How Starbucks will use NFTs to drive consumer loyalty

Starbucks envisions the emerging technologies of Web3 as a means to reinvent its “third place” for consumers who are increasingly engaging with the brand digitally. Traditionally, the “third place”—what Starbucks has long referred to as neither an office nor a home—has meant the coffee chain's in-store seating where consumers gather to work or socialize. But Howard Schultz, Starbucks’ longtime leader and now its interim CEO, acknowledged this week that changes in consumer preferences and behaviors during the pandemic have challenged the company to create a space where consumers could have similar experiences virtually. To do this, the company is turning to NFTs, which will grant owners entry to virtual communities associated with Starbucks' coffeehouse culture while serving as a kind of souped-up loyalty program. The first series of NFTs is to be released later this year, company executives said. Schultz first mentioned tapping into Web3 in remarks made April 4, the day he replaced retiring CEO Kevin Johnson. He and Chief Marketing Officer Brady Brewer elaborated further this week in a conference call discussing the company's financial results for its fiscal second quarter, and in a blog post from Brewer. “Our Web 3.0 strategy is a proxy for the greater ambition we have for the company going forward,” Schultz told analysts on a conference call, noting the need to “meet customers wherever they are and irrespective of their needs state.” It comes as the company wrestles to meet what Schultz called “relentless demand” that has made employees’ jobs more challenging and worn away the quality of customer experiences, while sales have continued to rise. Schultz said Starbucks would turn to Adam Brotman, architect of its successful mobile order and pay technologies, as a special advisor to the company as it develops its Web3 offering. He said the concept could drive “substantial” revenue and be accretive to earnings: It will be paid for in part through cash the company had previously devoted to stock buybacks, which Schultz called a halt to on his first day back. Historically, he said, Starbucks has generated far better return on technology investments than the 10% it makes on stock buybacks. Enter Ad Age's 40 Under 40 at AdAge.com/40u40. Brewer noted the company already has a substantial digital audience, underscoring the need to create experiences for them. Starbucks also has a “history of taking leading-edge technology and innovation and making it accessible and approachable to the mainstream,” Brewer said. There are nearly 27 million active participants in the Starbucks Rewards program, and its cafes are visited nearly 100 million times a week worldwide. “Imagine acquiring a new digital collectible from Starbucks, where that product also serves as your access pass to a global Starbucks community, one with engaging content experiences and collaboration all centered around coffee,” Brewer told investors. In a blog post published this week, Brewer wrote that Starbucks would focus on using NFTs as a kind of powerful loyalty tool, creating a series of branded NFT collections that would tap into art, music and book associations with the brand. “The themes of these collections will be born of Starbucks artistic expressions, both heritage and newly created, as well as through world-class collaborations with other innovators and like-minded brands,” Brewer wrote. High demand, outdated kitchens The Web3 plan was part of a series of wide-ranging ambitions shared by Schultz, who acquired Starbucks in 1987 and built it into a global powerhouse, previously serving as its CEO in two separate tenures. He said he would remain interim CEO until the company names a permanent successor, likely early next year. In remarks to investors, Schultz addressed operational challenges besetting Starbucks, noting the company had fallen behind on investments in its physical stores that have made employees’ jobs more challenging and made customer experiences less than ideal. Consumer tastes have changed too, with cold beverages for example now comprising 80% of Starbucks' mobile order and pay business—many of those being customized drinks that can be difficult for staff to prepare promptly and require equipment some stores don't have enough of. The pandemic interfered with Starbucks’ ability to upgrade the equipment in the stores to meet these changing preferences and subsequently places “tremendous strain” on store employees, Schultz said. RSVP for Ad Age In-Depth: TV Pivot on May 24 and 25 at AdAge.com/TVPivot Schultz also addressed the spate of labor union votes happening in recent months at Starbucks locations across the country, saying he understood why so many workers were looking to labor unions while stressing Starbucks’ strong reputation as an employer. The company has plans to further upgrade worker perks and pay, he said, including programs to be announced in September covering areas like student loan refinancing, enhanced digital tipping and profit-sharing. “We do not have the same freedom to make these improvements at locations that have a union or where union organizing is underway,” he noted. “We are highly empathetic to the root causes of the frustration and anxieties that Gen Z Americans are facing, having come of age during turbulent moments in our history—the 2008 global financial crisis, the Great Recession, and now the global coronavirus pandemic,” Schultz said. “These young people have completely valid concerns given today’s uncertainty and economic instability. They look around and they see the burgeoning labor movement as a possible remedy to what they are feeling. “I understand the climate, and I'm deeply sensitive to the needs of all of our Green Apron partners,” he continued. “Yet, we have a very different and vastly more positive vision for our company based on listening, connecting, and collaborating directly with our people.”How Starbucks celebrated its 50th anniversary For the quarter, which ended April 3, net revenue increased by 14% to $7.6 billion, Starbucks reported. In North America, revenue increased by 17% to $5.4 billion and comparable-store sales climbed by 12% on a 5% increase in transactions and a 7% rise in average order value. Investors reacted positively to the U.S. sales momentum, with Starbucks shares up 9.8% on Wednesday.

How Starbucks will use NFTs to drive consumer loyalty

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