Article

Three takeaways from Starbucks' Q1 2015 report

Starbucks' consistent success comes down to three things: a strong loyalty program, excellent operational execution and product innovation.

January 26, 2015 by Brenda Rick Smith — Editor, Networld Media Group

Remember that really popular kid in high school, the one who was the standout athlete and terrific scholar and natural leader who just seemed to get everything right?

That's Starbucks.

Starbucks announced its Q1 2015 results on Jan. 22, and not surprisingly, the results are as strong as a cup of espresso. A few highlights:

The Seattle-based coffee behemoth posted global same store sales increases of five percent. The Americans region posted its 20th consecutive quarter of comp growth of five percent or greater.
Transactions grew by 12 million globally year over year, with 9 million of those transactions taking place in the U.S.
A record $1.6 billion was loaded on Starbucks Cards during the season, up 17 percent over last year. One out of seven American adults received a card this holiday season, up from one out of eight last season.

"Starbucks record Q1 fiscal 2015 financial and operating performance was exceptional by every metric and standard," said Chairman, President and CEO Howard Schultz in the financial release.

What lessons can mere mortals learn from Starbucks' consistently strong performance? Here are three key takeaways from Starbucks' Q1 2015 report:

Loyalty matters

Those one in seven American adults who received a card this season? A lot of them have joined My Starbucks Rewards.

"We know that increased Starbucks card sales drives My Starbucks Rewards membership and in turn traffic to our stores," said Schultz in an investor call. "We added almost 900,000 new MSR members in Q1 alone, bringing our total membership to over nine million, 23 percent above where we were at this time last year."

Onboarding nearly a million new loyalty program members will pay exponential dividends for Starbucks, particularly in terms of one-on-one marketing opportunities.

The next logical step? Mobile Order and Pay. Starbucks is counting on the idea that Mobile Order and Pay is more efficient for loyal customers, making it an easy choice to squeeze a quick run to pick up coffee into an otherwise packed schedule.

Testing began in the Portland market late last year, and while Starbucks did not release figures, tests are going well. Starbucks plans to roll out Mobile Order and Pay nationally later in the year.

Starbucks executives attribute the success to the fact that Mobile Order and Pay is built on a solid foundation.

"What's so unique about what we are doing is we are not starting from a cold start," said Global Chief Strategy Officer Matt Ryan. "We already have 13 million active mobile users. We have the POS and payment capability. We have MSR now up to nine million plus. And so for us, we are simply adding on mobile ordering to that stack of proprietary integrated technology that allow us to do something like that."

What is the next logical step after that? How can Starbucks make it even easier for customers to choose them? Delivering orders straight to the customer. Starbucks is set to roll out a delivery program nationwide later this year.

Operations, execution matter

Another factor in the success of the Mobile Order and Pay test is what happens inside the store once the order is placed. It doesn't matter how solid the technology is behind the app; if baristas are confused by mobile orders, or don't get them, or the mobile orders interrupt workflow, service will slow down. The result will be unhappy customers.

But that hasn't been the case for the Starbucks Mobile Order and Pay test.

"We took the existing flow in the store, have built a printer into the register lineup," said Cliff Burrows, group president for U.S., Americas and Teavana. "It has been an absolutely seamless experience for our baristas. And it doesn't change the routine for the bar."

Starbucks is taking care to make sure in-store operations are smooth and live up to customers' expectations.

Food and beverage innovation continue

Even with the technological advances, Starbucks hasn't put food and beverage innovation on the backburner.

In addition to the perennial favorite Pumpkin Spice Latte, Starbucks also rolled out a new Chestnut Praline Latte with its seasonal offerings.

Starbucks core and limited time offerings contributed almost half of the U.S. comp growth for the quarter, with holiday beverages delivering nine percent year-over-year growth and total tea sales increasing 17 percent.

But the real story may be in Starbucks' food. Food sales contributed two percent to comp growth, with breakfast sales yielding a 29 percent net increase in the quarter over the previous year, and lunch gaining 15 percent.

It's early to tell how successful Starbucks' recently introduced Flat White beverage will be, but early results seem promising, according to Schultz.

And with the flagship Starbucks Reserve and Roastery coming online late last year, the innovation will likely continue. The roaster increases small batch roasting capacity, which will make it possible to increase its super-premium offering at select Starbucks locations. More roasteries are in the pipeline.

Image courtesy of Starbucks

About Brenda Rick Smith

Brenda has more than 20 years of experience as a marketing and public relations professional. She invested most of her career telling the story of entrepreneurial non-profit organizations, particularly through social media.

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