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Drinking Starbucks digital brew

Stuart Lauchlan Profile picture for user slauchlan June 2, 2013
Maybe they might think about paying some more tax here and there, but Starbucks is setting an example when it comes to the use of digital, social and mobile to extend its brand beyond the bricks and mortar.

Howard Schultz, Starbucks CEO

Everyone loves a Starbucks, don't they?

Well, maybe not those who think it might be an idea perhaps to pay a bit more tax here and there around the world.

On the whole though, a cup of Starbucks java is part of the daily routine for an awful lot of people and there can be no denying that the firm has been a global retail phenomenon.

But the firm now faces a new challenge: how to become a global digital phenomenon as well.

It was a goal raised by CEO Howard Schultz at the recent Sanford C. Bernstein Strategic Decisions Conference where he declared:

"We're not satisfied with the status quo. We want to continue to push for self renewal and reinvention."

A lot of that reinvention is going to come from the way the coffee giant tackles the shifting nature of its distribution channels.

Up the aisle

Or in other words, how effectively can the firm leverage key assets such as Starbucks social, digital, card loyalty and mobile platform and take them into the grocery aisle.

Schultz has taken action to find out:

"The question was, if Starbucks products are sitting on the grocery shelf, what could we do that leverages the loyalty system of Starbucks? So beginning in the month of June, Starbucks roast and ground coffee sitting on thousands, tens of thousands of grocery shelves across the [US], will have a tag affixed to the bag and that customer buys the coffee bag and they will be able to achieve loyalty or stars the same way our customers do in our stores.

"The initial read on this demonstrates that we'll be able to create a higher level of velocity and loyalty with grocery customers as a result of their core relationship that they have inside our stores and as a result of that we will have a competitive advantage versus anyone who is selling coffee against us in the grocery channel. This is just the beginning of integrating card loyalty, social and mobile, in multiple channels of distribution."

The firm has also kicked off a digitally-enabled cross-plan, cross-channel rewards program, a capability which Schultz sees as only made possible by what he describes as:

"the unique combination of Starbucks national retail store footprint, broad consumer package goods presence and industry-leading digital capabilities. Our customers will be able to earn My Starbucks Rewards stars for purchases of Starbucks packaged coffee in grocery channels. The star can then be redeemed for free food or beverages in Starbucks retail stores, an exciting new example of our blueprint for profitable growth being brought to life."

Schultz reckons to have noticed an 18 month "seismic change" in consumer behavior primarily attributable to a potent combination of social and digital media and the rising tide of mobile phones replacing desktop computers.

Starbuck has had a lot of traction for its loyalty programmes to date. According to Schultz, the Starbucks Card is now a multi-billion dollar business onto the Starbucks mobile platform:

"Today we are now processing roughly 4.5 million mobile transactions a week, far greater than anyone in the world in our space, and that mobile platform is giving us a greater speed of service, higher attachment, higher ticket, and higher reload."

Blessing in disguise?

Starbuck has been thinking digitally for some time, since shortly after Schultz was brought back in as CEO to turn around what at the time was a stricken brand. Being corporately in a position where radical transformation was essential might in retrospect have been a blessing. Schultz recalls:

"Even though we were going through our own transition, we began to make significant investments in capability [and] resources to really understand not only how we could be relevant to Millennials and how we can create a co-authored strategy with people like Facebook and Twitter. Anyone could do that. The real question was how can we do this in a way that will add significant value to our customers' relationship with Starbucks and ultimately drive frequency, attachment and incrementality into our company?"

Schultz's argument is that for any bricks and mortar business, you need to be able to extend your proposition and your brand into any area where your consumers are living the rest of their lives outside your stores:

"The Starbucks brand is succeeding today because of its unique emotional level of attachment and relevancy in the digital world [and] in the mobile world. The investments that we're going to make in those areas going forward are going to create a flywheel effect that is going to create more traffic into our stores because of the relevancy we have in people's lives outside of the four-walls of Starbucks."

To date the statistics that Schultz produces as proof points make for impressive reading:

  • Nearly one-quarter of all US transactions are made by My Starbucks Rewards loyalty members 
  • Nearly one-third of all U.S. in-store transactions are prepaid.
  • Starbucks mobile apps now have more than 10 million active customers.
  • The firm is fast approaching 4 million US global payment transactions per week.
  • That accounts for roughly 10% of total US tender. 
  • The firm is adding approximately 80,000 new My Starbucks Rewards customers each week.

Just the beginning

The objective now is to double the number of active members enrolled in Starbucks Rewards program from 4.5 million at the end of fiscal 2012 to 9 million in 2013.

To help with that goal, the last quarter saw a two week promotional campaign offering $5 credit for US card holders.

Competition from Costa Coffee

The result: nearly 1 million new registered members and nearly 500,000 global app downloads during the two-week offer period alone.

It's not just a US phenomenon either, according to Schultz:

"We are now seeing usage of My Starbucks Rewards at the same or even higher rate than the US, in countries like China, Korea and Canada, providing us with a significant sustainable competitive advantage over competitors in these markets."

All told, Starbucks is a good example of a company using digital and social technologies to leverage its bricks and mortar brand and extend engagement with its customers.

How the particular success in the US rolls out across other countries will be interesting to observe.

For example, in the UK there is a substantial native competitor in the shape of Costa Coffee which has seen an uptick in favourable consumer reaction since the Starbucks tax questions went mainstream.

Could Starbucks use its digital skills to give itself a competitive edge in a market that if not exactly hostile, is certainly a tad irritated with what is perfectly legal practice in tax terms, but which jars with the British sense of fair play? (Or maybe Starbucks could just pay some more tax?)

Whatever the case, Schultz does see the successes to date as only being "the nascent stage" of what can be achieved and clearly has a significant 'to do' list for Adam Brotman, Starbucks Chief Digital Officer.

"The revenue and operating leverage provided by the scale and synergies among our digital, card loyalty, mobile and social platforms provides us with strong core muscle in our US business and increasingly in multiple channels in markets across the globe...I think what we've accomplished the last two years is a great indication of what we think is possible for the future. We are just getting started."



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