During the Starbucks first-quarter earnings call on Jan. 31, company CEO Howard Schultz was supremely confident as he delivered results for the three-month period and for 2014 in general because he touted the deep emotional connections the brand has with its customers.
Starbucks recorded a 12% increase in revenue ($4.24 billion) during the first quarter.
“Our strong traffic in Q1 demonstrates the deep sense of community and human connection that our stores provide our customers as their preferred place,” Schultz said during the earnings call. “It is only going to become more reformed and more relevant around the world in the future.”
The revenue increase was sparked by new store openings, strong comps in China/Asia Pacific, and Europe and successful food and beverage innovations.
Same-store sales, which exclude the impact of the company-operated stores opened in the past 13 months, grew 5%, driven by 4% increase in global traffic.
Two Pronounced Shifts in Consumer Shopping Behavior
Schultz pointed to two pronounced shifts in consumer shopping behavior that retailers experienced.
“Holiday 2013 was the first in which many traditional bricks and mortar retailers experienced in-store foot traffic give way to online shopping in a major way,” Schultz explained. “Customers research, compare prices and then bought the brands and items they wanted online, frequently using a mobile device to do so. This was also the first holiday in which consumers embraced the convenience and flexibility afforded by physical and digital gift cards with the passion.”
Instead of gifting a particular item, many consumers instead chose to give the gift of choice, Schultz said.
“Starbucks was prepared for both of these shifts having invested over many years in the creation and development of proprietary world class digital and mobile payment and card technology and expertise,” Schultz explained. “This expertise and the assets that support it enabled us to seamlessly process more than 40 million new Starbucks card activation valued at over $610 million in the U.S. and Canada alone in Q1, including over 2 million new Starbucks card activations per day in the days immediately leading up to Christmas and $1.4 billion of Starbucks card loads globally.”
Schultz said the sheer magnitude of the $1.4 billion loaded with deposit cards in Q1 is the opportunity presented by the millions of customers “that will be visiting our stores to redeem these cards in the future. Experience tells us that many gift card recipients are new customers for Starbucks and their visits are providing us with the unique and powerful opportunity to introduce them to the Starbucks experience, and inspire them to become part of the Starbucks daily ritual.”
Mobile Payment App
Schultz said Starbucks has about 10 million customers actively using its mobile payment app. Combined, mobile and Starbucks card payments represent over 30% of total U.S. payment.
“This powerful technological advantage combines with our robust pipeline of food and beverage innovations and Starbucks’ recognition as one of the world’s most respected and most trusted consumer brands, and will provide us with a winning hand as mobile, card and online sales trends continue to converge and accelerate around the world and into the future,” he explained.
Schultz said traditional brick and mortar retailing has reached an inflection point.
“No longer are many retailers only required to compete with stores on the other side of the street,” he said. “They are now required to compete with stores on the other side of the country. Navigating the seismic shift will continue to be very, very difficult for me. But I firmly believe and I admit Starbucks’ solid 4% increase in traffic in Q1 validates that we will be among the small group of retailers to gain from the macro transfers of brick and mortar retail sales to online sales.”
Starbucks Customer Experience Cannot Be Replicated
“Starbucks offers an experience that cannot be replicated or copied,” Schultz said. “The power of our brand, our heritage in coffee, beverage innovation, customization and the deep emotional connection we have with our customers rooted in longstanding trust and respect that our 200,000 Starbucks partner share with our customers provides us with an overwhelming competitive advantage, not only domestically but around the world.”
What’s more, Schultz said Starbucks continues to invest “well ahead of the curve” and have world-leading proprietary digital, social, mobile payment and card technologies and assets.
“These assets are enabling us to broaden and deepen our connection to customers, enhance overall Starbucks customer experience, and further differentiating ourselves from competitors,” he explained.
Schultz pointed to a “full pipeline” of new technological innovations that will be introduced “in the quarters ahead that will fully leverage these assets and provide us with even greater benefits into the future. And we are just beginning to appreciate the full magnitude and possibilities of the Starbucks mobile payment platform opportunity. I could not be more confident that Starbucks’ unique combination of physical and digital assets makes us one of the very few consumer brands with a national and global footprint to be in a position to build market share and benefit from the seismic retail and consumer shifts underway.”
Here are some other takeaways from Schultz:
Starbucks experienced a 5% comp growth in the EMEA region, which was the strongest growth in more than three years
Q1 U.S. comps were approximately twice the national retail sales average during holiday shopping period this season
A year after the acquisition of Teavana, “we are more convinced than ever that we have the opportunities to transform the tea category the way we have transformed coffee all around the world,” he said. Recent research confirms that Teavana now enjoys the highest level of awareness of any super premium tea brand and, like Starbucks, Teavana recorded a solid Q1.
Starbucks celebrated its 15th anniversary in China, a market opened with one store in Beijing in 1999. Today, there are more than 1,000 Starbucks stores with a plan for 750 new stores across China Asia-Pacific in 2014.
“The strong direct selling relationship we have built with retail is enabling us to elevate and differentiate our brand, increase our presence and enhance our product position and the deepening and strengthening of these retail relationships combined with new product offerings and initiatives currently underway gives us confidence that channel development growth will accelerate as the year progresses,” Schultz said.