Investing in technology rather than digital ads is the reason Starbucks dodged the seismic shift in consumer behavior that has knocked traditional retailers, claimed chief executive Howard Schultz.
The coffee seller’s boss made the claim to explain how the business has been able to defy the odds and turn digital payments into a key revenue source. Mobile payments now represent a whopping 20% of all in-store sales in the US, more than double the figure from just two years ago and the coffee house is processing nearly nine million transactions each week.
“Two years ago I reported on the seismic shift in consumer behaviour that would significantly impact traditional bricks and mortar retailers,” Schultz told analysts on a conference call yesterday evening (23 July).
“Since then, 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.”
And this different approach was for all to see in its latest quarter. Like-for-like sales rose 7% in the three months to July, spurred by a three per cent uplift in customer visits, which the business thanked its loyalty program. The number of active users of the digital scheme grew 28 per cent year-on-year n the US alone in the period to 10.4 million.
The program “continues to be our most important business drivers” as new members contribute not only short-term increases in revenue and profit, “but also to long-term loyalty for years to come”, said Schultz.
It’s not just digital channels the business hopes to extract revenues from. It’s also been linking up with other companies to grow its customer base, securing deals with the New York Times, Spotify and Lyft. The idea is to use the partnerships to leverage the usage of its loyalty scheme, turning Starbucks stores into the only places where people can access exclusive services; whether it’s music or reading free articles on smartphones.
“…and you’re going to see a lot more in the days ahead,” promised Schultz.
“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 [incremental growth], 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.”
Total sales in the quarter rose 18% from a year earlier to $4.9bn.