Starbucks and the grind ahead: Understanding the impact of COVID-19 on the culture of coffee.
In a recent article, called The Uncertain Future of Post Pandemic Starbucks, Steve LeVine outlines the challenges that the mega-brand will face in the days to come.
And while the chain has been noted as saying they are optimistic about the shift forced on the company by the Coronavirus, the brand is facing substantial challenges. Namely:
COVID-19 has led to the company’s first month-on-month drop in sales since the 2008/2009 financial crash.
In Starbucks’ 2020 Q3 earnings call, the brand announced third-quarter sales fell by 40%.
Starbucks is on the line for $1.25 billion in rent over the next year at its approximately 16,000 company-operated stores.
But despite this, many analysts believe that while it may take time (some say coffee will return to 2019 volumes in 2024) Starbucks will rebound.
But while coffee sales will certainly recover as we return to normal, a deeper question specific to Starbucks and premium coffee needs to be asked.
Will COVID-19 lead to a larger and more permanent shift in culture that will have a long-term impact on Starbucks’ ability to compete?
According to LeVine, there is.
“Now, the reality created by the pandemic has played further into the hands of Starbucks’ cheaper rivals. Coffee drinking habits seem to have changed. In Australia, people have snapped up grinders to brew upscale beans at home. In Canada, people are buying both fancy beans and instant coffee in higher quantities, according to a survey.”
But perhaps, more frightening is that the pandemic has driven fancy coffee drinkers underground. Or as LeVine puts it, “fancy coffee drinkers are in hibernation.”
In order to better understand the impact of the pandemic on Starbucks, we decided to leverage Motivbase.com, our AI Anthropology platform to perform an Ethnographic Analysis on the culture of Fancy Coffee to see what has changed since the emergence of COVID-19 and what this may mean for Starbucks.
The culture of Fancy Coffee in America
The MotivBase platform is designed to identify the most dominant “meanings” associated with fancy coffee, by studying the broader context of discussions around the topic (not just literally search for mentions of fancy coffee). This allows us to truly decode the implicit and explicit meanings that are important to the consumer today and tomorrow.
Note: the culture of fancy coffee refers to those consumers that aren't coffee connoisseurs. It instead refers to the mainstream Starbucks consumer. Which is the consumer that the company is going to continue to struggle with.
But, because it's technology-enabled and agile, we can also go back in time.
When we examine the culture of Fancy Coffee in MotivBase Trends, but look at pre-COVID data ,we can see that the culture is dominated by “quality” cues.
As we can see in this image, consumers are concerned about the “quality of the coffee” and the ability to distinguish “tasting notes” which makes it “real coffee”.
But they are also linking the experience to other more upscale components of the experience like access to foods that taste like they come from a “local bakery”, food that has been prepared by a “gourmet chef”, and that “coffee lovers” expect something that feels like an “independent restaurant”.
This is why Starbucks' strategy of being the perfect oasis between home and the office was so appealing. It served as a third-place that transcended the coffee alone.
But even back in November, we could see consumers questioning if they could replicate fancy coffee and brew their own at home. More on this to follow.
As of November this culture of Fancy Coffee was relevant to 87.5 Americans.
Back to the future
But something has drastically changed, when we look at the culture of fancy coffee today. Now, the culture is dominated by concerns related to price.
Consumers are associating concerns with their food budget, their grocery budget and the monthly cost of feeding themselves and their families with the exact same trend of Fancy Coffee.
The pampering and sophistication of enjoying a proper coffee with tasting notes has all but disappeared and been replaced with a desire of the consumer to make “their own damn food” and “brew their own coffee".
This has expanded the number of consumers who are engaging with the culture of fancy coffee from 87.5 million in November to 97.4 million in the present.
But this does not mean consumers are buying more fancy coffee.
It means that more consumers have begun to increasingly question the purpose of fancy coffee and what it means in culture. And as we can see in the dominant topics, it is being associated with adding stress and pressure to a person's ability to feed themselves and budget for meals.
This growing trend is a negative one for a brand like Starbucks that needs to be countered.
The rise of “Own Coffee” Culture
As cultural anthropologists, our job is to follow the breadcrumbs left behind by the consumer to determine where culture is headed.
In this instance, we clearly saw that making one’s “own coffee” was dominant, back in November, but the emergence of the pandemic has poured gas on the proverbial fire.
Because our platform is agile, it allows us to search any and all topics that consumers are naturally linking to trends that are important to our business.
So how important and expansive is “own coffee” culture?
Well for starters, this culture was only relevant to 82.6 million consumers pre-COVID.
Today, the culture is relevant to 108 million consumers.
And predicted to grow by another 13.9% in the next 12-24 months.
But more importantly, when we look at the meanings that consumers are linking with this idea of “own coffee”, we can see that this entire culture is driven by DIY consumers looking to recreate the Starbucks experience (or something better), in the comfort of their own home.
They are looking to find their own “espresso machines”, “Keurig” and “Nespresso machines”. They are exploring the importance of finding their “own beans” that suit their liking and that they can use to make “high quality coffee” at home. And they are looking to educate themselves on ways to achieve this with convenience (remember, this isn't the coffee connoisseur who wants to spend 7 minutes making the perfect cappuccino).
We can see that “local coffee shops” are being used to educate and engage with experts to learn what to try and how to improve their craft of making a great cup of coffee or latte at home. All in the context of achieving coffee shop like results comfortably and in a more affordable manner.
As LaVine pointed out in his article referenced above, Starbucks is historically more sensitive to economic slowdowns than most other fast-casual dining chains. Which makes sense. When fiscally challenged, coffee lovers don’t give up coffee. They simply trade down driving growth of brands like Dunkin’ and McDonalds.
This occurred during the 2008 economic crisis. But when the crisis was over, consumers returned to Starbucks in large numbers.
The challenge in this downturn, is that while consumers are trying to trade down on price, they are trying to hack ways to maintain the quality they have come to enjoy. This is opening up DIY and home solutions to a brand new group of consumers, and driving many consumers to discover a broader range of technologies, beans, and flavor profiles available to be experienced in the comfort of their homes.
Combine this with the potential long-term abandonment of the traditional workspace, and how Starbucks' heavy dependence on urban office customers may never return to the levels we saw in 2019, and the road ahead will be difficult.