Posted Date: 2/1/2011
Starbucks Boosts Store, Digital Channel IT Investment: Comp Sales Up 8%
By Adam Blair
Starbucks' technology investments and its use of social and digital media channels are "increasing and becoming a significant competitive advantage," said Howard Schultz, the chain's founder, chairman, president and CEO. Speaking during a recent conference call discussing the chain's quarterly financial results, Schultz said social media and technology help the company "create rich, emotional engagement with consumers and enhance their Starbucks experience, while at the same time [we're] benefiting from the lower costs of customer acquisition."
Schultz identified several recent developments demonstrating technology's importance to the company's strategy:
• Starbucks successfully used social media to launch its 2010 holiday season promotion, signing up nearly 250,000 consumers to receive a daily text message announcing the specials during the 12 Days of Sharing promotion.
• The company recently launched a mobile payment application that allows U.S. customers to pay for in-store purchases with select smartphones.
• In the year since the company launched its loyalty program, Starbucks has added 2.5 million new members. At peak volume during the quarter that ended January 2, 2011, the chain was selling 42 My Starbucks Rewards cards per second across the country, with customers loading, on average, 39% more on their cards compared to the same period the previous year.
• As part of its operational excellence initiative, the chain has increased its investment in barista training and completed the final rollout of its new inventory and point-of-sale systems.
Customer engagement as a measure of the chain's success is a key theme for Schultz. Citing the benefits Starbucks is receiving from its loyalty card program, he said "Noteworthy is that much of the performance is attributed to substantial growth in card sales outside our company-owned stores, demonstrating that Starbucks' expanding and deepening connection with its customer is extending beyond our stores and into complementary retail channels."
Starbucks is performing well by several measures. Net revenues for the quarter that ended January 2, 2011 (the company's Q1 of fiscal 2011) increased 8% over the comparable period the previous year, to a record $2.95 billion. Global comparable store sales increased 7%, driven by a 5% increase in traffic and a 2% increase in average ticket size. In the U.S., comp store sales increased 8%, driven by a 6% traffic increase and a 2% jump in average ticket size.
During the conference call, Starbucks executives discussed the long-term benefits they expect from the now fully deployed inventory and POS systems. Noting that 2011 would be a "learning curve" period for the new systems, Troy Alstead, Starbucks' CFO and chief administrative officer, said "We very much expect, as we move through this year, but more impactfully as we move into 2012, that those new tools will help improve the customer experience in our stores, the partner experience in our stores and will yield us efficiencies over time, all very important parts of why we chose to make those investments."
Clifford Burrows, president of Starbucks Coffee U.S., was encouraged that the rollout was completed during this past November and December, both peak months for the retailer, without negatively affecting customer satisfaction levels. As Starbucks learns more about the inventory management system's capabilities, Burrows is looking for in-stock improvements, particularly around food items sold in Starbucks locations. "Those are some of the small ways that will add to us continuing to refine and improve our margin," he said.
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