Starbucks steps up focus on digital partnerships amid store closures

Starbucks is looking to expand its online relationship with consumers by forming closer partnerships with digital giants, as it predicts more store closures.

The company released its third quarter results yesterday (27 July). Global comparable store sales increased 4% over the last three months, while consolidated revenues were up 8% to a “record” $5.7bn (£4.36bn).

Speaking on an investor call, the brand’s CEO Kevin Johnson once again touched on the “massive disruption” currently plaguing the retail sector. He believes the “winners” will be the companies that can bring together their in-store experience with digital, while those that don’t “will struggle mightily”.

Johnson pointed to Amazon’s recent acquisition of Whole Foods as a prime example of the type of disruption currently taking shape within the retail sector – and proof that digital companies are keen to open physical stores.

One way it is looking to “accelerate the pace of transformation” is by focusing on partnerships with digital tech companies. This could lead, however, to further store closures. Starbucks is planning to close all of its 379 Teavana stores in the US due to “underperformance”.

“Digital companies and tech companies realise more than ever that there’s going to be one customer interface, and that interface is as important to a tech company to have a brick-and-mortar relationship as it is for a brick-and-mortar relationship company to have a digital relationship,” he said.

“And so, once again, I think you’re going to see lots of these kinds of things take place, as well as what I’ve been saying for the last few years, and that is, a level of consolidation and store closures, which we’ve all seen.”

That said, the company’s executive chairman Howard Schultz added that Starbucks is still in the “nascent” stage of these types of commercial relationships, and did not want to give away who it might be talking to.

“Starbucks is probably best positioned, given our national footprint, the demographics of our customers and where we’re located, to have those kinds of conversations. I think it would be premature to get into who they are, but clearly we are a very viable partner, given the change in the industry,” he said.

During the call, Schultz also pointed to its commercial partnership with Tencent in China, which led to two million social gift transactions in six months. While he admits this level of sending gift cards through social media does not exist in the US, he does hope to replicate this type of success through other partnerships.

Removing barriers to mobile ordering

Going forward, Starbucks said it will continue its work on mobile innovation and personalisation with the focus on getting more consumers into its stores.

Mobile order and pay is also becoming increasingly important to the business. Starbucks said payments made via mobile increased to 30% of transactions in US stores; that’s up from 29% in the previous quarter and 27% in the first quarter of the year.

To grow it further, Starbucks says it is launching a new ordering functionality. It will no longer require customers to use a stored value account to place an order, thereby removing a “barrier”. It hopes to trial its new “guest checkout” feature with first-time users of the app in early 2018.