Credit: One of Starbucks' ( SBUX ) key growth strategies is its "digital flywheel" where the company is using technology to establish digital relationships with its customers. These relationships have proven to be extremely effective in generating demand for the company and Starbucks is working on several measures to keep the momentum going. In its most recentearnings callthe company announced that it will use its technology platform to launch its first product with Chase - a co-branded Visa Credit card. This credit card will enable customers to receive Starbucks rewards on their purchases in and outside of Starbucks' stores. Subsequently, the company also plans to introduce a prepaid Visa card for customers who prefer debit. These cards will strengthen the partnership between Starbucks and Chase which was announced in October 2015 when Starbucks appointed Chase commerce solutions as its payment processor.
Starbucks Rewards members have been key revenue drivers for the company and in the fiscal year 2017 Starbucks saw an 8% increase in per member spend from these members. Recently the company launched its rewards program in Japan on the digital flywheel platform and already has nearly 2 million members in the region. In the U.S. the company has seen an 11% growth in reward membership in the fiscal year 2017. With increasing traction for its rewards program, a credit or debit card which allows uses to earn rewards in other stores as well, can allow the company to expand its base of loyal customers and increase average customer spend. Further this strategy expands the payment options available for customers to earn rewards at Starbucks and can drive revenues.
Enrolling members for its financial services products (the soon to be launched Visa Credit and prepaid cards) can also help Starbucks to expand its digital relationships with its customers. These relationships are likely to be one of the key revenue drivers for the company in the long term. According to our estimates, the average annual revenue at a Starbucks' company owned store will increase steadily over our forecast period from $1.40 million in 2018 to around $1.54 million by 2024. By expanding its base of loyal customers, if the company is able to grow revenues, there can be an upside to our price estimate.
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Financial services products have always been a key customer acquisition and retention tool for retail companies. As the popularity of Starbucks' rewards program increases and the company looks to build a competitive edge, its credit and prepaid cards can work as an incentive for consumers to spend more at its stores and visit them more frequently to redeem the rewards. The digital relationships created in the process are likely to be more valuable in the future.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
