How Starbucks uses AI to make a 30% ROI
Find out how Starbucks uses AI to keep its customers happy, its staff productive, and its global business profitable
Coffee chain giant, Starbucks, has over 100M customers across 80 global markets, with nearly 40,000 stores across the world. The success of Starbucks was, initially, largely driven by the quality of its coffee beans and its customer-experience approach. But since the launch of its AI-driven platform–Deep Brew–its investment in cutting-edge AI technology, data, and innovation has propelled its success even further.
The backstory: How Starbucks got into AI
Starbucks has long been regarded as a leader in digital transformation in the retail coffee and snack industry.
It all started in 2011 when it launched an app-based loyalty program. This quickly grew into a hub where users could find information about menu options, store locations, and opening hours. User activity within the app gave Starbucks valuable data and insights into what drinks their customers liked, where they liked to go, and what time they preferred to visit their stores, which then helped inform business, marketing, and strategic decisions.
Then, in 2019, McDonald's acquired the personalization platform and decision engine–Dynamic Yield–to personalize its drive-thru experience, outdoor menus, and digital ordering kiosks.
Seeing an opportunity to utilize the data they’d been collecting since 2011, Starbucks CEO, Howard Schultz, commissioned the development of Deep Brew: An AI-powered platform.
This was a financially bold move, but it was way ahead of its competitors, and it paid off.
“With 90 million transactions a week, worldwide, the coffee giant is on the cutting edge of using big data and AI to help direct marketing, sales, and business decisions.” - Starbucks: Using Big Data, Analytics And Artificial Intelligence To Boost Performance, Forbes
The current story: How Starbucks uses AI
The Starbucks app has over 17M users, and around a quarter of all Starbucks customer's transactions go through the app. This provides the Deep Brew AI platform with a huge amount of data which it processes to understand things like how each store is performing (at a local and national level), what type of drinks and snacks customers like, and when and where they like to drink coffee. This insight then helps Starbucks personalize customer experiences, manage store operations and inventory, find optimal new store locations, and offer customers new menu options.
Here’s how:
How Starbucks uses AI to personalize customer experiences
Many coffee drinkers (who have the Starbucks app) can walk into any store, even if it’s not their regular joint, and be greeted (by name) by the barista, and offered their favorite drink.
How?
Deep Mind has around 30M digital connections that feed into its personalization app, called “My Starbucks Barista” which has been trained to understand and remember individual customer preferences. Data collected from the app, reward program, geolocation intel, and mobile order and pay systems provide intel on things like customers' most visited store, what time of day people like to drink coffee, their favorite drink, and previous orders.
Deep Mind then processes this data through a Digital Flywheel program–a cloud-based AI engine that overlays customer data with general data on weather, time of year, holidays, etc--which then spits out highly accurate, personalized food and drink recommendations, specific store promotions, and real-time notifications when a customer is near a store or when their favorite drink is available. This doesn’t just apply to in-app experiences, either: The store's point-of-sale system can integrate with the customer's mobile app, identify who the customer is, and inform the barista of their preferred order, creating a seamless, personalized customer experience.
How Starbucks uses AI to manage store operations and inventory
Deep Brew also uses data, collected from the app, to track things like the popularity of products, the exact day/time orders are made, and how popular each store is. It can then predict supply/demand, allowing staff to easily gauge inventory needs, making sure each store is stocked with the right products and the right amount of products, to meet demand, and also reducing waste. It also allows them to schedule the right amount of staff to cover the peaks and troughs in traffic. This allows their employees to focus on building customer relationships, rather than worrying about staff schedules and inventory. They’ve also installed AI-enabled smart coffee makers and equipment to streamline the beverage preparation processes, reducing wait times and improving customer experience.
How Starbucks uses AI to find optimal new store locations
With 38,038 stores, worldwide, Starbucks doesn’t just randomly decide where to open its next one. It uses Atlas, a mapping and business intelligence tool, which takes Starbucks store traffic, and location of the most orders data, overlaid with surrounding store data, past revenue history, location income levels, and traffic patterns to make AI predictions on how profitable a new location will be, and establishes the best store location. The system even predicts the impact a new store is likely to have on other Starbucks locations so stores don’t cannibalize each other.
How Starbucks uses AI to offer new menu options
The Deep Brew AI engine, which processes data gathered from the Starbucks app, enables Starbucks to create new ‘limited-offer’ menu items that keep their customers happy (and loyal) and keep them ahead of the competition.
For example, after analyzing customer preferences through Deep Brew, they found that 43% of tea drinkers didn’t add sugar to their tea. This intel allowed them to develop two new unsweetened ice teas: Mango Green Iced Tea and Peachy Black Tea. In another example, the AI system once predicted a heatwave in Memphis, so Starbucks developed and launched a new, local frappuccino promotion to encourage customers into stores across Tennessee.
The end story: How Starbucks has benefited from AI
Deep Brew, powered by the Starbucks data analytics platform, has allowed Starbucks to personalize customer experiences, manage stores and inventory seamlessly, choose the best, most revenue-generating store locations, and add new, innovative products to its menu, delighting customers and staving off competition. As a result–according to internal reports–the adoption of AI has brought an upsurge of 30% in their ROI, and produced a 15% growth in customer engagement levels, compared to their previous marketing methods.
