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Starbucks loyalty grows beyond coffeehouse walls

Starbucks loyalty grows beyond coffeehouse walls

Digital ecosystem aims to reinvent brick-and-mortar retailing

Starbucks Corp. took another step toward building a robust digital ecosystem Thursday by allowing loyalty club members to earn “Star” rewards when they use the ride-sharing app Lyft.

The deal, announced as the Seattle-based company reported another quarter of strong results, is one of a growing number of partnerships Starbucks has in the works to extend the loyalty program to purchases made outside the coffeehouse walls.

The goal, Starbucks chairman and CEO Howard Schultz said, is to reinvent how brick-and-mortar retailers compete in an increasingly digital world.

“What each of these partnerships affords is the opportunity for consumers to earn Starbucks Stars outside of Starbucks stores and then to redeem them for their favorite food and beverages within Starbucks stores, providing a unique opportunity for incrementality, increased profitability and the opportunity for us to serve, connect with and become part of the daily ritual of an even larger base number of consumers, adding further momentum to Starbucks’ unique and increasingly global flywheel,” Schultz said.

Two years ago, Schultz spoke of the threat that online shopping presented to brick-and-mortar retailers, pledging at the time that Starbucks was uniquely positioned to make ahead-of-the-curve investments in digital technologies.

The ecosystem Starbucks is creating will essentially transform Star rewards into currency by allowing the chain’s 10.4 million loyalty members to earn rewards by doing business with the “like-minded partners” the coffeehouse chain chooses to work with.

Earlier this week, for example, Starbucks announced a partnership with The New York Times that will give My Starbucks Rewards members access to digital content, starting in early 2016, as well as the chance to earn stars by buying subscriptions.

Earlier this year, Starbucks announced a deal with Spotify that will allow loyalty club members to earn rewards by streaming music, starting this fall, as well as influencing in-store playlists. Starbucks’ U.S. employees will also receive a free Spotify Premium subscription to help shape music programming that can be played through the chain’s mobile app.

Likewise, the Lyft deal will allow the ride-sharing company’s drivers to become My Starbucks Rewards gold-level members and earn their own rewards. Riders who are Starbucks loyalty members will also earn Star rewards for using Lyft, and they can give their drivers Starbucks eGift cards through the Lyft app if they want to thank them in a more personal way.

Schultz said the company will also test the use of Lyft as a transportation benefit for Starbucks employees who can’t find reliable means to get to and from work.

The system Starbucks is creating is similar to programs like Plenti, used by a growing number of retailers across channels — from Macy’s and Exxon to Rite Aid and AT&T — to allow consumers to earn points toward discounts.

What’s different, Schultz said, is that Starbucks will be offering “a single currency” with the Star rewards. “And that currency has to come back to Starbucks.”

More partnerships are coming, both in the U.S. and in international markets, Schultz said.

“The phone has rung with many inquiries from all kinds of retailers who are interested and intrigued by what we are building,” he said. “But we have to walk before we run. We have a core responsibility to demonstrate to initial partners that this will drive sales incrementally for them.”

Kevin Johnson, Starbucks president and chief operating officer, declined to get into specifics of the partnerships, but said each partner is paying Starbucks for Stars that they then use to reward their own customers and entice new business. “It becomes a win-win-win,” he said.

The number of Starbucks loyalty members has increased 28 percent compared with a year ago, Schultz said.

Mobile ordering, payment a game changer

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Meanwhile, Starbucks mobile ordering and payment feature is scheduled to be available at all 7,400 U.S. company-operated locations before the holiday season.

Mobile ordering and payment is expected to be another game changer for the brand.

Available in 4,000 units currently, company officials said the mobile ordering and payment feature is fueling both revenue and profit growth in every market where it’s been deployed. Mobile payments now account for 20 percent of transactions, or nearly $9 million every week.

“In those stores where mobile order and pay has been deployed, lines are shorter, service is faster and in-store operations are more efficient,” Schultz said. “The net result is increased traffic, incrementality that is exceeding expectations, improved throughput and an elevated Starbucks experience for our customers.”

Adam Brotman, Starbucks chief digital officer, said the company continues to refine aspects like estimated pick-up time algorithms and menus that are specific to certain units.

The company expects to introduce the feature to the app for Android devices in the U.S. soon, as well as introduce mobile order/pay to international markets, starting with the U.K. and Canada, in the months ahead.

Offering delivery is the next step. The company has announced plans to work with Postmates as a third-party delivery service and test “green apron” delivery by barista in New York City before the holiday season.

In the Americas, Starbucks’ same-store sales grew 8 percent during the quarter, including a 4 percent increase in traffic and a 4 percent increase in average check.

Core beverage offerings contributed to about half of the same-store sales growth, with the new Flat White coffee, Frappuccino Minis and Cold Brew Coffee adding 1 percentage point.

The S’mores Frappuccino was the highest selling limited-time offer in the company’s history, Johnson said. Teavana Shaken Iced Teas also contributed 1 percentage point of growth.

Food sales contributed 2 percentage points, with lunch sales increasing 28 percent over a year ago. Food now represents about 20 percent of the menu mix and is on track to reach the 25-percent range, as predicted last year.

“Starbucks is increasingly being recognized by our customers as an attractive offering for lunch,” Johnson said.

Next up for the company: Snacks.

About 3,400 locations have added a new portfolio of snack options in major metropolitan areas to tap later-in-the-day eating occasions, as well as expanding the Evenings program, which includes beer, wine and appetizers, to more locations.

Contact Lisa Jennings at [email protected].
Follow her on Twitter: @livetodineout

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