Starbucks Corporation (NASDAQ: SBUX) offered an interesting glimpse of the future at the J.P. Morgan Gaming, Lodging, Restaurant and Leisure Management Access Forum last week. Rather than resting on its laurels, Starbucks is doing its best to maintain its current robust business while actively leveraging its consumers and platforms to fuel a new growth phase. If this all plays out as Starbucks hopes, we could be looking at a new growth phase for SBUX stock lasting 10 years.
SBUX stock seems to be enjoying exceptional success from its loyalty program, the Starbucks Rewards program. Loyalty programs are supposed to generate additional purchases, obviously, because people wish to take advantage of whatever rewards the program may have.
What’s interesting is that SBUX stock arguably does not need such a program. While there is always going to be competition in coffee, Starbucks is the leading brand name in the area. It’s not like the airlines who are fighting over every last customer.
The name “Starbucks Rewards” is actually a far better description of what the program is, as opposed to it being a “loyalty” program. You actually get rewards and that is actually pushing more revenue to Starbucks stock. We are seeing that in SBUX stock same-store sales growth from those who have been participating in the rewards program.
Growth Through Personalization
And this is what Starbuck wants to leverage. Starbucks wants to leverage personalization into growth. It can do this by looking at spending data and analyzing it. Company officials are very early in this process.
At the same time, Starbucks’ own data shows that only about 20% of its consumers are in the rewards program. the company is wondering why the other 60 million people haven’t joined and want to address that.
As Starbucks management pointed out in the presentation, consumers that spend through the program are getting a discount of 7% to 8%. That’s pretty incredible, as 5% cash back on limited purchases is the best we see with credit cards.
So, Starbucks wants to really focus on getting users into the program, because when they start crunching the data, they will be able to more effectively steer customers towards purchases that they might like — and to develop products that would be of greater interest to these customers.
Starbucks is also looking at how employees are deployed in its stores. The idea here is that if consumers visit their local store at the same time every day, they form a more personal relationship with the employees, which, in turn, encourages them to return.
This is all about forming personal relationships with the customers. That is the core goal of every successful business.
The Key to Future Success for SBUX Stock
But there’s also careful analysis of what is going on at the store level. In the movie The Founder, which is about how Ray Kroc essentially stole the McDonald’s Corporation (NYSE:MCD) franchise from its true originators, there are great scenes about how he had the vision to reorganize how employees moved around the store. It was all centered around making the customer experience as fast and efficient as possible. Starbucks is looking to do exactly the same type of thing.
The entire transcript of the event is worth the read. What it communicates is that management is constantly looking to improve the experience. That is a hallmark of companies that grow and experience great success over a very long time.
It shows that Starbucks stock price today doesn’t just reflect a wait-for-CEO-Howard-Schultz-to-roll-out-the-new-rates macro concepts of the chain, but that SBUX is looking to use every strategy it can think of to squeeze as much growth out of the existing business as possible, while making additions and other changes along the way.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
