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Starbucks Takes Delivery Nationwide. Is This a Good Idea?

By Daniel B. Kline - Jul 25, 2019 at 7:30AM

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The coffee chain has expanded its partnership with Uber Eats, but is it sacrificing product quality for convenience?

When it comes to food, Americans clearly value convenience over everything else. That's the only way to explain the ongoing success of Domino's ( DPZ -0.61% ) -- a company built around making it really easy to get its mediocre pizza -- and the fact that McDonald's ( MCD 0.21% ) has made delivery a major part of its business.

Anyone who has eaten at McDonald's knows that its food, especially its signature fries, do not travel well. That has not stopped people from ordering, spending more on online orders, and paying for that convenience. Domino's, which is largely a delivery-based business, has grown same-store sales for 33 straight quarters in the U.S. despite the fact that better pizza isn't hard to come by (and fast-casual pizza has been a steadily growing category).

Now, with delivery becoming an increasingly important part of the food business in the United States, Starbucks ( SBUX -0.16% ) has decided to enter the fray. The chain has partnered with Uber ( UBER -5.96% ) Eats to take its delivery pilot (currently in six large U.S. cities) nationwide by early 2020.

A person accepts delivery of a Starbucks order.

Starbucks plans to offer delivery nationwide. Image source: Starbucks.

Is this the right move for Starbucks?

While food quality has never been a major part of McDonald's or Domino's business model, it has been a cornerstone of the Starbucks brand. The chain brought to the U.S. an Italian-style coffee house model built around espresso-based beverages.

This created a new standard in a country that had once had a coffee culture led by convenience stores. The Starbucks brand elevated coffee in the U.S. and changed basic expectations for consumers. Yes, the chain has also been a technological pioneer when it comes to its smartphone app, as well as its mobile ordering and payment capabilities. But that just added convenience; it did not change the coffee experience.

Delivery, you can argue, may affect the company's core beverage experience. Coffee does not generally travel all that well, and Starbucks and Uber Eats have at least tacitly acknowledged that creating a strong experience for consumers will require some work.

"Through the agreement, the companies will collaborate on innovation and technology integration. Starbucks and Uber Eats will continue to focus on delivery packaging, in-store operations, and a quick order-to-door delivery window," the coffee chain said in a press release. 

That's not exactly saying, "We know a 30-minute-old latte may not taste as good as the one you drink as soon as it's made," but it's at least a nod in that direction.

Is this a mistake?

Starbucks essentially has no choice. Coffee delivery -- and food delivery in general -- has become a basic consumer expectation. The rise of Uber Eats, Grubhub, Postmates, DoorDash, and countless local delivery services has made it possible to get pretty much whatever food or drink you want brought to your door.

If Starbucks chose not to offer delivery, Dunkin would likely take some of its business, as would local cafes and national chains like Panera. To compete in the U.S., restaurants have to offer delivery even if their product won't be at its peak when it arrives at consumer's homes or places of work.

That's a trade-off the dining public has already shown it's willing to make. People will forgive drinks that need to be microwaved or put up with delicate Cold Cream Cold Foam Cold Brews where the layer of milk has mixed into the drink rather than sitting on top likes it's supposed to.

A public that's willing to eat 30-minute-old Chicken McNuggets or a Domino's pizza is a forgiving one. That left Starbucks with no choice but to offer delivery and work to make sure that it can deliver the best product possible (even if that's not quite as good as what you get in its stores). 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Starbucks Corporation Stock Quote
Starbucks Corporation
SBUX
$111.24 (-0.16%) $0.18
McDonald's Corporation Stock Quote
McDonald's Corporation
MCD
$249.33 (0.21%) $0.53
Domino's Pizza, Inc. Stock Quote
Domino's Pizza, Inc.
DPZ
$521.77 (-0.61%) $-3.23
Uber Technologies, Inc. Stock Quote
Uber Technologies, Inc.
UBER
$35.85 (-5.96%) $-2.27

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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