Starbucks, the most prolific coffee chain in the country, recently unveiled a dramatic expansion plan. The chain hopes to not only add 2,000 stores to its nearly 16,000-strong fleet by 2025 but to also new implement new strategies in a bid to maximize sales and customer reach by embracing technology.
We dove into the foot traffic data for the coffee giant to understand what lies behind this decision and whether the opportunity is really there.
Coffee Chain’s Continued Confidence
Starbucks was a pandemic winner, with elevated visits throughout much of the period. This was an especially impressive feat for a brand that does see heavy traffic in urban areas and on work commutes – two areas that were hit especially hard by the pandemic.
As the new year began, the chain did see its visits drop as a combination of Omicron, and inflation kept people from venturing out. Yet, even within this difficult environment, the coffee chain has seen visits above or near pre-pandemic levels throughout the year. And looking at recent visits compared to a January 2019 baseline shows August visits up by 2.6%, an impressive showing considering the economic climate.
Tapping Into Unfulfilled Demand
And in an effort to maximize the ongoing surge of demand the brand is still seeing, the company is putting a heavy emphasis on driving efficiency. “One of our challenges today is that we’re not able to meet the capacity of demand that is coming through our stores,” said Brady Brewer, chief marketing officer at Starbucks. Long wait times and lines are one of the culprits keeping potential customers from visiting Starbucks.
In hopes of addressing the long wait times and improving customer reach, the chain announced that it would be rolling out more of its small-format stores, which cover around 400 sq.ft. compared to a typical Starbucks store’s 2,000 sq.ft.
And there is reason to believe this strategy could help improve efficiency. Looking at a group of small-format locations over the past twelve months (trailing-12 month, or TTM) compared to nearby full-size locations, shows that small format stores saw around 15% more visitors per square meter than the regular locations. These numbers are likely driving the decision to dedicate a significant portion of its expansion plans to ramp up infrastructure for pickup and drive-thru by 2025, unveiling automatic drink machines, and enhancing its in-app ordering capacities to lower bottlenecks at the register. By optimizing store size and focusing on automation, Starbucks should see a more efficient reach in key markets.
Expanding into New Markets
But for a brand that already owns so much of the market, how much expansion potential is there?
Looking at the data indicates that it could be quite a bit.
Starbucks identified where it was underrepresented on a store per population basis and is planning its expansion in those areas, which are primarily clustered in the Midwest and Southeast. And reviewing Starbucks visits as a percentage of the total restaurant industry revealed that stores in those markets were underperforming Starbucks’s national average of 7.3%. Visits to Louisville, Memphis, and Knoxville Starbucks locations made up roughly 5% of all restaurant visits in those cities. In comparison, Cincinnati and Indianapolis made up 3.2% of all restaurant visits.
These smaller markets are often the most receptive to new retail investment. Choosing locations in an unsaturated market allows the chain to capitalize on reduced rent and overhead, as well as tapping into unmet consumer demand – a potential driver of sales.
Things Looking Up For Starbucks
Starbucks has the largest market share of any coffee chain across the country. It hopes to expand its dominance by implementing growth strategies based on data, tapping into unfilled markets, and automating its drink-making processes.
Will this expansion help Starbucks capture more of the market? Visit placer.ai to find out.