What's Starbucks' real business?

Exactly a year ago, I made some predictions about the future. It is probably too early to call them right or wrong, or maybe it is too late. That is the problem with predicting the future: Eventually, you get there, and it always disappoints.

Today, I received an email, the third this fortnight, from Starbucks telling me that they miss me, and I could order a takeaway of my favourite coffee sitting right in my home. I deleted it without thought. Why would I want to order from Starbucks? It's not that they make exquisite coffee, or are very economical (remember, I speak of their Indian pricing), or put some secret ingredient in their java that makes me miss it. What made them think I'd like to order a flat white (my go-to coffee) from the comfort of my armchair?

I think I know the answer: I am a HUGE Starbucks customer. I have their Gold card. I have their app. I know every Starbucks around Pune. And I know almost every Barista by name. I spent upwards of Rs.100,000 (India's Per Capita in 2019-20 was Rs.135,050) at Starbucks in the last 2 years. If one takes this as 250 working days/year x 2 years, that comes to Rs.200 per working day on average. That is a LOT of coffee.

But I don't remember the coffee. No, I really don't. So, what gives? And suddenly, it dawned on me. I do not go to Starbucks for the coffee at all. I go for the airconditioned, well-maintained, upmarket workplace with free WiFi that it offers, and I buy a coffee as a courtesy that my middle-class background forces me to acknowledge, without which I would not be able to look myself in the mirror without feeling guilty of being a freeloader. And given that Starbucks has all this data on me, it makes sense for them to presume that I love their coffee, and target me with some tempting (to them, not me) advertising to order it from my home.

No wonder that Starbucks reported a net income amounting to US$0.92 billion during the 2020 financial year. This reflects a decrease of US$2.68 billion from the previous year. They are in the wrong business.

No, let me correct that: Starbucks thinks it is in the business of selling more and more coffee and its competitors are Costa, McDonald's McCafe, Dunkin Donuts, Café Coffee Day, Barista, Coffee Bean & Tea Leaves, and so on. In reality, it is in the business of affordable office space and co-working spaces, with its main competitors being WeWork, Regus, Impact Hub, and dozens of other such companies providing Office-On-Demand. So, while they are in a trough right now due to the pandemic, the future is bright. In fact, the estimated growth for the global coffee market (6.2% by 2026) seems to pale in comparison for the estimated growth in supply of coworking spaces of 21% by 2021 (this estimate will need revising and be expected in 2022 perhaps since most of this year is washed out, but it does provide a study in contrasts).

Now, to be completely honest, I believe that there are people way smarter than I at Starbucks who can read the tea leaves (sorry, bad play on words, but couldn't resist) better than I can ever hope to, and that they'd have caught on to this much before the thought even began to commence to start to enter my mind, and if I had the money, I'd buy Starbucks (SBUX) stock like crazy. But given that all I can do is speculate about the future from where I sit, let me say what else I can see coming: A huge surge (in traffic, business, and venture money) in those that get the Airbnb model for office spaces right. There are already many players, but I can see one thing: None of them have the model right. Airbnb started as, and in most cases has remained, a model where anyone with a spare bed (or a spare room or a spare apartment) could rent it out online and make money of unutilised or underutilised personal assets. The Airbnb-for-Offices will need to make it work like that, not as it currently is structured (where I cannot just take a spare room in say, my 2BHK flat in Kondhwa, and convert it into an office space with, say 4-seats, list it on an aggregator site, and make money off it).

This could be tied to community-based KYC checks (where someone who is a mutual connection vouches for the parties), along with e-KYC married to a vaccine passport of sorts, and made safer for both, the landlords and the lessees. Anyway, it is matter of time before this happens, and I cannot say I predicted it because reams and reams have been written about it (just Google 'Airbnb for offices'), and in all probability, there are already several startups making this happen out of my sight, and one of them is about to spring out from obscurity and get a billion dollars in funding or some such big bang. I don't know. It is just that this space is ripe for a (or maybe even several) unicorn(s) now. And for all I know, it could be an Indian company.

Back to the point of Starbucks' main business. I think this pandemic, and the subsequent lockdowns, have proven that very few love Starbucks for its coffee while most prefer them for the space they provide. There is no doubt that Starbucks is working on that model. The US$132 billion questions are, how serious are they about this pivot? Because this move may not just change Starbucks, it will change the coworking market, maybe even the entire concept of 'work' in the 21st century.

What do you think?