Starbucks CEO Howard Schultz is never at a loss for words when he’s talking about his beloved and incredibly profitable company, which continually innovates to strive for an even better customer experience every day.
Schultz eagerly spoke about his brand on Wednesday at the 31st annual Strategic Decisions 2015 Conference.
“But above all else, we’ve come to the conclusion over many, many years that our brand is defined quite essentially by the experience in our stores and our stores come to life by our people,” Schultz said, according to Seeking Alpha. “The last few years have been remarkable years for the company. I spent the last day and a half just looking at real estate and meeting with principles in New York and I can tell you that I honestly believe that our best days are ahead of us in terms of the growth and development, the social impact we can have, the equity of the brand and obviously we strongly believe that we can maintain, at least for the next five years, a minimum of 10% revenue growth along with 15% to 20% EPS growth. And at the same time doing everything we can to create the kind of innovation that is customer facing and really I think differentiates us from everybody else.”
A good example of the innovation at Starbucks during the past two years revolves around mobile technology.
“Let me share that with you and specifically get into what we announced last week with regards to our new relationship with Spotify and why that is a proxy for what’s to come,” Schultz explained. “When I was here two years ago, I began to outline a strategy of recognizing that we were installing two deep printers in our store to be able to interface with smartphones and specifically be able to create a mobile payment transaction in our stores. Not only were we one of the first companies to recognize that opportunity, but moreover over the last couple of years demonstrated the velocity, the relevancy to the fact that that is a changing component of what is driving the velocity and the robustness of our business.”
To put that in perspective, Schultz added, almost $2 billion was loaded either on someone’s phone or their Starbucks gift card in the Christmas quarter ending Dec. 31 and then more than $1 billion in the quarter that followed.
“Nineteen percent of all tender at Starbucks is happening through mobile payment,” Schultz explained. “I don’t think there is a company in the world that’s doing a million mobile payments a week and we are approaching 20 million mobile payments a week. Those numbers don’t mean anything unless you can really demonstrate that it is having an incremental effect on your business, and I can guarantee you that it is; and the reason it is, is that we cracked a code on integrating mobile payment, mobile transactions with a very interesting and relevant rewards program within, which is embedded in everyone’s phone, which internally we call Stars as Currency.”
Those stars and the rewards of those stars, Schultz said, have created a level of relevancy and stickiness and incrementality that can be measured distinctly that is driving business.
“And if you just looked at last quarter, when we had 7% global comps and 3% traffic, those numbers on our base of stores is almost unparalleled and that is also taking into consideration that we’re cannibalizing in the U.S., about 25% to 35% of our stores in terms of our A locations; and those stores are doing extremely well,” he said.
Schultz believes Stars as Currency would have as much relevancy outside of the ecosystem of Starbucks that it internally.
“And what I specifically mean by that is that we could demonstrate to a prospective partner that if, in fact, you rewarded your respective customers with stars that your business would probably go up and if you were in the subscription business you would have less churn and you would get more customers,” he explained. “So last week, we announced the first of what I believe will be many unique partnerships in which the ecosystem of Stars as Currency will be external to like-minded companies and brands whose customer base is analogous to us.”
Schultz noted that Spotify will be buying Stars as Currency at a wholesale level, which will provide Starbucks with a new source of revenue.
“Those stars will be rewarded to existing customers, but the big idea is they will be an incentive for new subscribers to sign up and receive stars as rewards,” he said. “The incrementality will come as a result of the fact that the only place in the world, at least up until today, that you can redeem those stars is at Starbucks. Over the next 12 to 18 months, I would suspect that we will be announcing a number of partnerships that will be emblematic of what we did with Spotify that will create this external ecosystem of Stars as Currency and that also will bring added-value to those new customers in their respective relationships to that company as a result of being a nice Starbucks Rewards member. So this is the beginning of leveraging the ubiquity of Starbucks, the relationship we have with millions of customers who are in our rewards program and are using their smartphones and obviously the iconic nature of the Starbucks brand in the relevancy of Starbuck Stars.”