Starbucks CEO says investment in tech, not digital ads, has spurred growth - Business Insider

Starbucks CEO says investment in tech, not digital ads, has spurred growth - Business Insider

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Investing
in technology rather than digital ads is the reason Starbucks dodged
the seismic shift in consumer behavior that has knocked traditional
retailers, claimed chief executive Howard Schultz.

The coffee
seller’s boss made the claim to explain how the business has been able
to defy the odds and turn digital payments into a key revenue source.
Mobile payments now represent a whopping 20% of all in-store sales in
the US, more than double the figure from just two years ago and the
coffee house is processing nearly nine million transactions each week.

“Two
years ago I reported on the seismic shift in consumer behaviour that
would significantly impact traditional bricks and mortar retailers,”
Schultz told analysts on a conference call yesterday evening (23 July).

“Since
then, many traditional retailers and consumer brands have responded
simply by substantially increasing their digital advertising budgets,
significantly driving up their cost of customer acquisition and
producing little to show for it. We, on the other hand, took a very
different approach.”

And this different approach was for all to
see in its latest quarter. Like-for-like sales rose 7% in the three
months to July, spurred by a three per cent uplift in customer visits,
which the business thanked its loyalty program. The number of active
users of the digital scheme grew 28 per cent year-on-year n the US alone
in the period to 10.4 million.

The program “continues to be our
most important business drivers” as new members contribute not only
short-term increases in revenue and profit, “but also to long-term
loyalty for years to come”, said Schultz.

It’s not just digital
channels the business hopes to extract revenues from. It’s also been
linking up with other companies to grow its customer base, securing
deals with the New York Times, Spotify and Lyft. The idea is to use the
partnerships to leverage the usage of its loyalty scheme, turning
Starbucks stores into the only places where people can access exclusive
services; whether it's music or reading free articles on smartphones.

“…and you're going to see a lot more in the days ahead,” promised Schultz.

“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 [incremental growth], increased
profitability and the opportunity for us to serve, connect with and
become part of the daily ritual of an even more larger based number of
consumers, and adding further momentum to Starbucks unique increasingly
global flywheel.”

Total sales in the quarter rose 18% from a year earlier to $4.9bn.