NEW YORK, N.Y. – Starbucks expressed confidence that an overhaul of its rewards program will drive up sales over the long term, but warned the transition could be bumpy.
The company reported disappointing sales growth Thursday for the first three months of the year. Global comparable sales rose 6 per cent, including a 7 per cent increase in its flagship U.S. market.
While the reward changes went into effect just last week, Starbucks said early signs are encouraging and that customer spending is up across loyalty program members, including those who stood to lose out from the change.
“We are not seeing any of the noise that has been speculated on,” said Matt Ryan, Starbucks’ chief strategy officer, in a call with analysts.
The loyalty program in the U.S. now rewards “stars” based on how much people spend, rather than how often they visit. That means customers who buy a plain $2.50 coffee or other small items now need to spend more to earn a free drink or food item.
The change had prompted worries that angered customers would take their business elsewhere.
Despite the positive early signs, however, Starbucks executives warned that there could be “noise” and “bumpiness” in coming quarters as customers adjust to the change. When asked about the mixed signals the company seemed to be sending, Starbucks CEO Howard Schultz, who had been quietly listening in from South Africa, chimed in to say he found the conversation “very odd.”
“We’re building something so enduring and so unique I think it’s going to be one of the most significant changes to the equity of the brand,” Schultz said.
Starbucks has said it plans to give customers new ways to earn stars, including outside its cafes. Later this year, for instance, the company plans to introduce a Visa prepaid debit card that lets people earn stars.
For the quarter ended March 27, Starbucks said U.S. sales benefited from people buying more food items like breakfast sandwiches and salads intended to draw people in the afternoons. It said food surpassed more than 20 per cent of sales in the U.S. for the first time.
Total revenue rose 9 per cent to $4.99 billion, which was short of the $5.03 billion analysts expected, according to FactSet.
Profit rose 16 per cent to $575.1 million, or 39 cents per share, in line with expectations.
Shares of Starbucks were down 3.4 per cent to $58.60 in pre-market trading Friday.