Starbucks Links Coffee Makers to Web Fueling $27B Market

Starbucks Corp. (SBUX), famous for giving away Wi-Fi that links customers to the Internet, now wants to apply Web technology to its own operations by networking coffee makers, refrigerators and other appliances.

Over the next year, Starbucks said it plans to double the number of its Clover coffee-brewing machines, which connect to the cloud and track customer preferences, allow recipes to be digitally updated and help staffers remotely monitor a coffee maker’s performance. Also in the works: connected fridges that indicate when a carton of milk has spoiled.

“We are investing in different technologies to make it easier for our baristas,” Marianne Marck, a senior vice president for the Seattle-based company, said in an interview.

Coffee shops, fast food joints and retailers are linking more of their operations to the Internet, aggregating information to help them better serve customers while also controlling everything from a store’s temperature to the locks on its doors. The market for Web-connected devices, other than smartphones and computers, will triple to $27 billion by 2016, according to Cisco Systems Inc. (CSCO), which is heavily investing in the so-called Internet of Things.

Consumers have been onto this trend for years, snapping up Web-connected picture frames, thermostats and security systems in addition to televisions and stereos. Technology companies including Microsoft Corp. (MSFT), Intel Corp. and International Business Machines Corp. have been promoting the vision of the connected home since the late 1990s.

Early Users

Among the few industries to make the leap to date have been utilities, manufacturing companies and security providers, which have built entire operations around increased automation. In addition to the costs associated with installing and testing all new systems, the use of Web-connected machines requires job training and forces employees to change their working habits.

The rollout of smart meters used by utilities has faced some consumer complaints about compromised privacy and risks associated with electro-magnetic fields emitted by the wireless technology.

Starbucks is among those leading the charge for mass adoption, and the plunge in costs to run servers in the cloud is opening up the opportunity for businesses of all sizes. Additionally, the price of chips for connected devices has dropped by more than 80 percent in the past five years to 50 cents, according to Susan Eustis, president of WinterGreen Research Inc., which tracks connected devices.

Cisco, the world’s largest maker of switches and routers, is preparing for the boom. Four months ago, the San Jose, California-based company formed a new Internet of Things Group, comprised of 450 engineers, said Guido Jouret, a vice president.

Technology Spreading

The group’s projects include the development of software for wristwatch computers that soldiers can use to communicate, exchange video and track each other’s location on a battlefield. Cisco is also working on a number of connected cities, including Lake Nona, Florida, to centrally link medical facilities, the education system and retailers.

“We realized this is much bigger than just utilities and manufacturing,” Jouret said in an interview. “This is a broad revolution.”

Intel, the biggest maker of semiconductors, is supplying chips for coffee-vending machines in Europe in areas where there’s not enough space for full shops. The machines, used by Costa Coffee, have touch screens, offer cashless payment and collect data on customers.

Wiring Restaurants

The Red Fish Grill in New Orleans, a restaurant featuring menu items like alligator sausage and seafood gumbo, is using an oil-management system for its deep fryers. Since installing the technology earlier this year, the restaurant has cut its cooking oil consumption by 50 percent, for a savings of $15,000 a year, said Haley Bitterman, the corporate executive chef.

The system, which alerts Bitterman if too much oil is being used or it’s not filtering correctly, is provided by Restaurant Technologies Inc. and costs $35 a month. The Ralph Brennan Restaurant Group Inc., owner of the Red Fish Grill, is using the technology in another restaurant and working to install it in two more, Bitterman said.

“Your margin in a restaurant is slim,” Bitterman said. “The price of food never goes down and the price of labor never goes down. Everybody’s trying to figure out how to help save some money.”

The new technology is still in the early days of implementation, because even with the drop in costs, installation expenses can be prohibitive for low-margin businesses.

Restaurants are just starting to connect new gadgets to the Web and will increasingly see connectivity as a competitive advantage, said Hudson Riehle, senior vice president of research at the National Restaurant Association.

$11,000 Machines

“Technology is one more tool they can use to increase customer satisfaction and quality of service,” Riehle said.

Jason Cocco, a vice president at Restaurant Technologies, said his company has more than 900 clients, including Burger King Worldwide Inc.

At Starbucks, the cloud technology called CloverNet can reduce maintenance costs and support sales of specialty roasts brewed on the Clover machines.

Since 2008, Starbucks has installed about 500 of the $11,000 Web-based brewers and plans to double that number in the next year, said Randy Hulett, director of the Starbucks Hardware Design Studio. Hulett’s 10-person team also has plans to start linking other in-store equipment to CloverNet.

Remote Control

Networked equipment is gaining popularity at big-box stores and small businesses. In November, Staples Inc. (SPLS) will start selling a system from Zonoff Inc. that lets business owners turn off lights and lock doors via a mobile application. Apigy Inc. sells the Lockitron to property owners renting out their homes and buildings, allowing doors to be locked and unlocked with a smartphone.

Intel introduced new chips and software earlier this month for Daikin Industries Ltd., which will use the technology to enable remote monitoring of heating and ventilation systems.

The connected-devices market is expanding every day, said Peter Gerstberger, senior merchant for new business development at Framingham, Massachusetts-based Staples.

“Our goal is to move this product from early adopters to the mainstream,” he said.

To contact the reporter on this story: Olga Kharif in Portland at okharif@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

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