Location analytics tools collect data from smart phones, sensors and other devices to help businesses arrive at insights based on correlated information including geographical data. The method helps companies answer questions such as: Where are our customers? Where is our shipment? Where does our next opportunity lie?
American coffee company Starbucks Corp. has recently overhauled its location analytics strategy in order to avoid risks associated with rapid expansion.
Prior to this, Starbucks had access to massive amounts of data but no way to easily analyze it and the opening of new stores appear to had little strategy behind them, according to an article by freelance writer Malcolm Wheatley.
With the introduction of a new data-driven location analytics strategy, growth continues but at a more disciplined pace. By the end of the this year, Starbucks says it will have 4,000 stores in Asia and China with over 1,000 Starbucks outlets will be the companies second largest market outside the United States.
As the company’s operating income continues to chart an amazing 32 per cent compounded annual growth, Howard Schultz, chief executive officer, said the Starbucks is will have more than 20,000 retail store in six continents by 2014.
He also said that the challenge for Starbucks is not so much finding new markets in Asia but rather continuing to bring in growth in already saturated markets in the U.S.
The strategy comes with risks such as cannibalization of sales through existing stores, potential brand fatigue. Another possibility is another round of retrenchment similar to the one in 2007 and 2008, when Schultz had to come back from retirement to close hundreds of stores.
Majority of the stores that were shuttered opened in the previous 18 months, according to Craig Garthwaite, assistant professor of management and strategy at Northwestern University’s Kellogg School of Management. He said it was a period when it seemed Starbucks was “opening stores just for the sake of opening them…”
The growth of Starbucks “was undisciplined” during that period, said Schultz. He said it will be different this time because the company is now using a more disciplined approach to data-driven location analytics.
The stores that opened in 2011 and 2012, he said, produced a sales-to-investment ratio of 2:1 (the best in Starbucks’ history). For example, the new stores are delivering sales of $1.05 million, versus a target of $900,000 and costing an average of $494,000 to build.
Starbucks has since embarked on a different approach. Instead of delivering a flood of data, the GIS (geographic information system) team provides analytics and business support to Starbuck’s real estate section. The company uses data-rich applications that employees can easily access from their desktops, the Internet and mobile devices.
The emphasis is on GIS tools that provide functionality, speed and convenience and creating consumer applications that can be easily replicated.