Burgess COMMENTARY

Peter Burgess

Starbucks: A Technology Company That Sells Coffee

Is there anything Starbucks can’t do? Its COO, Kevin Johnson, tells Jim Cramer how they are firing on all cylinders following their strongest quarter ever in history, and how technology has become as important as selling coffee. By Adam Jones

Starbucks Drove More Traffic to Its Stores in 3Q15

Why traffic increased in 3Q15

Starbucks has a strong loyalty program known as My Starbucks Rewards, or MSR, with 10.4 million active members.

Membership increased 28% year-over-year in 3Q15.

This program is built into Starbucks’s existing technology ecosystem, which is scalable.

As the company expands its breadth of services and innovates ways to reward its loyal customers as well as acquire new customers, leveraging this ecosystem has helped Starbucks lower its cost of acquisition per customer, according to the company.

“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, and deploying new technology - investing in our partners and delivering an elevated Starbucks Experience to our customers,” said Scott Maw, Starbucks executive vice president and chief financial officer.

Starbucks' Active MSR Members

So What Are These Innovations?

Mobile Order & Pay

In our previous series titled Why Investors Have a Lot Riding on 3Q15 Earnings, we explained, “Mobile Order & Pay is the big story of 2015 in the United States. The service has already been introduced in 600 stores, allowing a customer to place an order in advance and pay for it using their mobile phone. The order can then be picked up from the store later.” So what are the recent developments on this front?

Starbucks has now expanded its Mobile Order & Pay to 3,400 company-operated stores in the United States. It plans to roll it out in all stores in the United States by December.

The following were the key points that Starbucks management stated about Mobile Order & Pay during the call:

Faster service and efficient in-store operations

Shorter lines and reduction in line attrition, meaning fewer people would leave the line without ordering

Improved overall throughput

Leveraging Stars as Currency

Starbucks’s MSR members can use the “stars” they collect for their Starbucks purchases. The company can use stars as a currency and create additional revenue streams.

Starbucks’s announced its first partnership this year with Spotify, which rewards its customers with Starbucks stars.

In the third fiscal quarter, Starbucks tied in with the New York Times and Lyft with similar programs.

All these initiatives should continue to generate incremental traffic for Starbucks going forward.

Source: Market Realist “Starbucks Continues to Deliver Impressive Results in 3Q15”