Starbucks adds an extra shot to its afternoon marketing push

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An employee passes a drink order to a customer at the drive-thru of a Starbucks Corp. coffee shop in Rodeo, California, U.S., on Monday, April 23, 2018.
An employee passes a drink order to a customer at the drive-thru of a Starbucks Corp. coffee shop in Rodeo, California, U.S., on Monday, April 23, 2018. Credit: David Paul Morris/Bloomberg

Starbucks is putting more emphasis on marketing in the afternoon to get people to think of the world's largest coffee chain for more than just their morning java fix.

But don't expect the return of lots of cheap Frappuccinos.

Starbucks says the number of people in its rewards program rose 12 percent to 14.9 million. Those patrons typically come in more often and spend more than other customers. Now, Starbucks is doing more to woo the millions more who visit less frequently, particularly those occasional visitors who stop in one to five times a month.

Those patrons aren't as aware of the company's new products, yet they're responsible for a good chunk of the volume done during the afternoon, says Group President and Chief Operating Officer Roz Brewer on the company's earnings call today. She says Starbucks will push out a smaller number of more relevant product promotions and focus on those customers in the afternoon, a time when the company hasn't been doing as well.

Marketing plans in the afternoon "are not short-term focused as we have done in the past," says Brewer. Messages about new beverages and pairing drinks with food in the afternoon will begin in May and continue through August, she says.

One marketing tool will be happy hours, during which deals are offered, often starting at 3 p.m. In the past, a 10-day run of discounted Frappuccinos drew plenty of people but began to be more of a financial strain on the business since they were offered to everyone. Now, Starbucks is offering happy hour deals digitally to certain customers, even if they're not in the rewards program, with offers such as 50 percent off a macchiato or a $2.50 Teavana Shaken Iced Tea Infusion. The tweaked happy hours in the recent fiscal second quarter generated strong incremental profits, Brewer says. And, while it's still early, Starbucks says those offers are generating more of a response from people who aren't in the rewards program than from those who already are.

Starbucks is also emphasizing higher-end cold drinks, with newer products such as iced cold foam cappuccino and nitro cold brew. A new flavor of Frappuccino will be introduced shortly.

"Our goal is for our cold beverages to be a must-have," says Brewer.

Philadelphia Story
The afternoon getting more attention comes as Starbucks already announced plans to close all of its company-owned U.S. shops the afternoon of May 29 for racial-bias training. Starbucks CEO Kevin Johnson quickly addressed the arrest of two black men in Philadelphia two weeks ago on the call.

"I am personally committed to act on several fronts to ensure it never happens again," Johnson said, later adding: "All companies make mistakes. Great companies learn from them and improve, and that is exactly what we intend to do."

An analyst asked whether Starbucks was seeing any financial hit from the backlash that swirled following the arrests, video of which was shared widely on social media. There has not been any impact on comparable sales, Johnson says.

Still, some studies suggest there are consumers changing their minds about visiting Starbucks. Twenty-eight percent of consumers surveyed on March 10 said they'd consider purchasing from Starbucks the next time they were out for food or drink, and that fell to 26 percent on April 15, three days after the arrests, according to YouGov BrandIndex. Twenty-six percent of those surveyed on March 10 said they'd consider Dunkin' Donuts, and that rose to 30 percent on April 15.

Starbucks U.S. same-store sales rose 2 percent in the fiscal second quarter ended April 1 and are forecast to rise 3 percent in the current third quarter. Spending per transaction increased as the quarter progressed and rose 3 percent, but the number of transactions didn't budge.

Comparable U.S. sales fell 0.5 percent at competitor Dunkin' Donuts, which also reported results Thursday. Visits are also a concern over at Dunkin', which says U.S. traffic declined in the latest quarter. Dunkin' did point out, though, that it saw an improvement in traffic in the afternoon as it began offering some new deals at that time of day.

In his first year as CEO, Starbucks' Johnson has made some changes such as selling the Tazo tea business and shutting down Teavana stores. Starbucks is "evaluating more streamlining actions to come," he says.

The chain is still very optimistic about China, where it's opening lots of stores even though coffee culture isn't nearly developed as it is elsewhere. Coffee consumption in China is half a cup per person per year, versus per capita consumption of 300 cups per year in the U.S., according to Starbucks.

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