Digital Channels Caffeinate Starbucks Earnings

Amid strong performance in beverages and digital relationships, Starbucks beat earnings and revenue estimates for the fourth quarter. The coffee quick-service restaurant (QSR) chain reported revenues of $6.3 billion and earnings per share of 62 cents compared to analysts’ estimates of $6.27 billion and 60 cents.

In the fourth quarter, the company continued to advance its goal of acquiring digital relationships to further build customer engagement. To that end, active Starbucks Rewards memberships grew to 15.3 million, up 15 percent versus last year and the strongest growth rate in seven quarters, according to Starbucks President and Chief Operating Officer Rosalind Brewer in a call with analysts.

At the same time, Brewer noted that these customers continue to drive nearly 40 percent of tender in the United States, and mobile order and pay represents 14 percent of transactions. Brewer also noted that the chain grew digitally-registered customers from 6 million at the end of the third quarter to 10 million at the end of the fourth quarter. The company provides these digital customers with email offers like happy hour, and, as it gets to know these customers, it provides them with targeted offers as it seeks to convert them to Starbucks Rewards members.

In addition, the chain is looking for ways to extend its digital experiences outside of its stores. To that end, the company tested delivery in Miami this summer. In the call Brewer said, “the results are promising. It’s a potentially exciting opportunity for us.” (Starbucks teamed up With Uber Eats to delivery coffee in Florida.)

When it comes to the company’s new stores in fiscal year 2018, Brewer noted that more than 80 percent of them have drive-thru. And Brewer noted that “this format will be a continued focus into FY  19.” She also said that drive-thru, out-the-window, mobile order and pay combined grew to more than 50 percent of the way that customers are ordering — up more than 10 percentage points in just two years.

In-Store Experience And Beverage Innovation

During the quarter, Brewer also said the company saw strong beverage performance that was driven by innovation in key platforms including cold brew and refreshers. The coffee chain ramped up installations of its nitro coffee by bringing the beverage to nearly 700 stores in the fourth quarter to reach 2,800 stores at the end of the year.

“This is a bullish sign for the future growth as these beverages combined with our core espresso platform represent our coffee-forward heritage more than other more indulgent drinks,” Brewer said, adding that the company is seeing its customers adopt cold beverages across all day parts and seasons.

The company’s top priority is enhancing its in-store experience, according to Brewer, but the company hasn’t made it easy for partners in its stores to focus on their customers. To make improvements in this area, Brewer noted the company set a target in the third quarter to cut up to 50 percent of current in-store administrative tasks for partners by the end of fiscal year 2019. The expectation was the effort could initially free up two to three hours each day for partners to be able to work on customer connections. In the fourth quarter, she noted that the company was able to redeploy up to 90 minutes each day from non-customer facing tasks to customer-facing activities, depending on the store.

The effort includes an automated inventory system in 32 stores for all food products. And the company also assigned a team to address dense urban market performance, with New York Metro as an initial target. Additionally, Starbucks has rolled out training to build leadership in an effort to create best moments in its cafés. Brewer said the efforts have been paying off, with customer connection scores that measure ratings like cleanliness and speed of service showing improvements in all day parts and regions, while ending September at a record high.

And, in August, Starbucks and Alibaba partnered to enable the delivery of Starbucks products to Chinese consumers as part of a deal that includes such Alibaba properties as Taobao, Alipay, Tmall, Hema and Ele.me. In the call, Starbucks President of International & Channels Development and Global Coffee & Tea John Culver said, “This partnership is not just about delivery. In fact, this is a comprehensive partnership that spans across their entire ecosystem.”

The idea is to co-create a new digital experience for its customers, Culver said. It comes as Starbucks looks to build digital relationships as it moves into the future.