As its recent earnings report showed, Starbucks (NASDAQ: SBUX) is feeling the pressure in the U.S., just like most brick-and-mortar businesses. Still, the company is doing well on a relative basis, with positive comparable-store sales, even though traffic to physical retail stores has been declining in the U.S. overall.
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Starbucks' resilience could be at least partly attributed to its digital flywheel, which incorporates the My Starbucks Rewards program, personalization tools, mobile payments, as well as a mobile order-and-pickup feature through the Starbucks app. The company has definitely been a leader on digital retail tools, and on its recent earnings call, management mentioned several digital initiatives that will be important to its medium and long-term growth.
In the past quarter, Starbucks added 1.4 million active Starbucks Rewards members, increasing 11% year over year to 14.2 million. Rewards members are incredibly important to the company -- they make up only around 18.6% of all unique customers, yet last year, Rewards members drove 36% of Starbucks' total tender, with last quarter showing continued increases in spend per member.
Starbucks Rewards members are so important, in fact, that they accounted for virtually all of Starbucks' comparable-store sales growth in the quarter.
Mobile and China
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Starbucks' mobile payment usage is also on the rise, as mobile payments made up 30% of its U.S. sales and over 60% of sales in China, which is Starbucks' biggest growth market.
Part of the company's rapid growth in China is a result of new partnerships with giants Tencent and Alibaba. Starbucks began to accept WeChat (a Tencent app) as a payment platform a year ago, and then Alibaba's Alipay in September. This is important because Chinese consumers use mobile payments much more than Americans do. In fact, in 2016, the Chinese used mobile payments 50 times more than U.S. consumers, who still have a habit of using credit cards. As China is the major growth focus of Starbucks right now, with 30% overall growth and 6% comps growth last quarter, getting digital payments right is crucial for continued success in that country.
The Starbucks credit card
As important as Rewards members are, Starbucks is also aggressively targeting non-Rewards members. The company announced it will partner with JPMorgan Chase and Visa on a co-branded credit card, as well as a store-of-value card (for those who can't qualify for a credit card) that will be available this spring. The new cards will allow both Rewards and non-Rewards members to earn Starbucks "stars" when they spend outside Starbucks cafes.
Since the company has made so much progress with its logjam at the mobile order-and-pickup window, Starbucks will make the mobile order-and-pickup feature available for non-Rewards members starting in March.
It may seem crazy, but founder and chairman Howard Schultz devoted a fair amount of the recent conference call to the hot topic of the day: blockchain. Right now, all sorts of companies, both legitimate and (shall we say) borderline, have announced cryptocurrency initiatives. Starbucks is probably the largest non-financial company to do so, with Schultz saying:
[...] I don't believe that bitcoin is going to be a currency today or in the future. I'm talking about the new technology of blockchain and the possibility of what could happen not in the near term, but in a few years from now, with a consumer application in which is trust and legitimacy with regard to a digital currency. [... ] I believe that we are heading into a new age [...] And I believe that Starbucks is in a unique position to take advantage of that. Now I don't want anyone to hang up on this call and assume that we have this all figured out because we don't, or that we're making a significant investment in this because we're not, but we are actively demonstrating the level of entrepreneurial curiosity and DNA of our company to do the things that we've done in the past to ensure the fact that we are at the cutting edge of this technology, of this consumer application.
Going forward, investors should think of Starbucks not only as a food and beverage company but also as a digital payment technology company. After all, current CEO Kevin Johnson came from the tech world, and Starbucks has long been a first-mover in digital innovation. As this quarter showed, the current retail landscape, especially in the U.S., is challenging, and digital initiatives will be instrumental to Starbucks' growth in the years ahead.
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Billy Duberstein owns shares of Alibaba, Starbucks, Tencent Holdings, and bitcoin tokens. The Motley Fool owns shares of and recommends Starbucks, Tencent Holdings, and Visa. The Motley Fool has no position in any cryptocurrencies mentioned. The Motley Fool has a disclosure policy.