Starbucks Revamps Its Rewards to Keep Customers Coming Back

New year, new loyalty plan. That's the trend at national chains from Chipotle to Papa John's. Starbucks is the latest company to unveil a new plan to entice consumers.

On Tuesday, the coffee chain announced changes to its popular loyalty program, Starbucks Rewards — three years after the previous rollout in February 2016 received mixed reviews from customers. While the old version of Starbucks Rewards required customers to visit locations more frequently to earn free items, Starbucks' new loyalty play better caters to consumers that like to spend points as they earn them.

Beginning on April 16, Starbucks Rewards members can earn an extra shot of espresso, among other perks, after spending as little as $13 in store. Customers earn two "stars" for every dollar spent, redeemable for beverages, food, or even packaged coffee. Accrued points will no longer expire if they're earned via purchase on a Starbucks Visa or prepaid card, according to the company.

“Since introducing Starbucks Rewards ten years ago, we’ve experienced tremendous growth and continued to evolve the program to meet the changing needs and purchase patterns of our customers,” said Matthew Ryan, Starbucks chief marketing officer, in a statement. “These new updates put choice in the hands of our customers and a personal touch they can only get from Starbucks.”

Starbucks has teased changes to its rewards program since early last year. The platform, launched in 2009, is often regarded as the gold standard in the restaurant industry for its ability to turn online engagement into in-store sales. Starbucks Rewards currently has 16 million members as of the end of 2018, a 25 percent increase over the past two years. Roughly 40 percent of Starbucks' U.S. sales come from rewards members.

Last November, Ryan highlighted the importance of maintaining a robust program in order to control the customer relationship.

“Remember that we’re not in a business of creating digital relationships for digital relationships’ sake,” he said during a company earnings call. “They’re an enabler for us to communicate and talk to our customers. It is a way that we go to market. And by building that capability, it allows us to be less reliant on media and to be more reliant on customers pulling information from us in the future.”

Rewards Can Boost Cold Beverage Sales

Starbucks’ modified North American loyalty program comes as the company’s domestic competitors continue to pump money into developing new drink options. The Seattle-based chain is also looking for a greater sales impact from its own cold beverage rollout last year.

On its fiscal 2019 first quarter earnings call, Starbucks said new beverages — including cold brew, iced espresso, and refreshers — delivered their highest contribution to comparable sales growth in more than two years due to pent-up demand. But CEO Kevin Johnson credited the majority of the company’s 4 percent growth in same-store sales to higher average checks, largely coming from higher food prices.

“Our focus here is ongoing, led by the momentum we are seeing with cold beverages across multiple dayparts,” said Johnson, on Starbucks’ January earnings call, adding the company has expanded the availability of cold brew to 40 percent of its company-operated U.S. stores.

Domestic rival Dunkin' has also run into early troubles in rolling out its cold beverage lineup, it said last month. The company reported flat fourth quarter sales after it shelled out $65 million on new espresso equipment. Yet Starbucks Rewards could give the company an advantage in generating the sales spike it is looking for over its rival, with customers now more incentivized to earn points quickly. Starbucks has also recently announced plans to expand its U.S. delivery partnership with Uber Eats to one quarter of its U.S. stores by the summer to boost overall sales.

“Draft Nitro [also known as cold brew] beverages represent a significant opportunity for the brand. This platform is differentiated, provides theater and drives incrementality,” Johnson said.