Why traffic increased in 3Q15
Starbucks has a strong loyalty program known as My Starbucks Rewards, or MSR, with 10.4 million active members. Membership increased 28% year-over-year in 3Q15. This program is built into Starbucks’s (SBUX) existing technology ecosystem, which is scalable. As the company expands its breadth of services and innovates ways to reward its loyal customers as well as acquire new customers, leveraging this ecosystem has helped Starbucks lower its cost of acquisition per customer, according to the company. So what are these innovations?
Mobile Order & Pay
In our previous series titled Why Investors Have a Lot Riding on 3Q15 Earnings, we explained, “Mobile Order & Pay is the big story of 2015 in the United States. The service has already been introduced in 600 stores, allowing a customer to place an order in advance and pay for it using their mobile phone. The order can then be picked up from the store later.” So what are the recent developments on this front?
Starbucks has now expanded its Mobile Order & Pay to 4,000 company-operated stores in the United States. It plans to roll it out in all stores in the United States by December. The following were the key points that Starbucks management stated about Mobile Order & Pay during the call:
- faster service and efficient in-store operations
- shorter lines and reduction in line attrition, meaning fewer people would leave the line without ordering
- improved overall throughput
Panera Bread (PNRA) is also working on a similar initiative, where customers can order and pay using their phones and later pick up their orders at a separate counter. The Consumer Discretionary Select Sector SPDR’s (XLY) portfolio is 3% Starbucks (SBUX) holdings, 4% McDonald’s (MCD) holdings, 1.5% Yum! Brands (YUM) holdings, and 1% Chipotle (CMG) holdings.
Leveraging stars as currency
Starbucks’s MSR members can use the “stars” they collect for their Starbucks purchases. The company can use stars as a currency and create additional revenue streams. Starbucks’s announced its first partnership this year with Spotify, which rewards its customers with Starbucks stars. In the third fiscal quarter, Starbucks tied in with the New York Times and Lyft with similar programs. All these initiatives should continue to generate incremental traffic for Starbucks going forward.
We’ll follow up with a more extensive analysis of Starbucks’s 3Q15 earnings, including valuation, in the coming weeks. Meanwhile, to get more updates on restaurants, you can refer to our restaurant industry page.