Starbucks' (NASDAQ: SBUX) digital rewards program has no doubt been one of its biggest successes of the last decade. My Starbucks Rewards (MSR) members now account for over one-third of all purchases at Starbucks stores. And since revamping the rewards program in 2016, Starbucks has been able to increase the amount each MSR member spends per year through increased personalization and incentivization.
That's why Starbucks is heavily focused on bringing more customers into the rewards program. After disappointing investors with just 2% U.S. same-store sales growth last quarter, Starbucks is hoping MSR member growth will help it reach its full-year goal of 3% to 5% in same-store sales growth.
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CFO Scott Maw outlined the company's strategy to get there at a recent investors conference.
My Starbucks Reward member profile
MSR members are extremely important to Starbucks. Virtually all of its same-store sales growth stems from MSR members.
Maw is targeting mid-single-digital growth in spend per customer in each quarter for the next couple years, and he also expects low-double-digit membership growth.
The program now offers individualized incentives to buy more at Starbucks with a new offer (sometimes two offers) every week. The offers range from the simple -- visit three times this week -- to more complicated -- order these items -- and pay out varying amounts of stars, the currency Starbucks uses to redeem for free beverages and food items.
Creating more personalized offers has been a strong driver for MSR member spend over the last couple years since Starbucks revamped the program. Maw wants to drive ways to send more personalized offers to more customers, even if they don't want to sign up for My Starbucks Rewards.
Three ways to get more digital sign-ups
Maw provided three examples of features in the pipeline that he expects will eventually drive an increase in membership signups.
First, it's opening up mobile order and pay to everyone. The feature, which allows MSR members to order ahead from the Starbucks mobile app and pick it up when they get to the store, drove an increase in sales during peak hours at Starbucks. In fact, it was so successful, some Starbucks stores had trouble filling walk-in customer orders and mobile orders in a timely manner.
Starbucks has fixed the bottleneck issues facing its store operations at peak hours by using individual store data to help its employees figure out how to work as efficiently as possible based on what kind of orders each store usually sees at certain times. Extending mobile order and pay to non-members should drive app installs and provide a way for Starbucks to collect customer emails. That opens a couple marketing channels for Starbucks to drive sales and drive customers to become MSR members.
Second, Starbucks will look to reactivate old members. Millions of MSR members haven't logged into their accounts in over 90 days. That's a big opportunity because those customers have shown interest in using the rewards program in the past. Maw says Starbucks will start offering greater incentives to those customers, as it's seen a strong payoff once a customer reactivates.
Third, the company will roll out a new Wi-Fi system that allows customers to log in with their email once, and on subsequent visits their devices will automatically connect to the network without requiring reauthentication. Starbucks can then send marketing emails to those customers.
The opportunity is massive
Maw says that Starbucks stores see 75 million unique customers per month, but just 15 million of those customers are MSR members. That leaves about 60 million customers with which Starbucks could have a much closer relationship -- whether that's full membership or just an app download or email registration.
Astute readers will notice, however, that the 15 million members represent 20% of customers, but account for over 33% of order volume. That's not entirely driven by the fact that they're MSR members, but also the fact that more frequent and higher-spending customers are more likely to sign up for the program.
But the long tail of Starbucks customers still presents a massive opportunity. Maw points out increasing a customer's frequency from one time per week to six times per month would be a significant improvement. And if you multiply it by the millions of customers that fit that profile, it could be a big driver toward that 3% to 5% goal.
Starbucks' digital marketing efforts will be the key to reaching its same-store sales goal for the full year. Investors should pay close attention to updates surrounding its plan to onboard more members through things like mobile order and pay, its new Wi-Fi system, and reactivating old customers. And if the company provides an update on membership growth, be sure it's at least 10%. (It was 11% in the first quarter.) If Starbucks takes care of its digital channels, same-store sales will follow.
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