On the back of its Q3 update, Starbucks founder and chief executive Howard Schultz discusses how the group is building its own payment and loyalty ecosystem through its own technology and new partnerships.
Two years ago I reported on the seismic shift in consumer behaviour that would significantly impact traditional bricks and mortar retailers. I was not clairvoyant. The coming change was apparent.
Since then, many traditional retailers and consumer brands have responded simply by substantially increasing their digital advertising budgets, significantly driving up their cost of customer acquisition and producing little to show for it. We on the other hand, took a very different approach.
By further enhancing our already world-class digital technologies through the introduction of capabilities like Mobile Order & Pay and soon to be delivery and expanding our loyalty program, we are driving traffic as reflected in the 4% growth in traffic in Q3.
Bringing in new customers and deepening our connection to our existing customers, elevating the Starbucks brand and our customer experience and streamlining our in-store operations.
The unique digital partnerships that we are forging with like minded businesses in a number of verticals will further leverage the Starbucks brand and our digital assets in order to further reduce our already low cost of customer acquisition and drive additional incremental traffic.
Starbucks superior customer experience depends in part on delivering world class service and convenience, and I am pleased to report great progress on several game-changing initiatives that are only in their infancy.
We first introduced Mobile Order & Pay into 150 of our company operated stores in the Portland area last December and then quickly expanded it to the full 650 store Pacific Northwest region in March. Given the powerful positive impact Mobile Order & Pay had on our business in Portland and Seattle, we accelerated the rollout of this offering and now offer this innovative mobile capability in over 4000 of our US company operated stores. And we are now on track to offer Mobile Order & Pay capability across the entire US company operated store portfolio in time for the upcoming important holiday season.
Mobile Order & Pay is enabling us to serve more customers more quickly and efficiently and to significantly reduce attrition off the line. We are already seeing positive impact on operating results. But keep in mind that the rollout to 4,000 stores occurred only in the last couple of weeks of the third quarter. So the real impact for Mobile Order & Pay and increased convenience remains in the quarters and years to come.
That said, mobile order and pay is fueling both revenue and profit growth in every market in which it has been deployed with customer adoption starting faster and accelerating with each new phase we roll out. By enabling our customers to order ahead and avoid waiting in line, Mobile Order & Pay is enabling us to capture more on the go customer occasions, and the data is clear. In those stores where Mobile Order & Pay has been deployed, lines are shorter, service is faster and in-store operations are more efficient. The net result is increased traffic, incrementality that is exceeding expectations, improved throughput and an elevated Starbucks experience for our customers.
We will add the Mobile Order & Pay feature to our Android app in the US, as well as introduce Mobile Order & Pay technology into our international markets in the months ahead. Importantly, key features like suggested menu recommendations that will drive increased ticket have not yet been deployed, as we are still in the beta mode.
In another important initiative designed to improve Starbucks superior convenience, we have opened our first express store in New York City, and while it still very, very early in terms of how many days it’s been open, initial results are nothing short of extraordinary.
In approximately 5,00 square feet of space, we are now handling volumes we would normally expect from a store three times its size and nearby stores less than a few hundred feet away have not seen any adverse impact or cannibalization.
This helps validate the assertion that we made at our investor conference last December that many places in the US we have far more demand than our current stores conserve, indicating opportunities to significantly grow our domestic store footprint in the years to come. And the express store is only one of several innovative new formats that we are pursuing to take advantage of the different kinds of real estate opportunities we need to address in order to tap into the demand that exists for more Starbucks occasions.
The initial success of Mobile Order & Pay in the express store are testaments to the growth potential that remains for us in the US where our ability to serve demand rather than the need to create demand will be key to our achieving our growth. In addition to more express stores, another will open in New York City later this summer. The next big initiative to satisfy customer demand and provide added convenience is delivery. We remain convinced of the huge demand for Starbucks delivery to your home or office and are on plan to pilot delivery in Seattle and in the Empire State Building in New York City before the holiday.
We have no doubt that delivery like Mobile Order & Pay will drive further incrementality and increase profitability and enhance the equity of the Starbucks brand. Just as digital technologies are enabling us to add convenience with features such as Mobile Order & Pay and delivery, digital technologies are enabling significant expansion of our My Starbucks Rewards (MSR) loyalty program.
MSR continues to be our most important business drivers as new members contribute not only short term increases in revenue and profit, but also to long-term loyalty for years to come. We now have 10.4 million active MSR members, up 28% from Q3 of 2014 with 6.2 million being Gold members, up 32% from Q3 last year.
The significant increase in Gold level membership means that an increased number of our MSR customers are transacting in our stores more frequently than before with MSR members now accounting for approximately 30% of total tender in North America.
And our mobile commerce platform is literally stronger than ever. We have reached the milestone where mobile payments now represent 20% of all in-store transactions in our US stores, more than double the figure from only two years ago, and we are now processing nearly nine million mobile transactions each week.
Now our plan all along has been to bring both our MSR membership and our digital capabilities to scale, and we are now there, and so then leverage the Starbucks brand, our deep engagement with customers, our global store footprint and our world leading mobile digital card and loyalty assets to create the foundation of a much broader external mobile digital and loyalty platform. One that would extend to purchases and experiences outside of the four walls of the Starbucks store.
This new digital external platform will enable businesses whose customer demographics are similar to our own and with whom we choose to partner. To purchase stars from Starbucks and then to distribute the stars in order for them to acquire, retain and reward their own customers with the gift of Starbucks. And what’s really wonderful about this opportunity is that gift can only be redeemed at a Starbucks store.
Let me explain the enormity of this emerging digital and loyalty opportunity through the lens of the first three expanded loyalty partnerships that we’ve recently announced. The first partnership we announced was with Spotify. Under the arrangements, Spotify will purchase Starbucks Stars from us and then distribute these Stars to drive premium subscriber acquisition.
It will allow Spotify to differentiate themselves from competitive music streaming services and reward customer loyalty. In addition and as an added benefit to our own employee partners, all Starbucks partners are being given a Spotify premium account free of charge.
The second partnership we announced was with the New York Times. Under the Times arrangement, as with Spotify, the Times will purchase Starbucks Stars from us and distribute Stars to drive customer acquisition and to reward customer loyalty. And as an added benefit, Starbucks customers will be provided with free, unique, curated New York Times content to the Starbucks digital network within our stores.
Our third digital and loyalty platform partner is Lyft, one of America’s leading mobile transportation network companies. As part of our partnership, Lyft will purchase Stars from us and distribute the Stars to increase customer acquisition and loyalty, reward their drivers and distinguish Lyft from competitive services.
There are a number of innovative elements to this partnership, but a few that highlight the like-minded nature of our companies include that we will be making all Lyft drivers Gold members of our MSR program and that Lyft will be offering their writers the ability to thank their drivers with Starbucks e-gifts.
In addition, later this year we’ll be testing the possibility of introducing a convenient and cost effective transportation benefit to Starbucks employee partners in conjunction with Lyft in order to gauge partner interest and to determine the long-term viability of this benefit.
What each of these partnerships affords is the opportunity for consumers to earn Starbucks Stars outside of Starbucks stores and then to redeem them for their favorite food and beverages within Starbucks stores, providing a unique opportunity for incrementality, increased profitability and the opportunity for us to serve, connect with and become part of the daily ritual of an even more larger based number of consumers, and adding further momentum to Starbucks unique increasingly global flywheel.
And since each and every Star has significant perceived value to our MSR customers, these digital platform partners will be conferring a meaningful benefit upon their new and existing customers and even their drivers in the case of Lyft.
We strongly believe that no other bricks and mortar retailer has the brand strength, digital and physical assets or connection to consumers to create, build and execute a program anything like this.
We have identified prospective partners in multiple attractive business verticals, and you may expect to hear about many more carefully curated, customized digital partnerships in the quarters ahead as we roll out this proprietary Starbucks Star-centric digital and loyalty ecosystem.
