News Feature | July 29, 2015

Starbucks Success Thanks To Digital Growth

By Brianna Ahearn, contributing writer

Starbucks Digital Growth

For Starbucks, digital is paying off. On July 23, the retailer reported their Q3 results and 39-week fiscal year to date. Starbucks' year over year increased nearly 18 million in the United States, and the Q3 is one of the “strongest and most remarkable quarters in over 23 years,” according to Howard Schultz, Starbucks Chairman and CEO.  Schultz credits their success to expanding beyond digital advertising, and instead having a focus on digital technologies, such as Mobile Order & Pay, as the shift of brick and mortar to digital continues.

“The coming change was apparent. Many traditional retailers and consumer brands have responded simply by substantially increasing their digital advertising budgets, significantly driving up their cost of customer acquisition and producing little to show for it. We on the other hand, took a very different approach.

By further enhancing our already world-class digital technologies through the introduction of capabilities like Mobile Order & Pay and soon to be delivery and expanding our loyalty program, we are driving traffic as reflected in the 4% growth in traffic in Q3. Bringing in new customers and deepening our connection to our existing customers, elevating the Starbucks brand and our customer experience and streamlining our in-store operations,” says Schultz.

“Starbucks' very strong year over year financial performance in Q3 demonstrates our commitment to delivering best in class financial and operating results while at the same time investing in our future growth - building new stores, renovating existing stores, deploying new technology - investing in our partners and delivering an elevated Experience to our customers,” says Scott Maw, CFO. “We believe that by getting this balance right, we will be able to continue delivering exceptional growth, profitability and increased returns to our shareholders.”

One focus for the retailer has been on using consumers' mobile devices to improve the ordering experience. Starbucks first ran a trial of their Mobile Order & Pay service in Portland, Oregon last December, and expanded it throughout the Pacific Northwest in March, and in June, expanded it to 4,000 US stores. Mobile Order & Pay lets Starbucks customers order and pay for their purchase on a mobile app, then skip the line when they reach the store. The retailer says they're fully expecting to rollout the feature to all of their U.S. stores by the  2015 holiday season. As other retailers struggle to come onboard with mobile payment options, Starbucks has shown they know mobile is the future, and reports now 20 percent of its transactions are made via mobile.

Starbucks' loyalty program, My Starbucks Rewards (MSR), saw a significant jump in the member numbers, and now has 10.4 million active MSR members, which is up 32 percent from last year's Q3 data. The company is looking at ways to strengthen the program and recently announced three new partnerships designed to enhance the experience, and “build a robust ecosystem.” In May 2015, Starbucks partnered with streaming music service Spotify to link 7,000 stores and MSR members to the Spotify service. The relationship lets MSR members have unique access to Starbucks music on Spotify, influence in-store playlists, and earn Stars as currency when they subscribe to Spotify Premium.

This month Starbucks announced that certain articles from The New York Times would appear free to MSR remembers through the Starbucks mobile app starting early next year. The app will share daily and weekly briefings from the publication, plus recommend other articles to members. Starbucks also teamed up with Lyft, the popular driving app, to reward all Lyft drivers with MSR gold level. The deal also lets drivers and riders earn MSR Stars that they may redeem for food and beverages at participation Starbucks locations. All three deals expand the program beyond simple food and beverage purchases in a MSR member's local Starbucks cafe.

A Seeking Alpha transcript of the earnings conference call shows Starbucks sees MSR as one of its biggest sales drivers, as Schultz says:

“What each of these partnerships affords is the opportunity for consumers to earn Starbucks Stars outside of Starbucks stores and then to redeem them for their favorite food and beverages within Starbucks stores, providing a unique opportunity for incrementality, increased profitability and the opportunity for us to serve, connect with and become part of the daily ritual of an even more larger based number of consumers, and adding further momentum to Starbucks unique increasingly global flywheel.”

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