With enhancements to its rewards offering, expansion of its delivery program and the announcement of a strategic partnership with a tech company to license part of its digital flywheel, Starbucks reported better-than-expected earnings results for its third quarter. The quick-service coffee chain reported revenues of $6.82 billion and earnings per share (EPS) of 78 cents compared to estimates of $6.67 billion and 72 cents per share.
Starbucks President and CEO Kevin Johnson said in an earnings conference call with analysts on Thursday (July 25) that the company reported “very strong operating results” for the quarter. During that period, the company enhanced its rewards program in the United States by significantly increasing the flexibility of the redemption of stars.
“These changes have been very well-received by customers,” Johnson noted, as growth of the company’s 90-day active rewards members accelerated. The program reached 17.2 million active members, and loyalty members accounted for 42 percent of U.S. tender.
The company has also expanded Starbucks Delivers with the help of Uber Eats, which is in more than 2,700 stores in 11 markets. Johnson said the company continues to learn as it expands and drives customer awareness of the new channel. He also noted that the company was pleased to see Starbucks partners effectively enabling delivery alongside operations for retail. He noted that the company believes delivery is an important long-term growth opportunity “given customers’ increasing demand for convenience.” (The news comes after the chain announced that it “plans to make Starbucks® Delivers available throughout the U.S. in early 2020 through an agreement with Uber Eats.”)
Beyond developments in the delivery and rewards space, Johnson also touched on the “strategic partnership” with San Francisco and Seattle tech company Brightloom. He noted that the chain granted a software license for elements of the Starbucks digital flywheel for an equity stake. The executive also pointed out that Brightloom will focus on software solutions for the needs of licensed Starbucks partners outside the United States and other restaurant merchants seeking a cloud-based offering. “This allows us to continue to focus our internal resources on proprietary software development for our company-operated markets,” Johnson said.
The company also expanded its Starbucks At Home coffee presence into six new markets, with the launch of roasted ground, whole bean and Starbucks coffee by Nespresso and Dolce Gusto single-serve platforms. Johnson noted that Starbucks At Home coffee “remains on track” to be in 16 markets, including the U.S. and Canada, by September, and added that the company is pleased overall with the performance of the Global Coffee Alliance.
Starbucks in China
Johnson said China also delivered a very strong quarter, and that the company is “bullish on the long-term market opportunity as we deploy capital to build new stores and expand our presence.” The total store count in the country grew by 16 percent versus the prior year to more than 3,900 stores at the end of the third quarter. He noted that the digital ecosystem remains a “core pillar in driving long-term growth” in the country.
The company has an active rewards member base of 9.1 million in China, which marks an increase of 10 percent from last quarter and 36 percent from a year ago. A partnership with Alibaba allowed the company to expand Starbucks Delivers to roughly 2,900 stores across nearly 80 cities by the end of the third quarter. It also puts the coffee chain on course to exceed 3,000 stores, or approximately 75 percent of the total store base, by the end of the fiscal year.
And following a May launch in Shanghai and Beijing, the company expanded mobile order and pay to roughly 1,300 stores in four major cities in China, with more expansion underway. In regard to the Starbucks Now store, which is focused on the express customer experience, Johnson said he was pleased with how fast the team in China was able to embrace mobile ordering for pickup and delivery and to create a new retail format. He added that the move was a testament to the commitment of Starbucks “to leverage digital technology to rapidly address customer trends in the world’s fastest-growing major economy.”