Starbucks is redefining brand loyalty

by Keith Nunes
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Attention must be paid to the Starbucks Coffee Co. and how it is in the process of altering food and beverage merchandising. The company that has reinvigorated the coffee segment by turning coffee drinking into a value-added proposition is now on the cusp of redefining how consumers shop for its products in grocery formats and how they perceive brand loyalty.

Over the next few months Starbucks will unveil a strategy to extend its loyalty program to the products it sells within the consumer packaged goods sector and specifically the grocery segment. The company will leverage technologies such as Smartphone apps that executives believe will allow consumers to buy Starbucks products outside of the company’s stores and still earn rewards.

This is significant given Starbucks’ recent substantive expansion into the bakery, juice, tea and ready-to-drink iced coffee segments. While the Starbucks name is synonymous with coffee, its plans have the potential to involve several parts of the grocery channel and put pressure on competitors that already are working to differentiate their products from a variety of private label offerings.

The popularity of Starbucks’ rewards program, which allows customers who register with the company to earn rewards such as free beverages and other benefits, is undeniable. During the first quarter of fiscal 2013, Starbucks accelerated the growth of the rewards program by adding 1.4 million members, an 86% increase over the 778,000 members it added during the same period of the previous year. In addition, more than 7 million customers now use one of the company’s mobile payment apps, which translate into 2.1 million mobile payment transactions each week.

In a recent conference call with financial analysts, Howard Schultz, chairman and chief executive officer of the company, said this holiday season was extraordinary for the company’s loyalty program.

“I must say it was stunning and almost unbelievable,” he said. “Our Starbucks card had its best holiday season in history, as measured by any metric, with more than $1 billion loaded during Q1, the most ever loaded onto any kind of Starbucks card.”

The market research firm SymphonyIRI recently issued a report that says consumers have “drastically” changed their approach to grocery shopping during the past decade. They combine on-line and offline planning with in-store visits and make more informed and cost-effective purchasing decisions.

“Emerging and evolving technologies have enabled innovative marketers to begin reaching shoppers in their homes while they are researching products and making their lists, and then reinforcing their messages on the way to the store, and in the store when consumers are making their final selections,” said Susan Viamari, a researcher with SymphonyIRI. “Marketers that keep pace with and embrace this opportunity will achieve success, while those who fail will find it difficult — even impossible — to remain relevant and competitive.”

The purpose of merchandising is to spur consumers into action and make a purchase. Merchandising that accomplishes this goal is said to have achieved “sales lift,” according to SymphonyIRI, but in recent years, the research group says average sales lift has declined 70% in the grocery category.

Starbucks is in the process of changing how some grocery shoppers perceive merchandising and its products. While the company’s business model of presenting a strong brand in both food service and consumer packaged goods gives it an advantage over traditional consumer packaged goods manufacturers, food companies would be wise not to ignore this effort.

There are many facets to brand loyalty, and it is clear Starbucks is in the process of tapping into an element that was once the sole purview of retailers. While Starbucks may be on the cutting-edge of consumer packaged goods merchandising, it would be wise for competitors to not fall far behind.

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