Starbucks founder and chief executive Howard Schultz looks at the cultural shift in time allocation currently occurring in the consumer environment, away from “retail experiences people have felt forced to undertake and towards retail experiences that people want to enjoy with convenience as the key enabler”.
I want to talk to you about the intersection of three powerful consumer trends, the convergence of which bodes extremely well for Starbucks over the long term. The shift in consumer behaviour that has people spending less time shopping in bricks-and-mortar stores and more time online that I first discussed with you after Q1.
The established long-term trend of people consuming more and more food and beverage away from home and the tremendous growth of online activity from mobile devices allowing consumers to conveniently conduct their lives including commerce from wherever they happen to be.
What’s actually occurring is the cultural shift in time allocation, away from retail experiences people have felt forced to undertake and towards retail experiences that people want to enjoy with convenience as the key enabler.
Starbucks is uniquely well positioned to benefit from this convergence as the destination experience. Visiting Starbucks has always been an elective choice, a place people choose to freak with and as a result the place that is vastly less dependent on intercepting retail traffic for sales growth.
The relevance of the Starbucks’ experience, the desirability of our coffee and food and the ambience and feeling of community within our stores sets us apart from our competitors and our unique drivers that will continue to support our growth.
On top of this, we continue to see consumers favour retailers who improve their customer experience through the integration of convenient mobile technology. And while Starbucks is today an uncontested leader in mobile, we will continue to innovate and lead around all things mobile in order to attract additional users of our app and provide an enhance and simplified experience for our customers. Innovations that will drive traffic and incrementality and create further attachment and customer engagement.
By way of example in September, we launched our new Starbucks app for android with Shake to Pay functionality in the US, UK and Canada and also digital tipping in the US as Starbucks iOS app now has Uber integration, enabling customers to click on a ride to their local servers.
But perhaps the single most important technology innovation, we will introduce this year is Mobile Order and Pay which debuts in Portland in December and will be rolled out nationwide in 2015. And while many people are talking about Mobile and Pay, what Starbucks is going to do and execute is quite different than anyone else in the market place.
Consumer’s today are no longer willing to accept convenience only around the purchase of readily available or commodity based products. They want convenience around the purchase of premium products like Starbucks as well. One way, we are addressing that need is to accelerate the expansion at Starbucks portfolio of high profitable drive-through source.
But our research confirms that we can drive even more traffic and incrementality and offer even more customers more convenience in more locations by allowing them to place orders ahead of time via their mobile devices and pick their orders up without waiting in line.
Starbucks’ Mobile Order and Pay is a totally unique technology. It seamlessly integrates mobile ordering and our proprietary loyalty program with point of sale and store operations enable us to enhance our customer experience, exceed our customer’s expectations or convenience and extend customer loyalty.
And as you will see in a few weeks, no company in any industry offers any technology remotely like Starbucks’ Mobile Order and Pay plus we get the added benefit of increased store throughput and speed of service for all our customers. And we will drive a further step change in customer loyalty and engagement by extending express order and pay to include food and beverage delivery, yes, food and beverage delivery in select markets during the second half of 2015.
Imagine the ability to create a standing order that Starbucks delivered hot or iced to your desk daily, that’s our version of ecommerce on steroids. All this will grow Starbucks Rewards, our loyalty program that now has 8 million active members up 23% over Q4 last year and has been launched in 26 countries. And we will roll out and enhance My Starbucks rewards program, providing even greater benefits to members in 2015, further accelerating MSR membership growth. And we have several initiatives underway that will grow membership in a short term and surprise and delight our customers.
Finally, while we have been investing in the development of our world class mobile technologies for many years and there has been a great deal of activity and speculation around the mobile payment base recently. Mobile payment and consumer adoption of the technology overall is still in its infancy.
Please consider this metric. In 2013, payment for purchases by use of all mobile devices in the U.S. totaled $1.3 billion that was the entire market. Now listen to this. With over 90% of those purchases taking place in a Starbucks store, that means we had 90% share of mobile payments in 2013 while bricks-and-mortar commerce in 2013 totaled more than $4.2 trillion.
Now what you’re going to see in the years ahead will be a rapid acceleration in mobile device purchases and a continued significant migration away from bricks-and-mortar commerce. There is obviously a huge prize there and that’s why we’re seeing so much activity around the payment space from all kinds of companies.
That’s why every tech in financial service company in the world is totally, is today chasing the mobile payment opportunity. Yet while these companies may have vast hardware and software development capabilities and this is the key point here. Starbucks is the only local, national or global business of any kind to succeed in crossing both the most difficult and the most critical CASM standing between success and failure in mobile payment, transforming consumer behavior. We’ve accomplished this by integrating the convenience of mobile payment to a compelling and enjoyable program that gives our customers rewards.
Already close to 7 million transactions per week, 16% of all transactions conducted in U.S. Starbucks stores occurs via customers use of a mobile device. No company and no retail store domestically or internationally even comes close. And while that figure has been growing by almost 50% per year, the real growth is yet to come.
Starbucks has cracked the code at tying mobile payments to loyalty and we are now receiving great interest in partnerships from mobile payment companies who see the value of our rewards program and the mobile payment behaviour we established. But we will play our hand wisely with a long-term view, carefully choosing our partners and how we leverage our assets to take advantage of the revenue and profit opportunities in loyalty and mobile payment ahead. But I can assure you that Starbucks will have a major role to play, both inside and outside of our stores as the nascent mobile payment industry evolves.
