Brief:

• Starbucks Rewards, the coffee chain's loyalty program, saw a 14% jump in U.S. membership to 16.3 million during its fiscal first quarter of 2019 compared with the prior quarter. The gain of 1 million members was the biggest in three years as Starbucks has expanded the features of its mobile app to emphasize customer convenience, The Street reported.
• CEO Kevin Johnson said greater adoption of mobile order and pay, enhanced personalization features, greater digital reach and a more seamless customer onboarding experience contributed to the rise in membership and boosted sales. U.S. same-store sales rose 4% in Q1 2019 from a year earlier, beating estimates of 3% growth, Johnson said in an earnings call with investors on Jan. 24. The company has 30 million digitally connected customers in the U.S.
• Starbucks plans to open 20 stores in New York City that will test a digital-only payment program that doesn't require membership. It also seeks to build upon its digital relationships with an ad campaign targeting customers who aren't yet rewards members, per The Street.

Insight:

Starbucks' digital initiatives appear to be paying off with a surge in rewards members and strong same-store sales growth. The loyalty program lets members earn "stars" that can be redeemed for free food and drinks. The coffee chain still doesn't require customers to belong to its loyalty program to make mobile payments in stores, but its app appears to be a major driver of new rewards membership. The coffee chain last year was estimated to have the most popular digital payment app in the U.S. with 23.4 million users ages 14 and older, ahead of Apple Pay (22 million), Google Pay (11.1 million) and Samsung Pay (9.9 million), according to researcher eMarketer.

The boost in rewards membership and digital sales comes as the coffee giant continues to expand its convenience-focused initiatives. It's working on making delivery available directly through the mobile app instead of asking customers to use the separate Uber Eats app to place an order for delivery, Starbucks COO Rosalind Gates Brewer said in the conference call. Starbucks is in the midst of working on a software integration that will make such direct ordering possible, she said. After completing a pilot program in Miami, Starbucks plans to expand its delivery program into a quarter of its U.S. markets this year through the Uber Eats partnership. The coffee chain this month expanded delivery to San Francisco and plans to add Boston, Chicago, Los Angeles, New York and Washington, D.C., in the coming weeks.

On the global front, Starbucks also expanded its digital partnership with Alibaba in China, a key growth market, to reach the e-commerce giant's user base of 600 million people, Johnson said. The deal makes joining Starbucks Rewards easier for Alibaba customers, who have been quicker to adopt mobile payments than U.S. consumers have. Starbucks also rolled out its delivery program to more than 2,000 stores in China to help drive growth that has stalled over the past year amid growing competition from local startup Luckin. Luckin outlets don't accept cash and require customers to pay with an app that offers loyalty bonuses. The chain aims to have 4,500 locations by the end of this year. Starbucks has about 3,000 stores and plans to double its footprint by 2022 to take on the growing competition, per CNN.