Starbucks Corporation (NASDAQ:SBUX) took a major step toward a service that may be the holy grail for many of its fans -- delivery. Hot on the heels of its national Mobile Order & Pay rollout, the java juggernaut is launching a pilot program called Green Apron Delivery in New York's Empire State Building.
Currently, delivery will be available only to those in offices inside the building, which houses more than 12,000 workers.
While coffee connoiseurs have been waiting for this day to come, a delivery service presents a unique set of challenges for Starbucks. The recently opened Starbucks inside the lobby of the Empire State Building Starbucks was specially designed to enable delivery, and does not even accept walk-in orders, though another location in the lobby does. Unlike most Starbucks, whose kitchens are set up to be customer-facing, this one is designed with the kitchen in the middle to facilitate orders moving out quickly. The company also had to add new positions, such as an order manager, a consolidator, and runners, and even designed specially made delivery bags that keep drinks secure and warm.
The service won't come free of charge. Starbucks charges a flat surcharge of $2 per delivery, with a maximum of 15 items, and promises to bring you your order in 30 minutes.
If successful, Green Apron Delivery could unlock a significant revenue stream for the company, but the fact that the company had to design a whole separate store only to accommodate delivery underscores the distinct challenges delivery presents. Here are a few more reasons why it may be tough for Starbucks to pull it off.
30 minutes is a long time to wait
The Empire State Building already has two additional Starbucks where office workers can go to get a jolt of caffeine. Busy professionals or those willing to wait may opt for the delivery service, but for many 30 minutes will be too long of a window, especially for delivery within the building. If Starbucks is putting a 30-minute time window on deliveries that are only an elevator ride away, the service may simply be too time-consuming for a less dense environment.
Coffee is not well suited to delivery
The most common delivery model in the food business is pizza, a product that is easily deliverable and tends to generate a high enough average transaction that makes delivery worthwhile for the business. Coffee is just the opposite. Drinks need to be served at temperature, hot or cold, and 5 to 10 minutes can mean the difference between a tasty beverage and a mediocre one. Items like whipped cream, which quickly dissipate, add their own challenges, and the potential for spills means extra care is required for handling, even with the specially designed carrying bags.
Is it scalable?
The big question for Green Apron is its scalability. With the pilot launch taking place in the Empire State Building, Starbucks is testing the service in one of the largest office buildings in the world. With 12,000 potential customers only an elevator ride away, the art deco monument is likely not a good sample for Green Apron's viability in a less densely packed environment.
Navigating city streets by foot or by vehicle would present an additional set of hurdles for the coffee chain. Still, if the program is only implemented in other high-density office buildings, that would be a win for both Starbucks' bottom line and its customers.
On-demand delivery has long been fraught with pitfalls. During the Internet boom, a number of enterprises like Webvan, Kozmo, and Urban Fetch all rose to meet consumers' immediate desires as soon as they hit. In this era of mobile on-demand apps like Uber, delivery and instant gratification have come back into vogue, and a number of other restaurants are experimenting with delivery through apps like Postmates.
What is clear about the Empire State Building delivery rollout is Starbucks is being delicate with the new program, with just one test point. Though the company's ambitions may be large, it seems like Green Apron's reach will be relatively small for now. Expect some color on the subject when Starbucks reports earnings later this month.
Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
More from The Motley Fool
Starbucks Earnings: 3 Things to Watch
What to look for in the coffee titan's earnings report next week.
Starbucks Corporation Lowered Its Expectations. Will It Meet Them?
Last quarter, Starbucks backed off on its goals for revenue and profit growth. Here's what to expect when it reports its results next week.
Starbucks Earnings: What to Watch
Starbucks investors will look at profits, comparable-store sales growth, and China.