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I love my caffeine. And I’d established a pretty regular morning coffee routine. But ever since I downloaded the Starbucks app my coffee-buying behavior has changed. I had a coffee habit. Now I have a Starbucks (Nasdaq: SBUX) habit.
And I’m not alone.
Starbucks has stumbled into an opportunity that could prove to be a completely new source of revenue for the coffee giant.
Starbucks reports that its mobile app now processes more than 6 million weekly transactions, roughly 15% of the company’s transactions. Business Insider estimates that the Starbucks app is on track to process more than $1 billion worth of transactions in 2014.
Source: Business Insider
The beauty of the Starbucks app is that it combines mobile payments with a customer loyalty program.
The first reason for using the Starbucks app is that it is a convenient way to pay for my transactions. I simply open the app and shake my phone or tap “Pay” – both actions pull up a custom barcode that can be scanned at the point of sale as payment for my purchase.
But simple and convenient mobile payments are just one part of the story for the Starbucks app. The company has found tremendous success with the loyalty program run through its app.
For every transaction I make with my smartphone using the Starbucks app, I am rewarded with a “star.” And for every 12 stars I earn, Starbucks gives me a free drink. It is this function that has me coming back for more. What can I say, I’m a sucker for rewards.
The app serves many functions for Starbucks. Besides facilitating mobile payments and the Starbucks loyalty program, it is also a useful marketing tool. The company uses it to “push” custom coupons based on my purchase behavior or based on a product that Starbucks is trying to get me interested in.
Perhaps most importantly, Starbucks gets all of my purchase data.
Starbucks also uses its app to send me news about an “App of the Week” and “Song of the Week” free from the Apple iTunes store, essentially using its user base as a marketing list. I have to assume that Starbucks profits from this app and iTunes store exposure. If it doesn’t, it’s an opportunity.
The fact is, 15% of Starbucks transactions are being conducted through the Starbucks app. Clearly, the coffee giant has hit on something big.
The Starbucks app is so successful that other companies want to pay Starbucks to build one for them.
The company’s high-profile CEO, Howard Schultz, announced earlier this year that Starbucks is in talks with other companies to license out the Starbucks app technology. Though he maintained that Starbucks has always “been and will always be a coffee company,” investors should be excited about the company leveraging its leadership position with app-based loyalty programs and mobile payments to find a new source of revenue.
While the company’s existing coffee-shop business appears strong and it is branching out into new products such as alcohol and with its purchase of Teavana, this could represent a whole new chapter for the company.
Starbucks declares earnings next week. I want to hear more about the Starbucks app during the earnings conference call. If the company is successful with its efforts to monetize the Starbucks app it could be the beginning of something big.
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