Business Model of Starbucks: Revenue And Growth Explained

Starbucks! The name alone evokes the enticing scent of freshly brewed coffee, the familiar embrace of a cozy space, and the anticipation of a delightful energy boost. Did you know Starbucks started not as a coffee shop but as a humble vendor of roasted coffee beans? 

Later, Starbucks changed its business model and became a global phenomenon, boasting over 35,000 stores worldwide!

So, how did this coffee giant become so big?  In this blog, we will discuss all the secrets behind Starbucks’ success, exploring the innovative business model that’s brewed a loyal following and fueled its meteoric rise.  By understanding their strategy, we can unlock valuable lessons applicable across businesses,  demonstrating the power of a well-defined and ever-evolving business model to tap into the emotional core of its customers.

The Humble Beginnings Starbucks

Starbucks’ journey began in 1971, a modest coffee bean store in Seattle’s Pike Place Market founded by Jerry Baldwin, Gordon Bowker, and Zev Siegl.  The company’s main focus was on selling high-quality coffee beans and brewing equipment.

However, a key turning point came in 1982 when Howard Schultz acquired Starbucks and, inspired by his travels to Italy, envisioned a new direction.  Schultz, recognizing the potential for a coffee shop experience centered around espresso-based drinks, transformed Starbucks from a retailer to a welcoming gathering place serving handcrafted coffee beverages. This shift in business model, coupled with Schultz’s focus on customer experience and high-quality products, laid the foundation for the Starbucks empire we know today.

How did the Starbucks Mobile App Play a role in its success?

In 2009, Starbucks launched its mobile app, a strategic move that would significantly impact the company’s commercial success. Initially intended to streamline customer interactions, the app quickly evolved into a powerful sales driver. The introduction of in-app payments in 2011 further fueled its success. Today, the Starbucks mobile app plays a central role in generating business and driving sales.

The app beautifully capitalized on the growing trend of digital adoption, particularly the rise in mobile ordering and contactless transactions. Starbucks’ app was actually one of the most popular mobile payment options before the arrival of Apple Pay and Google Pay. While its ranking has shifted (currently sitting at 6th in the USA), it still boasts a loyal user base of over 30 million. A key differentiator is its exclusivity, as the app can only be used at Starbucks stores, creating a unique selling point and encouraging frequent visits. This strategy has resulted in over 25% of all Starbucks transactions being processed through the app, highlighting its significant market penetration.

Beyond payments, the app offers features designed to boost customer engagement. The ability to order ahead for quick pickup caters to busy lifestyles, while the integrated rewards program incentivizes repeat purchases with earned stars redeemable for free drinks and food items. 

Key Market Takeaways for the Coffee Apps

According to MarketResearchIntellect, the coffee app market, valued at $51 billion in 2023, is expected to nearly double in size by 2031, reaching a staggering $126.48 billion. This rapid growth is fueled by a rising tide of coffee lovers embracing the convenience and personalization offered by mobile apps.

Source: MarketResearchIntellect

These apps go beyond simply placing orders. They offer a lot of features that cater to the modern coffee drinker. Busy professionals can use online ordering to skip the queue and grab their favorite latte on the go. A recent study revealed that 72% of office workers in the USA use coffee shop apps to pre-order their drinks, highlighting the efficiency and time-saving benefits these apps provide.

Furthermore, at-home baristas can now find brewing instructions and discover new coffee origins, all within the app. For instance, the popular coffee app “Grind” reported a 43% increase in users exploring single-origin coffee beans after implementing an educational section within their app. This indicates a growing consumer interest in specialty coffee and a willingness to experiment at home, fueled by the knowledge and guidance provided by coffee apps.

The growing popularity of specialty coffee and home brewing is another key driver of the market. Coffee apps are well-positioned to cater to this niche audience. They can connect coffee enthusiasts with high-quality beans through partnerships with local roasters.

How Does Starbucks Generate Revenue?

For many of us, the Starbucks experience is a familiar routine – a friendly barista greets you by name, whips up your favorite latte, and you’re on your way, energized for the day. But behind the scenes, Starbucks is a business meticulously crafted to generate revenue in several ways. Let’s discuss them in detail,

1. Your Local Starbucks

This is likely the first that comes to mind. Starbucks boasts over 33,000 cafes globally, strategically placed to capture your daily coffee fix. In 2023 alone, these cafes brought in a staggering $29.06 billion in revenue.

2. Spreading the Love (and the Brand)

Not every Starbucks location has a green apron on the door. The company has expanded its reach through a clever licensing model. They partner with other businesses to open Starbucks cafes, earning royalties on each drink sold. This approach allows them to tap into fresh markets and leverage existing infrastructure, with over 7,000 licensed stores globally, further extending their brand reach.

3. Coffee on Your Doorstep

The Starbucks name isn’t reserved for cafes anymore. They’ve established a multi-billion dollar market for packaged coffee, tea, and other beverages sold in grocery stores and online retailers. This convenience factor lets people enjoy Starbucks at home or on the go, contributing significantly to their bottom line.

4. Your Phone is Your Barista

The Starbucks mobile app isn’t just about convenience; it’s a strategic revenue driver. In 2023, over 24.2 million users in the US alone placed mobile orders through the app, streamlining the customer experience and boosting sales. The app also integrates with their loyalty program, rewarding repeat business and encouraging in-app purchases like expedited pick-up or double-star days.

5. Beyond the Coffee Cup

Starbucks is a business that isn’t afraid to take calculated risks. They strategically invest a portion of their revenue, sometimes in ventures outside the coffee world. For example, their brief ownership of Teavana tea shops allowed them to explore the tea market. These strategic investments and partnerships with other businesses help them diversify their income streams and capitalize on emerging market trends.

What Features Make the Starbucks Mobile App Special?

The Starbucks mobile app isn’t just about grabbing a quick coffee on the go. It’s a personalized portal designed to enhance the Starbucks experience at every touchpoint. Here’s how the app’s key features cater to individual needs:

1. Starbucks Rewards in Your Pocket

The heart of the app lies in the Starbucks Rewards program. Signing up is a breeze, and with every purchase, users earn “Stars” displayed in their “Stars” counter within the app. These Stars translate into real rewards, like free drinks or food items redeemable through the “Rewards” section. Double Star Days and Bonus Star Challenges, announced within the app itself, add a fun element and motivate users to visit more often.

2. Gift with a Tap: The Digital Starbucks Card

The “Gift” section of the app allows users to send thoughtful digital Starbucks Cards to friends and family. The user can personalize the card with a message and choose the desired amount. Recipients get an email notification and can redeem their digital card with a tap within the app or through the email link. It’s a convenient and personalized way to spread cheer.

3. Find Your Perfect Cup – Every Time

The “Stores” section allows users to locate nearby Starbucks locations and explore their offerings before they visit. This personalized touch ensures users can find their perfect cup or a delicious snack, saving them time and ensuring a satisfying visit.

4. Order Ahead & Skip the Line

Running short on time? The “Order” section is a lifesaver. Users can browse the menu, customize their drink or food, and place their order directly through the app. They can pay securely with their linked payment method and choose their preferred pick-up time. When they arrive, users simply head to the “Mobile Order” pick-up area, grab their order, and be on their way – no waiting in line! This feature not only saves time for the users but also helps Starbucks manage customer flow, reducing congestion during peak hours.

5. Seamless Transactions: Pay Your Way

The app offers various in-store payment options through the “Pay” section. Users can choose their preferred method, scan the QR code at checkout, and they’re done. This frictionless experience ensures a smooth and positive visit, fostering brand loyalty through convenience.

6. Manage Your Starbucks Cards with Ease

The “Card” section puts Starbucks Card management at users’ fingertips. They can check their balance, reload their card with a few clicks, or even transfer funds between cards – all within the app. This high level of control and transparency enables users to manage their Starbucks expenses effectively.

7. Recognizing the Baristas

The app allows customers to show their appreciation for exceptional service by tipping their baristas directly. This thoughtful feature fosters a sense of connection between customers and baristas, further strengthening the overall Starbucks experience.

How does Starbucks Guarantee a Consistent Experience?

For Starbucks, ensuring a consistent and positive customer experience across thousands of stores, both company-owned and licensed is crucial for business growth.  Their approach is multifaceted, built on a foundation of strong brand identity and meticulous attention to detail.

Firstly, Starbucks meticulously trains its baristas, or as they call them, “partners.”  Training goes beyond brewing coffee; it emphasizes customer service, beverage creation consistency, and a welcoming atmosphere.  Detailed recipe specifications and quality control measures ensure that a Caramel Macchiato tastes the same in Seattle as it does in Singapore. This allows users to know exactly what to expect from each Starbucks visit, regardless of location.

Secondly, Starbucks leverages technology to bridge the gap between company-owned and licensed stores.  Standardized point-of-sale systems ensure a seamless ordering experience, while mobile apps allow for customization and reward program integration, further personalizing the customer journey. This cohesive digital experience strengthens brand identity and fosters a sense of community, regardless of which store a customer walks into.  By combining human expertise with innovative technology, Starbucks has created a model for consistent customer experience across a vast and geographically diverse business landscape.

MVP Features for Building a Starbucks-Inspired App

An MVP focuses on the core functionalities needed to create a self-sustaining and engaging app for your coffee shop business. Here’s a breakdown of essential features for a Starbucks-like coffee shop app:

1. Social Media Integration

While social media integration might seem convenient, creating dedicated user profiles within the app offers distinct advantages. User profiles allow for a more customized experience, tailoring the app to individual preferences. Furthermore, dedicated profiles enhance data security through multi-factor authentication, protecting sensitive user information. Most importantly, user profiles empower businesses to track user data effectively, informing valuable marketing decisions to target specific customer segments better.

2. Enticing Menu

An enticing menu is the heart of any coffee shop app. The design should be visually appealing, stimulating user appetite and showcasing the delicious offerings. Essential features include a well-organized food and beverage catalog with clear subcategories for easy navigation. Detailed descriptions with mouthwatering photos and titles further entice users. 

3. Pre-order Feature

Long lines are a pain point for any coffee lover. A pre-order feature is a game-changer, streamlining the experience and eliminating wait times. Users can place orders ahead of time, ensuring their drinks are prepared in advance for quick pick-up. This eliminates the need for queuing and potential payment challenges at the counter. 

4. Frictionless Transactions

Mobile payment integration is a cornerstone feature of any successful coffee shop app. Seamless transactions are key to user satisfaction. Integration with popular e-wallets allows users to transfer funds from their credit or debit cards easily. The app should also store electronic loyalty program cards, providing users with quick access to their rewards. Offering diverse payment options caters to various preferences, ensuring the app is inclusive for teenagers who might not have credit cards and caters to a broader customer base.

5. Robust Map Feature

For multi-location coffee shop businesses, a robust map feature is crucial. Users should be able to locate the nearest store with clear visual aids effortlessly. The app should integrate navigation assistance, guiding users to their coffee destination. This feature not only enhances convenience but also encourages the exploration of new store locations.

6. Push Notifications

Push notifications are more than just a way to grab users’ attention. They can be crafted into self-contained packages of valuable information. Strategic use of push notifications can help retain customers, increase conversion rates by promoting special offers, and improve customer targeting through personalized messages. Businesses can track various metrics associated with push notifications, allowing them to refine their communication strategies and build a stronger bond with their app users.

Some Advanced Features to Include in a Starbucks-Like App 

Now that you have an MVP, it’s time to brew some fresh and innovative features for your coffee app to make it actually stand out!

Here’s how to go beyond the basics and craft an app that offers a personalized and innovative experience, attracting new customers and keeping your regulars engaged:

1. Gamified Rewards

Loyalty programs are a staple, but why not make them more engaging? Integrate a gamification element, awarding points for purchases, referrals, and completing challenges like trying new menu items. Leaderboards can add a friendly competitive spirit, encouraging users to climb the ranks and unlock exclusive rewards. This not only incentivizes repeat visits but also fosters a sense of community within the app.

2. AI-Powered Barista Recommendations

Take personalization a step further with AI-powered barista recommendations. Users can input their mood, activity level, and desired caffeine kick. The app, leveraging anonymized user data and historical preferences, can suggest the perfect drink to match their needs. This “coffee concierge” service adds a unique touch, providing valuable guidance for indecisive customers and creating a more interactive experience.

3. Virtual Queue Management

Pre-ordering is great, but what about peak hours? Implement a virtual queue management system. Users can see estimated wait times at their preferred store and join a virtual queue from the app. This allows them to optimize their time, perhaps placing an order while on their way or browsing nearby stores while they wait. The app can send real-time updates on their position in the queue, eliminating the frustration of waiting in line.

4. Social Sharing with a Twist

Social media integration is common, but what about fostering connections within your app? Develop a “Coffee Connect” feature that allows users to share their location (if comfortable) and see if any other app users are nearby. This can facilitate meet-ups between coffee enthusiasts, encouraging a sense of community and brand loyalty.

5. AR, the “Augmented Reality” Experience

Integrate Augmented Reality (AR) to gamify the coffee shop experience. For example, users can point their phone cameras at coffee beans to unlock interactive content about their origin and roasting process. AR can also be used to visualize customizations on drinks, allowing users to see how their caramel drizzle or an extra shot of espresso will look before they order. This innovative feature adds a layer of fun and engagement, setting your app apart from the competition.

Conclusion

Understanding Starbucks’ business model isn’t just about appreciating a well-crafted cup of coffee; it’s a masterclass in brand building and customer engagement. By dissecting their strategies, businesses of all sizes can glean valuable insights applicable across industries.

Starbucks’ success hinges on a carefully constructed blueprint. 

From its focus on high-quality, customizable beverages to the creation of a welcoming “third place” environment, they’ve cultivated a loyal following. The mobile app, with its seamless integration of loyalty programs, mobile payments, and personalized features, further strengthens its connection with customers. In essence, Starbucks demonstrates the power of a well-defined business model that prioritizes customer experience, fosters brand loyalty, and adapts to evolving consumer trends. By studying their playbook, businesses can craft their own strategies to carve a unique niche in their competitive markets.

Looking to Grow Your Coffee Shop business with Ideausher?

With over 500,000 hours of coding experience, our team can craft a customized app that perfectly reflects your brand,  featuring mobile ordering,  reward programs, and innovative features to keep your customers coming back for more. Let us turn your coffee shop vision into a reality; contact Idea Usher today!

FAQs

Q1: What business model is Starbucks?

A1: Starbucks follows a multi-pronged business model. The core revolves around a chain store model, with company-owned stores generating the majority of revenue through beverage and food sales. They also leverage licensing, where partners operate Starbucks stores under their brand and guidelines. Additionally, Starbucks profits from packaged goods sold in grocery stores and from in-app features like mobile ordering and their loyalty program. This combination of revenue streams, coupled with their focus on customer experience, has propelled Starbucks to become a global coffee powerhouse.

Q2: What type of business is Starbucks?

A2: It is a global chain of coffee shops that specializes in hot and cold coffee drinks, tea, and other beverages. However, they’ve expanded beyond simply selling drinks. Starbucks operates as a multi-billion dollar retail corporation, offering food items, coffee beans, brewing equipment, and merchandise. Their success hinges on creating a unique coffee shop experience that fosters a sense of community and brand loyalty.

Q3: What makes Starbucks unique?

A3: Starbucks’ magic lies in its ability to transcend a simple coffee shop. They offer high-quality, customizable beverages in a welcoming “third place” environment, fostering a sense of community. Their mobile app seamlessly integrates loyalty programs and mobile payments, creating a convenient and personalized experience. This focus on customer experience, combined with their strategic marketing and adaptation to trends, has solidified Starbucks’ unique position as a coffee giant and cultural icon.

Q4: What type of marketing is done by Starbucks?

A4: Starbucks utilizes a multi-channel marketing approach. They blend traditional methods like TV commercials and print ads with a strong focus on digital marketing through social media and their mobile app. They also prioritize creating a unique in-store experience, building customer relationships through a welcoming atmosphere and emphasis on personalization. This combination of online and offline strategies, with a focus on building brand loyalty, effectively reaches a wide audience and fosters a strong connection with their customers.