Can Digital Initiatives Power Starbucks' Growth?

As its recent earnings report showed, Starbucks (NASDAQ: SBUX) is feeling the pressure in the U.S., just like most brick-and-mortar businesses. Still, the company is doing well on a relative basis, with positive comparable-store sales, even though traffic to physical retail stores has been declining in the U.S. overall.

Starbucks' resilience could be at least partly attributed to its digital flywheel, which incorporates the My Starbucks Rewards program, personalization tools, mobile payments, as well as a mobile order-and-pickup feature through the Starbucks app. The company has definitely been a leader on digital retail tools, and on its recent earnings call, management mentioned several digital initiatives that will be important to its medium and long-term growth.

cartoon hands use cartoon smart phone applications for e-commerce.
cartoon hands use cartoon smart phone applications for e-commerce.

Image source: Getty Images.

Rewards

In the past quarter, Starbucks added 1.4 million active Starbucks Rewards members, increasing 11% year over year to 14.2 million. Rewards members are incredibly important to the company -- they make up only around 18.6% of all unique customers, yet last year, Rewards members drove 36% of Starbucks' total tender, with last quarter showing continued increases in spend per member.

Starbucks Rewards members are so important, in fact, that they accounted for virtually all of Starbucks' comparable-store sales growth in the quarter.

Mobile and China

Starbucks' mobile payment usage is also on the rise, as mobile payments made up 30% of its U.S. sales and over 60% of sales in China, which is Starbucks' biggest growth market.

Part of the company's rapid growth in China is a result of new partnerships with giants Tencent and Alibaba. Starbucks began to accept WeChat (a Tencent app) as a payment platform a year ago, and then Alibaba's Alipay in September. This is important because Chinese consumers use mobile payments much more than Americans do. In fact, in 2016, the Chinese used mobile payments 50 times more than U.S. consumers, who still have a habit of using credit cards. As China is the major growth focus of Starbucks right now, with 30% overall growth and 6% comps growth last quarter, getting digital payments right is crucial for continued success in that country.

The Starbucks credit card

As important as Rewards members are, Starbucks is also aggressively targeting non-Rewards members. The company announced it will partner with JPMorgan Chase and Visa on a co-branded credit card, as well as a store-of-value card (for those who can't qualify for a credit card) that will be available this spring. The new cards will allow both Rewards and non-Rewards members to earn Starbucks "stars" when they spend outside Starbucks cafes.