Starbucks Blazes New Trails With Coffee Delivery Service

Starbucks recently announced they will be offering delivery services for their food and beverage items in select locations. To date, details about where products can be delivered, its costs, and how it is going to function have been withheld. Experts are confused as to how any company could offer low cost personalized differences. They do seem to agree that if it works Starbucks will be blazing some new trails in logistics that will be adopted by others.

I congratulate Starbucks on creating buzz in the market because there will be a lot of companies watching how they are effectively going to do this on low value purchases.  The media is ablaze about the development and its implications on e-commerce. Uniquely Starbucks is taking sales and delivery down to a micro level not yet seen on a large scale. 

Starbucks is trend setting by not only offering deliveries, but also providing pre-order cellphone applications that customers can pick up later. No one wants to wait in a long Starbucks line when they know they can grab and go with a pre-order application. Approximately 15% of all their customers’ purchases are being made through mobile devices. 

The great innovations have some theorists wondering. Some have argued that the minimum purchase price needs to be over $20 dollars to make it economically feasible. Certainly this is one possibility. The other possibility is they will require a purchase minimum like $7 and have three deliveries in the same area. Instead of one delivery you are making three within a short distance with each other. 

This would require delivery in high concentrated areas to make a return even possible. There is no doubt technology is lowering costs but to do so on a $2.25 cup of coffee is unprecedented. The only item to effectively beat economy of scale margins would be many small purchases or combining multiple services and benefits together. 

An additional benefit is that more loyalty through habit is being developed with every purchase. The consistent use of technology and applications fits within the tech savvy and trendy markets that create an image that others in society are likely to emulate. Getting customers to make the coffee as part of their working lives certainly makes a difference in longer term sales.

What Starbucks is doing is being a market leader in personalized logistics where members of society can order products and create consumer culture right from their phone. Today you may be limited to a cup of coffee from Starbucks or a bag of groceries from Amazon Fresh but tomorrow you may be having someone deliver your healthy meals three times a day. Wait…you can already sign up for this through a local service. Times have changed and so has the expectation of service.

Managing Distribution Networks

A distribution channel can be defined as, “an organized network (system) of agencies and insti­tutions which, in combination, perform all the functions required to link produc­ers with end customers to accomplish the marketing task” (American Marketing Association, 2013).  The definition takes into account numerous contributors to the overall success of moving products into customers hands.

Distribution channels are an important component of a successful business and marketing campaigns. Where demand is created the product must eventually be delivered. Even online businesses are not immune to taking the order and then delivering the products to the purchaser. For small batch production the use of existing distribution channels may be best (i.e. Fed Ex or UPS) but when large quantities of products are sold a much larger systems may need to be developed (i.e. Wal-Mart’s Commercial Truck Fleet).

Each distribution system should be evaluated for its ability to provide timely delivery, affordable cost, and support. Cost in distribution is important for creating strong networks that move products in a way that raises customer satisfaction and ensures the sustainability of the business. Some companies can create competitive advantages through lowering their distribution costs and continually improving on their strategies.

One way to do this is through the use of technology. New technology can improve production, risk and stock control benefits (Christi Midori Oship Nemoto, et. al., 2012). Some companies may implement scanning, integration systems, shared distribution with similar products, or even purchasing the distribution network itself. The costs and benefits are balanced and weighed against the needs of the company.  

Most distribution networks have at least one warehouse hub and many different regional distributors. Vehicles are routed in a way that limits travel and inventory costs while still maintaining the needs of the company (Bolduc, et. al. 2006).  Depending on the size of the company the hubs could spread throughout a region, country, or internationally. 

When distribution networks become global the parent company may need to work with multiple vendors within different markets to achieve their goals. For example, beverage companies may use local bottlers to distribute the products throughout their local market. Understanding how each vendor works together and what the best strategy is requires considerable research.

Whether one is in India buying an American made product or in the U.S. buying a Chinese product, it is beneficial to understand how the distribution process works. As products make their way from one location to the next, business leaders will need to understand how this process can make or break a company. Shaving a few percentages off of the cost in a large network can result in millions if not billions of saved dollars. The distribution strategy is part of the larger corporate strategy and cannot be parted. 

American Marketing Association (2013). Retrieved October 3^rd, 2013 from http://www.marketingpower.com/_layouts/dictionary.aspx?dLetter=C#channel+of+distribution

Bolduc, M., et. al. (2006). Synchronized routing of seasonal products through a production/distribution network. Central European Journal of Operations Research, 14 (2). 

Christi Midori Oship Nemoto, M., et. al. (2012). Implementation of radio frequency identification technology in multinational companies: a Brazilian case study. International Journal of Management, 29 (4).