Happy digital holidays from Starbucks!

Profile picture for user slauchlan By Stuart Lauchlan January 27, 2014
Summary:
"Starbucks unique combination of physical and digital assets makes us one of the very few consumer brands with a national and global footprint to be in a position to build market share and benefit from the seismic retail and consumer shifts underway," argues CEO Howard Schultz.

howard schultz
Howard Schultz

In the past few weeks we’ve heard from a variety of retailers in the US and in Europe explaining away a downturn in business over the Christmas period using a variety of excuses ranging from a shorter US holiday shopping season to the US government shutdown.

Such excuses don’t wash with Howard Schultz, CEO of coffee giant Starbucks, who argues that the bricks and mortar retailers that are coming out with them are doing so to avoid facing up to an uncomfortable bigger picture. He argues:

“That truth is that traditional brick and mortar retailing is an inflection point.

“No longer are many retailers only required to compete with stores on the other side of the street. They are now required to compete with stores on the other side of the country.

“Navigating the seismic shift will continue to be very, very difficult.”

That said, Schultz is firmly of the view that Starbucks will be one of a handful of retailers that actually benefit from the move from bricks to clicks.

“I could not be more confident that Starbucks unique combination of physical and digital assets makes us one of the very few consumer brands with a national and global footprint to be in a position to build market share and benefit from the seismic retail and consumer shifts underway.”

Starbucks does enjoy some advantages over other retailers, Schultz claims:

“First, Starbucks offers an experience that cannot be replicated or copy. The power of our brand, our heritage in coffee, beverage innovation, customization and the deep emotional connection we have with our customers rooted in longstanding trust and respect that our 200,000 Starbucks partner share with our customers provides us with an overwhelming competitive advantage, not only domestically but around the world.

“Second, we invested and continue to invest well ahead of the curve and today have world-leading proprietary digital, social, mobile payment and card technologies and assets. These assets are enabling us to broaden and deepen our connection to customers, enhance overall Starbucks customer experience and further differentiating distance ourselves from competitors.

“And we have a full pipeline of new technological innovations introducing in the quarters ahead that will fully leverage these assets and provide us with even greater benefits into the future. And we are just beginning to appreciate the full magnitude and possibilities of the Starbucks mobile payment platform opportunity.

“And third as our strong traffic demonstrates the deep sense of community and human connection that our stores provide our customers as their preferred place. It is only going to become more reformed and more relevant around the world in the future.”

Happy holidays

For Starbucks, the US holidays period in 2013 saw some remarkable stats come to light:

  • Starbucks customers loaded $1.4 billion onto Starbucks Cards over the past three months.
  • Some $4 billion was put onto cards last year as a whole.
  • 10% of American adults received a Starbucks gift card over the holidays.
  • 40 million new Starbucks cards were activated in the past three months, worth a total of $610 million.
  • 2 million of those were activated each day in the immediate run up to Christmas.
  • 10 million customers are now using the Starbucks mobile payment app.

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Schultz suggests:

“This was also the first holiday in which consumers embraced the convenience and flexibility afforded by physical and digital gift cards with the passion. Instead of gifting a particular item, many consumers instead choose to give the gift of choice.

“Starbucks was prepared for both of these shifts having invested over many years in the creation and development of proprietary world class digital and mobile payment and card technology and expertise.”

That digital investment leads to bricks and mortar footfall, creating an integrated digital, mobile and real world experience:

“The sheer magnitude of the $1.4 billion loaded with deposit cards in Q1 is the opportunity presented by the millions of customers that will be visiting our stores to redeem these cards in the future.

“Experience tells us that many gift card recipients are new customers for Starbucks and their visits are providing us with the unique and power opportunity to introduce them to the Starbucks experience, invite them into my cover of rewards loyalty program and inspire them to become part of the Starbucks daily ritual.

“I believe very strongly that we have the inherent benefit built in to be able not only to capture incremental traffic but to drive traffic into our stores as a result of the things that we will be doing and the combination of physical and digital assets that will get stronger over time.”

Verdict

I can't say I'd have been that impressed if Santa had brought me a Starbucks gift card for Christmas, but it's clearly something that appeared in an awful lot of stockings around the world, particularly in the US.

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Schultz makes an interesting point about the particular characteristics of Starbucks that support its bricks to clicks value proposition and transition.

What lessons others can learn from Starbucks experience is another matter of course, but it's clear one of the coffee giant's greatest advantages is having made the necessary digital investments early, leaving others to catch up in its wake.