The Nasdaq-100: How innovation is powering your cup of coffee

Technology has disrupted just about everything, including the fuel that drives much of the world’s productivity. We speak of course of coffee, the centuries-old beverage that we enjoy in our homes, workplaces and restaurants. The stories below demonstrate how innovation is driving how three companies have changed the way they produce, market and distribute this iconic beverage.

More broadly, these examples illustrate how even non-tech companies in the Nasdaq-100® Index, which Invesco QQQ tracks, are leveraging cutting-edge technology such as e-commerce initiatives, data science and artificial intelligence (AI) to help drive growth.

Promoting personalization, loyalty and product innovations

Starbucks operates as a roaster, marketer and retailer of specialty coffee worldwide. The company has made substantial investments in digital capabilities, with the goal of deepening its digital connection to customers with a personalized experience and customized offers. At the corporate level, these initiatives provide valuable customer insights to further define and improve the customer experience. Here are several ways that Starbucks is leveraging technology to drive its business:

• A dedication to personalization and efficiency — Starbucks’ company-wide reinvention plan is grounded in technology to make the customer experience more personalized and effortless, while improving the efficiency of baristas.¹ These efforts involve activities such as:
  • Dedicated pickup lines for mobile orders
  • A more personalized drive-thru experience, one that recognizes Starbucks Rewards customers and offers recommendations based on their order histories
  • Improved timing algorithms to create more accurate wait times on mobile orders
  • Payment options that don’t require a credit card or Starbucks app²
• Employing cutting-edge technology to drive loyalty — Starbucks is one of the first companies to integrate non-fungible tokens (NFTs) with an industry-leading loyalty program. At the end of 2022, Starbucks began beta testing an extension of its loyalty program, which is built on blockchain technology (the code that powers cryptocurrencies).³ The program will allow members to earn coffee-themed non-fungible tokens (NFTs) — unique digital assets built using blockchain technology — that translate to real-world experiences.

• Crafting product breakthroughs — To address the growing customer preferences for cold brew coffees and customizations, Starbucks’ research and development (R&D) team has introduced Cold Pressed Technology, a patented method of extracting coffee with low-pressure immersion, without even heating water.⁴ As a result, formerly labor-intensive cold brew — which can take up to 20 hours to produce — is now available on demand in just a matter of seconds.

Creating a smarter and more sustainable cup of joe 

Keurig Dr Pepper Inc. is a manufacturer and distributor of non-alcoholic beverages, with a product portfolio spanning coffee, carbonated soft drinks, ready-to-drink tea, water, juices, juice drinks and mixers, among others. Keurig is probably best known for its single-serve coffee brewing system; what’s less apparent is the embedded software, connectivity and data science that drives its operation.

• Smart appliance applications — Keurig’s connected technology solution is based on a cloud-computing platform.⁵ The company’s smart brewers allow users to start their machine from a mobile app, Google Home or Alexa. Through Keurig’s BrewID™ technology, customers can activate and customize their coffee brews for a broad range of K-Cup® pods, based on optimal brew settings recommended by the roaster. These smart appliances not only enhance the customer experience, but they also benefit the company on several dimensions — by creating a continuous improvement loop for brew settings and brewers, enhancing customer support and accelerating decision-making on product development.
• Personalized inventory management and recommendations — Keurig’s SMART Auto-Delivery uses BrewID to track pod use and automatically reorder inventory so consumers have the right amount of pods on hand. Customers can also use the Keurig app for suggestions on new coffee varieties to try, as well as tap into a recipe library of coffeehouse drinks with step-by-step preparation instructions.⁶ 
• A dedication to green initiatives — Sustainability is a key corporate focus for the company. Keurig Dr Pepper was an early partner with a pioneering company that uses AI and robotics to recover commodities reclaimed as raw materials for the global supply chain.⁷ Keurig Dr Pepper’s conversion of its coffee pods to polypropylene, a sought-after plastic for recycled materials, allowed the companies to work together to equip the robotics systems to properly identify and sort K-Cup pods in recycling facilities.

Building a collaboration fueled by innovation

PepsiCo is the largest food and beverage company in North America and one of the 10 largest companies in the Nasdaq-100. PepsiCo and Starbucks have partnered to combine Starbucks’ rich coffee quality and sourcing with PepsiCo’s expertise in producing and marketing beverages for retail shoppers around the world.

Central to PepsiCo’s manufacturing, marketing, operational, distribution and service expertise is a company-wide reliance on technologies engaged in AI, data analytics and cloud computing. In a recent article, we highlighted how PepsiCo is including data analytics, investments in cutting-edge startups and 3D printing to help drive growth and reduce costs. The company’s innovation efforts extend to its ongoing relationship with Starbucks. 

• A partnership of innovators — Through a joint venture with Starbucks, PepsiCo produces and provides marketing, sales, supply chain management and operations for Starbucks ready-to-drink products, including bottled Frappuccino, Doubleshot Espresso, Doubleshot Energy and Starbucks Refreshers drinks. Starbucks and PepsiCo conduct these operations through a separate company, the North American Coffee Partnership (NACP), which leverages the innovation resources of both companies. 
• A commitment to new product development – The NACP has worked to create new ready-to-drink beverages that include a juice-based energy drink that extracts caffeine from coffee beans, plant-based drinks such as Frappuccino flavored with oat milk, and new products like Cold & Crafted On Tap boxed beverages that can be dispensed using a draft dispensing system.⁸

Key Takeaways

The innovations discussed above underline the broad reach of technology across industries not usually associated with technological innovation — in this case, companies engaged in producing and distributing coffee. Their experience also highlights some broad lessons on the critical role of technology across the entire consumer and retail realm: 

1. Hybrid models that combine the operations of bricks-and-mortar retailers with the virtual experience can deliver an enhanced customer experience, while building long-term relationships with those customers. Data applications can also gather valuable information on customer behavior and preferences — and use that data to build personalized products and services
2. Integrated and automated supply chain management took on a new level of importance during the global pandemic. Today, these applications allow companies to operate more efficiently, shorten supply lines, enhance inventory management, reduce costs and mitigate the impact of labor shortages.
3. Flexible payment options across all supply channels are increasingly important to consumers looking for convenience and efficiency in how they order and pay for goods and services. To address these trends, companies are delivering customized payment options fueled by artificial intelligence and data analytics.

Going forward, technology will continue to influence how companies innovate and operate across all industries. Invesco QQQ provides exposure to 100 innovative companies across multiple sectors — all in one investment.