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The scenes inside Starbucks’ new Heritage Market stores, which the company is rolling out around Seattle, strike a remarkable contrast.

Spread across three existing downtown locations, the stores give a glimpse of what Starbucks sees as its roots — and the touch-and-go mobile ordering the world’s largest coffeehouse chain is embracing. At stake is what the next generation of coffee shops could look like as the ubiquitous retailer is quietly doing nothing less than exploring a new grab-and-go, automation-friendly version of a now-familiar part of American culture.

Starbucks is emerging from the pandemic overstretched and looking to grow. As consumers largely pared down on dining out, the chain was buoyed by stronger-than-expected demand, with sales jumping 22% in 2021 and May numbers putting sales on track for similar growth in 2022.
But in a May 3 earnings call, CEO Howard Schultz described “dramatic” shifts in customer behavior that had put the company on its back foot, including steep increases in mobile and drive-through ordering. In response, along with a push to open as many as 500 new U.S. stores in 2022, up from just 113 the year before,Schultz said Starbucks would “reengineer” its retail property to maximize efficiency — a pivot for a brand that became synonymous with the “third space,” where customers were encouraged to linger.

“This will allow Starbucks to take advantage of the trend where diners are in-store less,” Darren Tristano, a food service consultant with three decades in the industry who has worked with Starbucks, McDonald’s and Burger King, said of the Heritage Market concept.

“The idea of a coffee shop as we understand it, as a place to linger, is evolving,” he said.
The move comes amid a big challenge for food chains in the form of consumer habits that changed in the pandemic — giving no guarantee that any investment in new stores will pay off — and labor struggles with a workforce that has become more demanding.

For Starbucks, the three stores in the Heritage Market concept are limited to the brand’s hometown and largely highlight narrower initiatives such as new training for baristas and outreach to the homeless. They also have characteristics that are distinct from each other.

While not explicitly designated, it’s hard not to see the Heritage Market at the company’s original Pioneer Square location as an homage to the company’s past, and the scene inside is familiar to anyone who has visited one of Starbucks’ thousands of green-and-white shops. A line of customers take turns passing their orders to baristas, names are jotted on cups, then called out amid the whoosh of steam wands, competing to rise over the friendly chatter of visitors waiting along the service counter.

couple having coffee

Look Ahead

If the Heritage Market at the company’s first store is a monument to its past, the market at 1201-1215 First Ave., one of its newest locations in the city, is a vision of its future.

It’s a smaller location than the one in Pioneer Square. Reminiscent of an art gallery, it has a Spartan concrete interior and few retail displays facing a customer space perhaps half the size of the historic Pike Place location. Compared to the homey interior of that store, which emphasizes customer interaction and witnessing employees at work, the newer location is clearly organized for getting drinks in people’s hands as fast as possible — and getting them back out the door.

Perhaps most striking, no espresso machine is visible from the doorway of the smaller store, a departure for a company that built a brand intertwined with the once-exotic contraptions spitting brew and frothing milk. Instead, a narrow counter greets visitors with an understated till and a tiered metal rack for waiting drinks, along with instructions for ordering through the Starbucks mobile app.

And instead of a seating area, the new store’s most prominent design element facing passers-by is a sign made of large block letters, encouraging the opposite of a leisurely sip: “Starbucks Pick Up.”
Of the Heritage Market stores, only the historic first location has opened to customers. The other two are slated to open in the coming weeks, according to the company. The layout of the newest store is clearly visible from the curbside, and its prominent incorporation into the campaign mirrors remarks by Schultz, casting in boldface how it sees remote ordering and touch-and-go service shaping its retail operations in coming years.

The company declined to comment about the Heritage Market effort beyond a company blog post.
Schultz, who took back the company reins in March on an interim basis after CEO Kevin Johnson retired, said in a May earnings call that the pandemic had upended customer behavior.
“Post-COVID, customers are not using our stores the same way,” he said, describing sharp upticks in grab-and-go and drive-thru purchases as well as a fivefold increase in mobile ordering over the past five years. All of that has “operationally challenged” the company, Schultz added.
In response, Schultz said on the call that the company would “reengineer” its stores.
And while he only addressed those changes in broad strokes on the call, what Schultz described were shifts focused on increasing employee efficiency and speed of service, embracing mobile ordering and generally maximizing the number of customers per hour a store could serve.

Mobile Target

The change puts the company in line with broader shifts across the retail and dining sectors, according to Brandon Svec, CoStar’s national director of retail analytics.

“They’re hitting a couple of key trends in modern retail,” Svec said. “First and foremost is the uptick in mobile, second they’re doing more with less from a square footage perspective and third they’re blending technology with human workers at a time when workers are increasingly hard to retain. This allows them to meet or exceed current efficiency numbers with fewer human bodies.”

It also potentially plays into more pointed labor struggles Starbucks is facing: An ongoing union drive recently notched its first wins in stores in New York State and Arizona, and workers in at least one of the new Heritage Market stores had likewise been working toward a union vote when the rollout of the campaign disrupted those efforts. The company on July 12 also said it would close 16 stores out of safety concerns in Seattle, Los Angeles, Philadelphia, Washington, D.C., as well as Portland, Oregon.
Svec, noting similar mobile and fast-pickup concepts being launched by Target, Chipotle and Macy’s, said the changes aren’t likely to cause immediate shifts in Starbucks’ overall leasing footprint. 

But it will probably see the company — which in a recent earnings call said it intends to open about 500 new stores in the United States in 2022 — seeking a different kind of space than it traditionally has.
“The main implications for real estate are on selection and overall square footage,” Svec said, noting that the average size of Starbucks stores could shrink.

Landlords with the types of property conducive to the reshaped Starbucks may actually benefit from the shift.
“It’s going to limit what supply is available, and it will absolutely put a new premium on drive-through access [and] it’s going to drive continued demand for pad sites and end caps.” Svec said. “We’re already seeing that play out. Starbucks isn’t the only one trying to do this.”

Where that leaves Starbucks’ existing dine-in stores is an open question.
The company has described its stores as pioneering the concept of the “third place,” along with home and work, where consumers are encouraged to make themselves comfortable — and spend more along the way.

But in his May remarks, Schultz said the company plans for 90% of its new U.S. stores to be drive-thrus. That’s not a firm indication they won’t also have space to dine in, but it’s a sign of the emphasis the company is placing on those customers who want to pick up and move on.
Those new stores will be the first to get technology focused on increasing throughput and adapting to mobile ordering, but Schultz said that will be followed by integrating that technology into existing locations, too.

Tristano said that while he would anticipate the mobile-focused stores becoming more widespread, he thinks there will always be a place for the company’s larger cafes.
“The smaller platforms work very well, but in the larger scheme of things you have to think about the larger stores,” he said. “In some markets there’s still going to be a need for the ability to sit down and sit in the Wi-Fi and work.”

Michael Salafia

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