Full fat digital to go for Starbucks as it eyes up platform provider ambitions

Profile picture for user slauchlan By Stuart Lauchlan April 24, 2014
Summary:
Starbucks significant investment in digital, mobile and social technologies has now left it eyeing up the possibility of selling on its technology platform to third parties.

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Howard Schultz

Starbucks the digital platform provider? Coffee, tea and mobile marketing tech to go?

The global coffee giant has made many moves to diversify over the years, from palling up with Oprah Winfrey to push tea through to expanding its food offerings.

But its significant investment in digital, mobile and social technologies has now left it eyeing up the possibility of selling on its technology platform to third parties.

Starbucks CEO Howard Schultz revealed yesterday that the firm’s success in mobile and digital has caught the eye of some surprising suitors:

“We’ve been approached by tech companies and national retailers as to whether or not we would consider licensing or white-labelling the Starbucks’ mobile platform.

“I think you have to ask yourself, why are they asking us to do this? We have such a significant lead. There isn’t a company that we can identify that is processing anything close to a million transactions a week, and we’re now way over five million.

"Most of the national retailers did not invest ahead of the growth curve. They do not have the capability in-house at this point to really execute this and to fully understand it.

“Tech companies themselves obviously have the tech background and the insight that they do not have the interface on the physical side with the consumer to execute it. So we are in a very unique position having kind of chicken and egg problem of both, the digital technology and obviously the interface with the consumer.”

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Schultz points to Starbucks’ second quarter results - released Thursday - which he argues:

‘unequivocally demonstrates the investments we began making years ago to create the world’s premier portfolio of digital, social and mobile technology assets are paying off and in a very big way.”

Starbucks reported $427 million in profit, a 10% increase from the same period last year. Revenue was $3.87 billion in its fiscal second quarter, slightly below expectations of $3.96 billion, but global comparable sales increased by 6%.

Digital lead

Investment in digital and mobile remains a priority for Starbucks, Schultz says:

“We believe that accelerating global adoption of smartphones and mobile technologies in general will continue to transform and evolve the retail landscape in areas of payment, loyalty and consumer experiences in years to come and ways of just a year ago, we probably could not conceive of.

“Today, as the retail industry’s unquestioned leader in mobile payment and mobile loyalty, we are uniquely positioned to leverage our digital leadership and to both, develop and monetize new platforms, revenue streams and opportunities for growth.”

One of the key digital assets the firm has that integrated gift card, loyalty, social and mobile platform that’s caught the eye of third parties.

See also: Drinking Starbucks digital brew
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Schultz outlines some compelling success metrics:

“Today, the Starbucks Card program is available in 28 countries. Card transactions now account for over one-third of all transactions in the U.S. and Canada stores. Over 10 million Starbucks customers are actively using our mobile app, twice the number from only a year ago, and mobile payments now account for over 14% of tender in our company-operated stores in US and Canada, rising 75% from just a year ago.

“Over eight million active My Starbucks Rewards members are earning rewards in the form of stars with purchases, representing 25% of all transactions in our US company-operated stores. And our first of its kind cross-channel Stars Down the Aisle program has awarded more than five million stars to customers purchasing packaged coffee at US grocery stores since the program debuted last July, demonstrating the value and the early stage opportunity of what we are calling ‘stars as currency’.”

While the number of offers being sent out to My Starbucks Rewards members is increasing, the firm is conscious that because of its ability to deliver more and more targeted campaigns, each offer is going to smaller, more tightly segmented groups of people. The theory is that this becomes a vital tool to increase customer loyalty and frequency of engagement. Schultz says:

“Together, our best-in-class card, loyalty and mobile apps has enabled us to deepen our connection to our customers and create further separation from competitors. More than that, we believe that to be successful today, a pure play bricks and mortar consumer retailer must create a high degree of mobile, social and digital engagement, and develop a seamless relationship with customers.”

Tea time with Oprah

Meanwhile Starbucks continues to look for ways to move into new markets, backed up by its own digital platform, with Schultz declaring that despite the seeming presence of a Starbucks on every corner, he’s not satisfied that the firm is reaching enough people:

“Starbucks still accounts for very small share of total global coffee occasions and that we are significantly under-stored in many markets, including North America, China, Brazil and India, today our fastest growing international markets.”

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Two sugars please Oprah

Tea is the next big thing it seems for the coffee behemoth, following the opening of Teavana Tea Bars in New York and Seattle, with more to come in Chicago and Los Angeles. The firm’s also teamed up with Oprah to make a specially blended Teavana Oprah Chai available in Starbucks and Teavana stores across the US and Canada.

This Oprah affiliation is being backed up by a major advertising and marketing push, both offline and digital. Schultz explains:

“We are putting a whole power of Starbucks digital, mobile, social and rewards programs against all the assets we have against the Teavana brand, affording us the unique ability to target and connect with consumers, providing us with an unparalleled competitive advantage in the marketplace.”

It’s that kind of digital advantage that has caught the eye of third parties and opened up the potential for a new revenue stream as a technology provider.

But of course any such move would be a significant step away from the core food and beverage business that drives Starbucks and for that reason no decision has been taken yet. Schultz states:

“We don’t look at it as a risk, we look at it clearly as a very significant upside. The question we’re asking ourselves - and we’re asking it through a very positive lens - is we strongly believe that there is an opportunity in creating a monetization here that will be very complementary to the core business, and in a way it could add a flywheel effect of exposing more people to the Starbucks platform.

“We have not made the decision as to what we will do, but we are actively pursuing a number of conversations because we strongly believe that [there] is a tidal wave of consumer adoption and smartphones and mobile commerce, and we are in the sweet spot of being in a position to take advantage of that in a very unique fashion.”

Verdict

Starbucks has long drunk its own grande skinny soya latte when it comes to use of digital tech and as Schultz notes, its early starter status has paid off.

The firm itself still regards itself as only at the start of a long digital journey, but it’s clear the competitive advantage it’s gained over most of its rivals speaks for itself.