Amidst ongoing financial challenges that have prompted many restaurant chains to witness a reduction in consumer spending, Starbucks is utilizing its extensive digital customer base as a means to overcome these difficulties.
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StarbucksAmidst ongoing financial challenges that have prompted many restaurant chains to witness a reduction in consumer spending, Starbucks is utilizing its extensive digital customer base as a means to overcome these difficulties.
The largest restaurant chain in terms of revenue held a conference call with analysts on Thursday, November 2, to discuss its financial results for the fourth quarter of 2023. They pointed out that due to macroeconomic challenges causing shifts in consumer behavior for some restaurant brands, Starbucks is harnessing its robust digital connections with its customers to mitigate the potential decline in business.
Starbucks CEO Laxman Narasimhan emphasized that unlike the situation in 2008, when a similar crisis occurred, the company now engages in a much broader range of channels. Starbucks has established digital connections with more than 75 million customers globally over the past 90 days, granting them the capability to reach out to their customers effectively and employ various strategies to handle any uncertainties that may arise.
The capacity to counteract the reduction in consumer spending is of great importance, especially considering the continuous increase in restaurant prices, which has led many customers to change their dining habits at least on occasion. A survey conducted by PYMNTS last year, involving over 2,300 U.S. restaurant customers, revealed that around one-third of consumers were making restaurant purchases less frequently due to inflation.
Despite these challenges, Starbucks has managed to maintain an upward trajectory in its sales. In the quarter under review, the company achieved an impressive year-over-year revenue increase of 12%, largely attributed to its strong digital engagement. Narasimhan also highlighted the exceptional engagement with their loyalty program, with Starbucks Rewards boasting 33 million active members in the U.S., breaking records in terms of member spending and overall member activity.
It’s evident that a significant number of consumers actively participate in restaurant loyalty programs. A March report by PYMNTS Intelligence, titled “Connected Dining: Consumers Like the Taste of Discount Meals,” which was based on a survey of over 1,800 U.S. consumers, revealed that 51% of consumers reported using a restaurant loyalty program, with Quick Service Restaurant (QSR) program adoption showing a 15% year-over-year growth.
Besides its digital strength for in-restaurant and pickup sales, Starbucks is also experiencing an increase in the average order value due to the growth of its delivery service, facilitated by the expansion of its availability through third-party aggregators.
The company is witnessing significantly higher unit sales per transaction, largely driven by the growth in drive-thru orders and delivery, which often involves larger group orders. As a result, Starbucks has reported stronger performance in the quarter.
In fact, consumers are now spending nearly twice as much on their average delivery orders compared to pickup orders. According to the findings of PYMNTS Intelligence’s “Connected Dining” series, consumers spent an average of $36.20 per delivery order at the beginning of this year, marking a substantial increase from the $21.50 spent per order in the previous spring. This amount significantly surpasses the $18.20 that restaurant customers typically spend on their average pickup orders.
