Ignore the naysayers, Starbucks investors. ADVERTISING Ignore the naysayers, Starbucks investors. Shares in the coffee chain fell 5 percent Friday after it released quarterly sales figures Thursday that were a touch lower than what analysts were expecting. Wall Street seemed
Ignore the naysayers, Starbucks investors.
Shares in the coffee chain fell 5 percent Friday after it released quarterly sales figures Thursday that were a touch lower than what analysts were expecting. Wall Street seemed to just ignore the fact Starbucks earnings were in line with expectations, leading the company to raise the bottom end of its full-year outlook, and that sales at established locations rose by 6 percent globally and 7 percent in the U.S. from a year ago. Haters gonna hate.
But there are few restaurants or retailers that can claim those kinds of numbers these days. As I wrote last quarter, the last time Dunkin’ Donuts posted sales growth beyond 5 percent was in 2012. For Walmart, it was 2005.
More importantly, though, were positive results from Starbucks’ new loyalty program, despite boatloads of complaints in recent months. Customers (those vocal folks on Twitter, at least) were “furious” that Starbucks changed the way customers earned points for free food and drinks. Instead of earning points for each purchase made, customers now get them based on the number of dollars they spend. Pundits proclaimed the changes would send customers to Dunkin’ Donuts.
Back in February, I wrote the loyalty-program changes were actually an excellent way to jolt growth, as loyalty members spend three times as much as non-members. The change should not only get customers to spend more money but also buy more food and other products, which will help Starbucks as it tries to expand its revenue stream beyond coffee (three-fourths of its revenue still comes from coffee). Transactions should also be faster, with customers no longer asking cashiers to ring up each item separately to get more points. And it should help Starbucks push mobile ordering. About a fifth of transactions at U.S. company-owned stores are now done via mobile application, setting an example in mobile apps for retailers and tech companies alike. Sure, there will be some kvetching along the way — it takes shoppers time to get used to any kind of change — but if managed carefully, the new loyalty program should end up being great for the company.
It’s still early. Starbucks announced the changes in February, and they didn’t fully take effect until this month. But Starbucks executives said they’re not yet seeing any of the disruption doomsayers predicted. In the latest quarter, Starbucks got 900,000 new members to join its loyalty program, up 18 percent from the previous year, bringing total active U.S. users to 12 million. And those members spent 22 percent more in the quarter than in the same period the year before.
Later this year, Starbucks will start turning loyalty program points into a wider currency, of sorts. It will begin offering a prepaid debit card that lets Starbucks rewards members earn points with every purchase they make at all merchants, with rewards redeemable only at Starbucks. And soon it will start sending personalized offers to customers, who can earn extra points by making additional store visits.
Because as much as consumers don’t like change, when it comes to something they want as much as good coffee, they tend to adapt. Fickle investors would be wise to remain patient and give Starbucks some time. Just shake it off.
Shelly Banjo in New York can be reached at sbanjobloomberg.net
