
Evidently, the entire business philosophy of Starbucks revolved around personal interaction
and human connection. But, analysts perceived that it was going to shift structurally with the
company taking strides into the world of technology and Artificial Intelligence (AI).
Starbucks’ AI Push: Risking Customer Connect?
Starbucks’ long-term intent to embrace technology was evident when Kevin Johnson
(Johnson) was made the CEO of the company in April 2017. Prior to joining Starbucks, Johnson
had had an illustrious career in tech companies like IBM, Microsoft and Juniper Networks. He
was expected to spearhead Starbucks technology drive.34 Johnson emphasised that ‘digital’
was the company’s frontier.35 The company’s stride towards technology was initiated in 2011

33 “Howard Schultz on Starbucks’ Turnaround”, op.cit.
34 Klein Danny, “Why AI is a ‘Differentiator for the Future’ at Starbucks”, https://www.qsrmagazine.com/fast-
food/why-ai-differentiator-future-starbucks, November 2019

35 Schwartz Ann Samantha, “Starbucks' AI project is turning past investments into data insights”,
https://www.ciodive.com/news/starbucks-ai-project-is-turning-past-investments-into-data-insights/566362/,
November 1st 2019
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when Starbucks® launched mobile app and subsequently added a feature - Mobile Order &
Pay initially as a pilot in December 2014 in Portland, Oregon. Customers could place order
from any iOS or Android device prior to their store visit and collect the prepared order from
the nearest participating brick and mortar store. Beginning with just one store, the facility was
expanded to nearly 3,400 additional stores across 17 states in the US. By September 2015, the
facility was available to the customers nationwide in more than 7,400 stores across the
country.36 Incidentally, Starbucks® mobile app was hugely successful and served as a good
bargain for the company as far as data mining and customer insights were concerned.37 By
January 2020, the app was used by over 17 million loyalty members and many coffee drinkers
for mobile ordering and drive-thru experiences. In addition, the app was also used by
Starbucks new beverage platforms such as nitro cold-brew. The company knew there were
more than 3 billion (as of January 2020) mobile phone users across the world and it made
good business sense to reach out to this demography.38 Incidentally, in US market, the
company’s mix of mobile order and pay transactions increased to 17% in Q1 of 2020.39 As
rightly put by Johnson, “In thinking about the two transformative elements of modern-day
retail, it begins by creating unique and relevant experiences. If you can’t create a customer
experience in your brick-and mortar store, an experience that goes beyond convenience,
you’re just another node in the supply chain. And that in-store experience must then be

extended to a digital mobile relationship.”40 Notably enough, in an effort to extend in-store
experience to a digital one, the company added My Starbucks Barista feature in its mobile app.
This AI technology enabled app allowed users to place the orders through messaging and voice
recognition on the application, without the need for their physical presence in stores while
ordering. As reported by Brielle Jaekel, a Writer with Retail Dive, “The new feature will make
Starbucks already-convenient mobile ordering even easier. Instead of having to sift through
the almost endless number of menu options offered for mobile orders, users can just send a
message. The process mimics the order-at-the-counter experience but emphasizes
convenience by recreating it on the mobile device.”41
In 2017, Starbucks invested in an initiative termed as ‘Deep Brew’ (DB). As reported in the
media, DB was a ‘custom-developed, AI-driven recommendation platform to serve customers
with relevant product recommendations across multiple channels including in-app ordering
and digital menu boards’. Supported by ‘scalable and flexible’ Azure infrastructure, DB fetched
‘reinforced learning capabilities that allow Starbucks to adapt to customer preferences and
context over time (category, ingredient, price sensitivity, time of day, weather, and
location)’.42 In 2019, the company announced to up its ante in AI investments which included
DB. Johnson revealed, “Deep Brew will increasingly power our personalization engine,
36 “Starbucks Mobile Order & Pay Now Available to Customers Nationwide”,

stories.starbucks.com/stories/2015/starbucks-mobile-order-pay-now-available-to-customers-nationwide/,
September 22nd 2015
37 Dignan Larry, “Why Starbucks remains the mobile payment app leader ahead of Apple, Google, Samsung”,
zdnet.com/article/why-starbucks-remains-the-mobile-payment-app-leader-ahead-of-apple-google-samsung/,
May 22nd 2018
38 “AI for humanity: How Starbucks plans to use technology to nurture the human spirit”, op.cit.
39 “Starbucks US Order Ahead Volume Hits 17 Pct”, https://www.pymnts.com/earnings/2020/starbucks-mobile-
app-users-now-drive-17-pct-of-sales/, January 28th 2020

41 Jaekel Brielle, “Starbucks AI barista further reduces human interaction, shifts mobile ordering”,
https://www.retaildive.com/ex/mobilecommercedaily/starbucks-ai-barista-further-reduces-human-interaction-
shifts-mobile-ordering
42 “Starbucks ‘Deep Brew’: Hyper Personalization Applications with Reinforcement Learning at Starbucks”,
https://mybuild.techcommunity.microsoft.com/sessions/77747?source=speakerdetail, May 6th 2019
Page – 9
320-0133-1
optimize store labor allocations and drive inventory management in stores.”43 According to
Johnson, DB was not merely aimed at bettering the famous Starbucks delivery and customer
experience; it was aimed at ‘nurturing humanity’. Johnson articulated in one of his articles,
“We are living in ‘the age of unprecedented human disconnection’ brought about by the time
we spend interfacing with technology and not with other people. The Deep Brew plan looks to
flip this narrative. Instead of technology robbing us of human interaction, Starbucks will use it
to automate menial machine interactions, freeing employees to engage with their job craft
and interact with the customer.”44
Johnson explained further, “In an effort to do something ‘a little bit elevated’, Starbucks is
continuing to experiment in ways to make in-store experiences digital. Data points such as
transactions, ingredients in products, context in terms of what time of day or store location
and weather feed into personalized recommendations for customers.”45 The company’s drive
for personalisation through AI was a prudent step as by the end of Q4 of 2019, Starbucks
possessed nearly 17.6 million active rewards members. Jonson divulged further, “This is an
important growth driver because we know from experience that when customers join
Starbucks Rewards, their spend level with Starbucks increases meaningfully.” There were
analysts who believed that the huge number of My Starbucks Rewards users would make the

company’s drive and investments in digital technologies absolutely worth it.46 Analysts from
KeyBanc Capital Markets47 deliberated about Starbucks, “We believe enhanced digital
marketing/personalization and menu innovation, including new beverage news, a shift to
healthier refreshment options, and a steady growth food platform, will continue to contribute
to incremental growth.” Incidentally, in 2019, Starbucks had unleashed a series of product

innovations under the brand names Irish cream cold brew48, Nitro Cold Brew beverages and a
Pumpkin Cream Cold Brew.49 These products under Starbucks’ cold brew platform and cold
foam options contributed enormously to the company’s traffic growth in Q1 of 2020.50
DB was not the only digital initiative of Starbucks, there were many more. There was ‘bean to
cup’ blockchain pilot project in 2017 for creating transparency in its supply chain. In May 2019,
the company roped in Microsoft for Azure’s reinforcement learning technology. The ML
technology would ‘digest feedback and then make decisions in complex, unpredictable
environments’. In July 2019, the company entered into a partnership with Brightloom, a
Seattle based tech company, to create an end-to-end cloud-based restaurant software.51
Adam Brotman, Brightloom CEO, had expressed his opinion on the deal, “The fact that we will
now be combining our platform with the leading digital flywheel software in the world,
Starbucks, perfectly positions us to offer the best-in-class solution to the industry. We believe
any restaurant brand should be able to engage customers digitally using a seamless
combination of mobile, omnichannel ordering and loyalty offerings.”52
43 Garcia Tonya, “Starbucks gets personal with Deep Brew artificial intelligence program”,
https://www.marketwatch.com/story/starbucks-gets-personal-with-deep-brew-artificial-intelligence-program-
2019-10-31, November 1st 2019
44 Quast Jon, “How Starbucks Is Using Artificial Intelligence”, fool.com/investing/2019/11/08/how-starbucks-
brewing-up-artificial-intelligence.aspx, November 8th 2019

45 “Starbucks' AI project is turning past investments into data insights”, op.cit.
46 “Starbucks gets personal with Deep Brew artificial intelligence program”, op.cit.
47 A company offering investment advisory services and headquartered in Cleveland, Ohio, United States.
48 “Starbucks US Order Ahead Volume Hits 17 Pct”, op.cit.
49 “Starbucks gets personal with Deep Brew artificial intelligence program”, op.cit.
50 “Starbucks US Order Ahead Volume Hits 17 Pct”, op.cit.
51 “Starbucks' AI project is turning past investments into data insights”, op.cit.
52 Grill-Goodman Jamie, “Starbucks Enters Deal With Tech Company Brightloom”,
https://risnews.com/starbucks-enters-deal-tech-company-brightloom, July 23rd 2019
Page – 10
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The coffee company had also installed Mastrena espresso machines across its US stores in
2019. These machines had inbuilt Internet of Things sensors that enabled Starbucks to elicit
telemetry data from them which in turn was fed into the company’s support center. Jonson
explained, “We can see every shot of espresso that's being pulled and we can see centrally if
there is a machine that's out there that needs tuning or maintenance.” Roz Brewer, COO
Starbucks added, “Starbucks has significant work in progress around inventory routines and
automation, the food prep test, and backroom optimization, all of which are fueling the work
around machine learning and its applications to fuel Deep Brew.”53
According to Johnson, all the Starbucks’ technology and AI initiatives and investments were
aimed towards enhancing customer experience. He explained, “It’s about finding ways to help
humans find more time to be human. It’s not about robots that replace baristas. It’s about
tech that frees up baristas to be better and connect with customers... That eye contact and
that conversation is a much better connection with a human being than typing in the order.
We are trying to invest in those things that we know will enable our partners to spend more
time connecting with customers.”54 There were sceptics who believed that adopting
technology in retail would lead to compromising on personal experience and human
interaction55 but Jennifer Warnick (Warnick), Senior Content and Creative Strategist and

Writer, remarked, “Starbucks would try to flip the script on the paradoxical relationship
between humans and technology.”
Warnick, aptly pointed out, “The conundrum is this: With 31,000 stores worldwide and
400,000 partners serving 100 million customers a week, Johnson expected scale and
complexity to be two of the company’s biggest challenges. As veteran of the tech industry, he
also knows technology will figure heavily into the 49-year-old company’s success for the next
50 years. So, how does Starbucks balance the power of technology with the commitment to
the company’s mission to nurture the human spirit? And can technology actually enhance the
ability to lean into that mission?”56 Moreover, Schultz had once remarked, “Coffee is what we
sell as a product, but it’s not the business we’re in. We’re in the people business. I’m
passionate about human connection.”57 Was Starbucks’ treading a risky zone while
emphasising too much on mobile pay and order? Would it not jeopardise the human
connection that Schultz so meticulously cultivated and derived pride in?
53 Grill-Goodman Jamie, “How Starbucks Is Using Artificial Intelligence and IoT”, https://risnews.com/how-
starbucks-using-artificial-intelligence-and-iot, September 31st 2019
54 Tode Chantal, “How Starbucks uses AI to counter mobile's isolating effect”,
https://www.mobilemarketer.com/news/how-starbucks-uses-ai-to-counter-mobiles-isolating-effect/570384/,
January 14th 2020
55 “Starbucks AI barista further reduces human interaction, shifts mobile ordering”, op.cit.
57 Gallo Carmine, “How Starbucks CEO Howard Schultz Inspired Us To Dream Bigger”,
https://www.forbes.com/sites/carminegallo/2016/12/02/how-starbucks-ceo-howard-schultz-inspired-us-to-
dream-bigger/#56a95dd1e858, December 2nd 2016
Page – 11
Starbucks Founders
First Store in Seattle
Happy Starbucks Barista
Page – 12
Annexure I
Starbucks Snippets
Compiled by the Author from Various Sources

Stabucks’ First Logo (1971)
Starbucks Logo Change (1987)
Starbucks’ Logo (2011 onwards)

320-0133-1

320-0133-1
Annexure II
Starbucks Timeline (1971-2015)
Year Milestone
1971 Starbucks opens first store across Seattle’s Pike Place Market.
 Howard Schultz joins Starbucks as director of retail operations and marketing.
1980s
Starbucks begins providing coffee to fine restaurants and espresso bars.
 Schultz travels to Italy, where he’s impressed with the popularity of espresso bars in
Milan. He sees the potential to develop a similar coffeehouse culture in Seattle.
 Schultz convinces the founders of Starbucks to test the coffeehouse concept in
downtown Seattle, where the first Starbucks Caffè Latte is served. This successful
experiment is the genesis for a company that Schultz founds in 1985.
 Schultz founds Il Giornale, offering brewed coffee and espresso beverages made from
Starbucks® coffee beans.
 Il Giornale acquires Starbucks assets with the backing of local investors and changes
its name to Starbucks Corporation. Opens in Chicago and Vancouver, Canada.
 Offers full health benefits to eligible full- and part-time employees, including
coverage for domestic partnerships.
Total stores: 33

 Becomes the first privately owned U.S. company to offer a stock option program that
1990s
includes part-time employees. Opens first licensed airport store at Seattle’s Sea-Tac
International Airport.
 Completes initial public offering (IPO).
 Opens first drive-thru location.

 Begins serving Frappuccino® blended beverages. Opens first LEED-certified store in

Hillsboro, Oregon. Announces second two-for-one stock split. Opens roasting facility
in York, Pa.
 Begins selling bottled Frappuccino® coffee drink through North American Coffee
Partnership.
 Opens stores in: Japan (first store outside of North America) and Singapore.
 Extends the Starbucks brand into grocery channels across the U.S. Opens in
underserved neighborhoods through joint-venture partnership with Magic Johnson.
Launches Starbucks.com. Establishes the CUP Fund emergency financial assistance
fund for partners.
 Opens stores in: England, Malaysia, New Zealand, Taiwan and Thailand.
 Acquires Tazo Tea. Partners with Conservation International to promote sustainable
coffee-growing practices. Acquires Hear Music, a San Francisco–based music
company. Announces third two-for-one stock split.
 Opens stores in: China, Kuwait, Lebanon and South Korea.
Total stores: 2,498
 Establishes licensing agreement with TransFair USA to sell Fairtrade certified coffee in
2000s
U.S. and Canada.
 Opens stores in: Australia, Bahrain, Hong Kong, Qatar, Saudi Arabia and United Arab
Emirates.
 Introduces ethical coffee-sourcing guidelines developed in partnership with
Conservation International.
 Introduces the Starbucks Card.
 Announces fourth two-for-one stock split.
 Opens stores in: Austria, Scotland, Switzerland and Wales.
 Establishes Starbucks Coffee Trading Company (SCTC) in Lausanne, Switzerland.
 Launches Wi-Fi in stores.
 Opens stores in: Germany, Greece, Indonesia, Mexico, Oman, Puerto Rico and Spain.
 Acquires Seattle Coffee Company, which includes Seattle’s Best Coffee® and
Torrefazione Italia® coffee.
Page – 13
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 Opens roasting facilities in Carson Valley, Nev., and Amsterdam, Netherlands.

 Opens stores in: Chile, Cyprus, Peru and Turkey.
 Opens first Farmer Support Center in San Jose, Costa Rica.
 Introduces Starbucks Coffee Master Program.
 Opens stores in: France and Northern Ireland.
 Acquires Ethos Water.
 Announces fifth two-for-one stock split.
 Opens stores in: Bahamas, Ireland and Jordan.
 Launches the industry’s first paper beverage cup containing post-consumer recycled
fiber.
 Opens stores in: Brazil and Egypt.
 Eliminates all artificial trans-fat and makes 2 percent milk the new standard for
espresso beverages.
 Opens stores in: Denmark, the Netherlands, Romania and Russia.
 Chairman Howard Schultz returns as chief executive officer and begins
transformation of the company.
 Acquires Coffee Equipment Company and its Clover® brewing system.
 Adopts new Mission Statement “To inspire and nurture the human spirit – one
person, one cup and one neighborhood at a time.”

 Launches My Starbucks Idea, Starbucks first online community. Also joins Twitter and
debuts Starbucks Facebook page.
 Opens stores in: Argentina, Belgium, Bulgaria, Czech Republic and Portugal.
 Launches Starbucks VIA® Instant
 Opens Farmer Support Center in Kigali, Rwanda.

 Launches My Starbucks Rewards® loyalty program and Starbucks Card mobile

payment.
 Opens stores in: Aruba and Poland.
 Expands digital offerings for customers with free unlimited Wi-Fi, Starbucks Digital
Network.
 Seattle’s Best Coffee reinvents business strategy to extend brand’s reach.
 Opens stores in: El Salvador, Hungary and Sweden.
 Launches first annual Global Month of Service to celebrate company’s 40th
anniversary.
 Opens first Community Stores in Harlem and Crenshaw neighborhoods.
 Launches Starbucks® K-Cup® packs.**( ** Keurig, K‐Cup, and the K logo are
trademarks of Keurig Green Mountain, Inc., used with permission.)
 Acquires Evolution Fresh.
 Opens Farmer Support Center in Mbeya, Tanzania.
 Launches Create Jobs for USA to encourage small-business growth.
 Opens stores in: Guatemala, Curacao and Morocco.
 Introduces Starbucks® Blonde Roast.
 Opens Farmer Support Centers in Manizales, Colombia and Yunnan, China.
 Acquires La Boulange® bakery brand to elevate core food offerings.
 Launches Starbucks Refreshers® beverage platform.
 Acquires Teavana to transform the tea category.
 Opens stores in: Costa Rica, Finland, India and Norway.
 Strengthens ethical sourcing efforts with coffee farming research and development
center in Costa Rica.
 Starbucks ceo Howard Schultz reinforces company’s commitment to marriage
equality at company’s Annual Shareholders Meeting.
 Come Together petition urges U.S. elected leaders to reopen the government.
 Opens stores in: Vietnam and Monaco.
 Enhances iPhone app with shake to pay and digital tipping.
 Launches Starbucks College Achievement Plan with Arizona State University to offer
Page – 14
320-0133-1
qualifying Starbucks U.S. partners the opportunity to complete a college degree

through ASU’s online degree program.
 Announces commitment to hiring 10,000 veterans and military spouses by 2018.
 Opens first Starbucks Reserve® Roastery and Tasting Room in Seattle.
 Launches Starbucks Mobile Order & Pay.
 Hosts first in a series of Partner Open Forums to discuss race relations in America.
 Opens stores in: Brunei and Colombia.
 Launches Cold Brew iced coffee and Evolution Fresh™ handcrafted smoothies.
 Announces sixth two-for-one stock split.
 Commits to hiring 10,000 opportunity youth by 2018.
 Expands Starbucks College Achievement Plan to offer full tuition coverage for all four
years of an undergraduate degree for qualifying U.S. Starbucks partners. Commits to
25,000 partners graduating by 2025.
 Reaches 99% ethically sourced coffee milestone.
 Opens stores in: Panama
Total stores: 22,519 (as of June 28th 2015)
Source: Compiled by the Author from - “Starbucks Company Timeline”,
https://www.starbucks.com/about-us/company-information/starbucks-company-timeline

Page – 15

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Author: Dr. Garima Ratna

Starbucks’ AI Push: A Game Changing Initiative?

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Starbucks – Redefining Customer Experience

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In 1981, a sales representative for Hammarplast, a kitchen equipment and housewares

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Identifying the USP and Gaining the Competitive Edge

starbucks-stores-worldwide/, November 2019

https://www.statista.com/statistics/218404/quarterly-revenue-of-starbucks-worldwide/, January 2020

Starbucks never serves coffee that has

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Most stores have upgraded to the Baristas who work at least 20

Starbucks provides free WiFi, and

Furthermore, to gain competitive advantage, Starbucks worked towards establishing lasting

Emphasis on Strong Organisational Culture

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being that ‘third place’ that customers value.”25

19 Moore John, “The Starbucks ‘Employee First’ Philosophy”, brandautopsy.com/2007/01/the_starbucks_e.html,

we-had-to-own-the-mistakes, July-August 2010

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cold and hot sandwiches, Starbucks Iced Coffee, Starbucks

27 Pratap Abhijeet, “Marketing Strategy of Starbucks”, notesmatic.com/2017/01/marketing-strategy-of-

starbucks/, August 25th 2019

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Store Designs/Customer Experience

marketing-strategy/, September 1st 2019

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Starbucks’ AI Push: Risking Customer Connect?

32 “How Howard Schultz’s Angel Poised Starbucks for Success”, op.cit.

food/why-ai-differentiator-future-starbucks, November 2019

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36 “Starbucks Mobile Order & Pay Now Available to Customers Nationwide”,

app-users-now-drive-17-pct-of-sales/, January 28th 2020

https://mybuild.techcommunity.microsoft.com/sessions/77747?source=speakerdetail, May 6th 2019

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to incremental growth.” Incidentally, in 2019, Starbucks had unleashed a series of product

brewing-up-artificial-intelligence.aspx, November 8th 2019

https://risnews.com/starbucks-enters-deal-tech-company-brightloom, July 23rd 2019

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First Store in Seattle

Happy Starbucks Barista

Compiled by the Author from Various Sources

Starbucks Logo Change (1987)

Starbucks’ Logo (2011 onwards)

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 Opens first drive-thru location.

 Begins serving Frappuccino® blended beverages. Opens first LEED-certified store in

 Opens roasting facilities in Carson Valley, Nev., and Amsterdam, Netherlands.

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 Opens Farmer Support Center in Kigali, Rwanda.

 Launches My Starbucks Rewards® loyalty program and Starbucks Card mobile

qualifying Starbucks U.S. partners the opportunity to complete a college degree

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