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Starbucks is Mixing Coffee With Crypto

By Neil Patel – Nov 10, 2021 at 8:16AM

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The popular consumer brand is showing off its forward-thinking mentality.

Digital assets are taking the world by storm. Turn on the financial news or flip through the business section of the newspaper, and you'll most likely see something about cryptocurrencies. The potential to upend a range of industries is certainly what proponents are hoping for. 

But even Starbucks (SBUX 1.01%), a 50-year-old business that operates in the physical world, is finding ways to incorporate the disruptive technology into its own business. And it could change how consumers interact with their favorite brands. 

Here's just how innovative this coffee shop behemoth really is. It just might make you want to buy the stock.

Starbucks mobile order

Image source: Starbucks.

More ways to pay 

Starbucks ended its latest quarter with 24.8 million members in its loyalty program, Rewards, in the U.S. alone, a 28% increase from the prior-year period. It's a widely held belief that the company has one of the most robust loyalty programs around. Launched in 2009, the program encourages repeat purchases, something any business would want. And because it's been around for so long, the sheer amount of data Starbucks has collected on consumer buying behavior is a competitive strength in and of itself. 

Coffee lovers who load money onto the Starbucks mobile app to pay for beverages or food receive two points (or Stars) per dollar spent, while those who use cash or a credit or debit card get one point. In addition to being able to order ahead of time, Starbucks offers free birthday treats and frequently has other bonus challenges to rack up points faster. This works extremely well because coffee is one of those rare items you can buy every day. 

To add even more ways to pay, Starbucks now lets customers pay directly with Bitcoin thanks to a partnership with digital-wallet provider Bakkt. And customers can already convert their crypto balances on PayPal to fiat currency before reloading their Starbucks apps. 

It makes complete sense from a strategic perspective to expand Starbucks' reach by reducing friction and making transactions an effortless digital experience. Loyalty members tend to visit often and spend more. A remarkable 51% of sales at U.S. company-operated stores came from Rewards customers. 

Loyalty points exchange 

As if introducing crypto wasn't enough, during the Q4 earnings call, management revealed an exciting new update to the program. "Through blockchain or other innovative technologies, we are exploring how to tokenize Stars [and] create the ability for other merchants to connect their rewards program to Starbucks Rewards," CEO Kevin Johnson claimed. 

He highlighted a partnership already in place with Air Canada, where the airline's rewards members can link their accounts with a Starbucks Rewards program and earn points from both companies with purchases made at the coffeehouse chain. "Over the next year, you will see the first instance of this loyalty points exchange with other consumer brands," Johnson added. 

From a consumer perspective, this is fantastic. Being able to transfer the points earned from one merchant to another in an easy, seamless way completely raises the value of a Starbucks Rewards membership. It also encourages people to buy more coffee, knowing full well that it benefits them with other brands. 

The CEO added: "This approach will also serve as a foundation for a more aspirational concept for new, modern payment rails that align payment expenses with the value received by customers and merchants." Investors should be excited that management is thinking like this and wants to push its way into the payments space. 

These new developments prove that Starbucks is truly a tech-first business that is intensely focused on enhancing the customer experience. Shareholders will want to pay attention to any updates on this ambitious goal. 

Neil Patel owns shares of Bitcoin, PayPal Holdings, and Starbucks. The Motley Fool owns shares of and recommends Bitcoin, PayPal Holdings, and Starbucks. The Motley Fool recommends the following options: long January 2022 $75 calls on PayPal Holdings and short October 2021 $120 calls on Starbucks. The Motley Fool has a disclosure policy.

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