Not just free wi-fi
I can't think of many companies let alone a retailer that includes their Chief Digital Officer in on conference calls but SBUX does. For a retail company SBUX seems more focused on the digital opportunity than some other tech companies so much so that the CEO Howard Schultz is stepping back from operations to focus on mobile and all things digital full time. Mobile and loyalty card payments represent over 30% of US revenues. On a recent conference call they also hinted that mobile ordering was in the works.
Mobile payments star
In his words SBUX processes almost 5 million mobile transactions with no other retailer processing even 1 million payments a week this "has garnered the attention of leading tech companies all of whom are chasing with great fervor, who is going to be able to create the standard de facto of mobile payments. So what I will say is that I think that there are things that we can take advantage of and then we can leverage that are outside of the ecosystems of Starbucks. And this new organizational change will free me up to really create and innovate around, not only mobile payment, but the things that we are doing with new channels of distribution in which we can cross promote and cross reward our customers with Stars as currency."
Just like school its all about the gold stars
Each time you order a grande you can earn a digital star. Why is this important? If you can make it to a certain level you will be eligible for freebies such as free drinks, food and refills which is driving loyalty and mobile usage. The top status is the gold card, in the US almost half of the 7.3 million active SBUX reward members have made it to gold status. Collect 30 stars within 12 months and you'll be at the Gold level with a shiny gold card. You get to keep those benefits for another 12 months by earning another 30 stars from then on you will receive free food or drink rewards with every 12 stars. This indicates to SBUX that their star currency can go further in the future. SBUX was also an early investor in Square. Stars or bitcoin which do you prefer!
SBUX is even a great place to play pranks.
SBUX is benefiting from card sales with $1.4 billion loaded up on SBUX cards leading up to Christmas. The app and electronic card also help in marketing. SBUX has always been a savvy marketer this continues in the digital world as the app includes an inbox which allows SBUX to send personalized messages and promotions to its customers when they are nearby.
Like many consumer brands China is a big goal for SBUX, they have plans to open up more stores in China this year than in America. China is interesting because they are smartphone savy. Two years ago SBUX launched their rewards program in China and in a short period of time have reached nearly 4 million members. The US has 7.3 million in a market which has nearly 13,000 stores versus China which has slightly over 1,000 stores suggesting a higher loyalty rate than in America and with plenty more room to grow.
Anything else? Tea, food and juices
While all this is happening SBUX has made acquisitions in three areas that are lacking tea, foods and juices. The beauty about mobile is that it speeds up transactions no fiddling around with change. This frees SBUX to offer other services like food. Good food also has the virtuous effect of driving beverage sales. Food has historically only been around 20% of revenues with 30% attach rates but historically the experience has not been great. The acquisition of La Boulange changes this with an elevated bakery offering that is legendary in San Francisco that will roll out all across America this year. The better quality foods gives customers more excuses to visit and helps SBUX to leverage fixed store costs (see store visits chart above). SBUX also plans to fully roll out Teavana its tea offering and Evolution Fresh its juice offering to help capture the trend to healthy eating. Bon Appetit!
Jason
Disclosure: Decisive has a long position in Starbucks (SBUX) stock
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