Market Overview

Starbucks Ramps Up Coffee Delivery

Starbucks Ramps Up Coffee Delivery

Getting a coffee to go is as natural as breathing for many. Starbucks Corporation (NASDAQ: SBUX) is betting that on-demand delivery is the organic next step.

The coffee giant announced in January that it would expand an existing pilot project in Miami to San Francisco, and that delivery would be added to five more cities early this year.

This expansion, powered by Uber Eats, coincides with the kickoff of a new pilot in London, the first European city to test the Starbucks delivery model.

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Back in the 1980s, convenience in the coffee business took the form of a drive through lane, said David Palmer, a restaurant and packaged food analyst for RBC Capital Markets. That model is still popular — up to half of Starbuck's development pipeline is in drive through.

But on-demand is the next level of convenience, Palmer said. "The future belongs to delivery."

Besides, everyone else is doing it. Dunkin' Brands Group Inc (NASDAQ: DNKN), a donut purveyor that markets itself primarily as a coffee vendor, delivers in major metropolitan areas through a partnership with DoorDash. "Delivery is growing in importance as consumers are looking for more ways to get what they want, when they want it," said Dunkin' spokesperson Daisy Hepi.

McDonald's Corp (NYSE: MCD) serves the coffee delivery market through a partnership with Uber Eats.

"Heaven forbid that there are coffee options available for delivery that is not you," Palmer said, referring to Starbucks delivery efforts. "Why would you allow that?"

That said, Palmer doesn't expect delivery coffee to be a huge sales driver for Starbucks. Few consumers will be eager to shell out a $5 or $6 delivery fee for such a small ticket item – roughly speaking, the check size needs to be around $30 before a customer will sign on for delivery. "At that level $6 is more like a tip," said Palmer.

Starbucks delivery orders will come with an initial $2.49 booking fee.

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The company declined a request for interviews but issued the following statement from Roz Brewer, Starbucks' group president and chief operating officer.

"We're building on key learnings from past delivery pilots, and by integrating our ordering technology directly with Uber Eats, we've unlocked the ability to bring Starbucks to customers for those times when they're not able to come to us."

There's another reason why Starbucks may be pursuing delivery. If they get to a place where within the app you can choose delivery as an option, Palmer said, "it might be a way they can collect more customer data."

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