If you always have a caramel macchiato on Mondays, but Tuesdays call for the straight stuff, a double espresso, then Starbucks Corporation (SBUX) is ready to know every nuance of your coffee habit. There will be no coffee secrets between you, if you're a Rewards member, and Starbucks.
This fall as Starbucks rolls out more of its new cloud-based Digital Flywheel program, backed by artificial intelligence (AI), the chain's regulars will find their every java wish ready to be fulfilled and, the food and drink items you haven't yet thought about presented to you as what you're most likely to want next.
So targeted is the technology behind this program that, if the weather is sunny, you'll get a different suggestion than if the day is rainy. Or expect suggestions to vary on the weekend or a holiday, as opposed to a regular workday. If it's your birthday, Starbucks will offer a personalized birthday selection. If you patronize a Starbucks other than you're regular haunt, Starbucks will know that too.
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Like it or not, what Starbucks has developed represents a smart melding of technology into e-commerce tools that will pay off long term for the company and drive sales, Brian Solis, a principal analyst and futurist at Altimeter, told TheStreet in an interview.
"Starbucks is one of the best companies in the world that connects brand, user and consumer experience between digital mobile and the real world," said Solis. " They are still pushing forward, rolling out their Digital Flywheel strategy to be more dynamic to further integrate digital and real world."
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Matthew Ryan, global chief strategy officer at Starbucks, said during an earnings call on Thursday, July 27, that the personalization technology behind Digital Flywheel will allow the company to offer exclusive benefits to subsets of customers and put forth new ways to order. He said the program offers "real-time triggers and push[es] notifications to engage customers more deeply, building on the momentum that is generating the higher spend per members."
In spite of this push, Starbucks has been challenged, according to Stifel analyst Mark Astrachan in a note on Thursday, in which he downgraded the stock to hold from buy.
"Starbucks estimates mobile customers, which are among its most productive, account for 8-9 million of the 13 million MSR [My Starbucks Rewards] members," wrote Astrachan in the note. "We estimate mobile transactions per store growth is slowing, up mid-teens y/y for the last two quarters and decelerating on 2-year basis. Non-mobile transactions per store, accounting for about 2.5x more transactions than those via mobile, has declined low double-digits for the past four quarters, with the two-year CAGR [compound annual growth rate] decelerating for the past seven quarters."
Meanwhile, Starbucks shares plunged nearly 10% on Friday to $54 a share.
Solis is a fan of Starbucks, who sees it as a technology company as much as anything else, with solid growth potential. Any downward moves, he contends, are typical growing pains of an innovator and disruptor. "The fact that the stock has tumbled is a reflection of what happens in the face of disruption," he said. "Shareholders tend to want shorter-term results, versus longer-term investments."
"Mobile is one of many promises in which Starbucks is going to grow," Solis added. "That is because we are on the forefront of a new movement in consumer engagement, which marries mobile, loyalty and sales with AI to deliver extreme personalization, which Starbucks, is priming itself for and consumers are going to start demanding more."
Being that this is a Sunday, Starbucks thinks you might like to splurge a bit, say on a chewy chocolate cookie with that decaf cappuccino you always order. Of course, you were about to think that too, right?
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