COVID-19 Response: Guiding Principles and Changes at Starbucks
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Starbucks has a new store format brewing and it’s a byproduct of the coffee brand’s strategy to navigate through the pandemic.
“We are basically transforming our store portfolio. This is especially true in dense metropolitan geographies,” Kevin Johnson, president and chief executive officer of Starbucks, said Thursday. “Take Manhattan. We are now going to start to transform that trading area to blend in a new format of store called ‘Starbucks Pickup.’ In a dense area, this is a walk-through,” or kind of an urban equivalent of the suburban drive-through, Johnson explained.
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“If there is a Starbucks pickup store within a three-to-five minute walk from where there is a regular Starbucks with a café and a seating area, you, as a customer, can decide if you want to sit and enjoy your beverage with a friend or a colleague, or if in a hurry, just want to go through the walk-through at the Starbucks pickup store,” said Johnson.
“Now is a great time to do this,” the ceo added. “A significant amount of commercial real estate will be available going through the pandemic. We believe rent rates are going to be lower than before because there will be a lot of available real estate.”
Johnson discussed the Starbucks pickup format during an interview with Matt Shay, president and ceo of the National Retail Federation. It reflects Starbucks’ approach to stores and customers amid the global health crisis. “The concept of experiences being safe, familiar and convenient will be the theme until a vaccine or multiple vaccines are available,” said Johnson. “That’s what people are going to be looking for throughout the holiday season and into the next calendar year.”
Earlier this week, Starbucks mandated that customers must wear masks in all of its 9,000 U.S. locations, joining Walmart, CVS, Target, Costco, Kohl’s and other major retailers also requiring facial coverings. Previously, Starbucks requested but didn’t require customers to wear masks.
“Three simple principles have guided us for every decision we have made for the last six months,” Johnson said. “Number-one is prioritizing health and the well-being of Starbucks partners and customers we serve.”
Second is “partnering to support local government and health officials as they work to contain the spread of the virus,” and third is “showing up in a positive and responsible way in every community we are a part of,” Johnson said.
The three principles were developed last January by Starbucks in China, where the coronavirus originated. They became the “playbook” for Starbucks’ response to the pandemic around the world, and in sense, the retailer, being a $30 billion international company with 32,000 locations in 80 countries, got its head start in China in responding to the health crisis around the world. In China, Starbucks developed and initiated safety features and protocols for its employees (called “partners”) and customers, such as masks, sanitizers, wiping down counters, requiring hand-washing, rearranging seating, mobile orders and how stores would reopen, Johnson said.
“Clearly, the first priority was understanding how [the coronavirus] was affecting China but it was evident this would affect markets around the world.”
Protocols adopted in China spread to Starbucks in Europe, the U.S. and other markets, with slight adaptations depending on the geography and severity of the pandemic, per Starbucks’ management philosophy of “distributed leadership,” Johnson said.
“We have now created what we believe is the playbook we have to operate in for, let’s say, the next 18 to 24 months while we wait for a vaccine for this virus,” Johnson said.
The former software engineer at IBM and Microsoft, who joined Starbucks in 2015 as president and chief operating officer and rose to ceo and president in 2017, indicated that while developing the pickup format for densely populated areas, the company has been adding digital capabilities, such as ordering online for curbside pickup, as well as extending rewards to customers who are not in the Stars loyalty program and enhancing personalization on the mobile app. But Johnson stressed that the regular Starbucks stores are not going away.
The product mix hasn’t changed much since the coronavirus outbreak, Johnson said, though he did say that a higher percentage of beverages sold are cold, and that the company will be coming out with a wider range of cold beverages on its menu.
He also sees more plant-based food offerings in the future, including soy, almond and coconut milk. “This concept of plant-based is going to be a long-term trend. It links to sustainability, health and wellness.”
During the pandemic, “We have much higher tickets on our transactions. That’s really a function of ‘to-go’ orders being for the entire family or for all the people a customer happens to be with.”
Also, with schools closed and fewer people working in their offices these days, Starbucks has seen some transactions shifting to later in the morning, Johnson observed.
“This global pandemic will reshape the way we think about the rest of our lives, and live the rest of our lives,” Johnson said. “Experiences really matter going forward. The opportunity for retailers going forward is to build trust. If you create for customers an experience that is safe from COVID-19, they are going to trust you forever.” Johnson also stressed that along with safety, creating conveniences, such as curbside pickup, and doing things that “uplift” customers, will be “the currency of the future.”
The pandemic has placed Starbucks in a ‘monitor and adapt’ phase, Johnson said. “We have to be aware of what’s happening with COVID-19 in every market of the world. We are going to be in this phase I believe until there is a vaccine.
“I was reflecting on this over the Fourth of July holiday. We are no longer in a crisis because we have figured things out. We’re in a global pandemic for sure, but I believe at Starbucks and with our partners, we have created store protocols. We have created safety protocols. We know how to turn the dial up. We know how to turn the dial down. We have data-driven dashboards that use artificial intelligence that gives us feeds on COVID-19 cases by market. They give us customer sentiment, partner sentiment, and all of that informs a store manager about what they ought to be thinking about relative to their community.”
Early during the pandemic, Starbucks decided to pay all of its partners whether they came to work or not, and gave additional service pay to those who came to work.
“It’s all about doing the right thing, even if it’s hard,” said Johnson. “Through the downturn we paid all of our suppliers, we paid all of our rent to landlords. We even paid our quarterly dividend to shareholders. That builds trust and trust is a very, very important attribute when you think about the long-term health and success of any business.”
Two years ago, Starbucks got caught up in a case of racial injustice when a store in Rittenhouse Square in Philadelphia had two Black men arrested for staying there without purchasing anything, sparking outrage against the company, weeks of protesting, and apologies from Starbucks leaders, and racial-bias training for the company’s 200,000 U.S. employees. Since then and after the killing of George Floyd, Starbucks has conducted “courageous conversations” online for thousands of its employees, creating what Johnson called “a safe place” for people to listen, learn and express themselves on racial issues.
“We talked openly,” said Johnson. “We all have a responsibility to stand up and stand against this kind of injustice and do something to change the world that we live in. We have been on a journey to raise the level of awareness of the bias each of us has from each of our life’s journeys.”
