During Starbucks' (SBUX 1.00%) fiscal 2022 second-quarter earnings call, management revealed plans to launch a collection of non-fungible tokens (NFTs) later this year. Not many details were provided, but investors were more focused on pandemic lockdowns in China, inflation, and the ongoing unionization push.
While the overall NFT market has cooled off significantly, I think Starbucks' Web3 ambitions make total sense. And shareholders should appreciate the company's forward-thinking strategy.
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Finding ways to strengthen the brand
The leadership team, led by founder and interim CEO Howard Schultz, wants Starbucks to maintain and expand its standing as a "third place" for customers, somewhere to go between work and home, this time in the digital world. It's all about trying to create a community and membership-based model of coffee lovers across the world.
The NFTs would be digital collectibles that provide owners with other perks and benefits. For the first collection, to be released later this year, the focus will be on coffee art and storytelling. Starbucks wants to incorporate music and books, the hallmarks of a coffee shop, for future NFT drops. This strategy mimics those of other luxury brands that have launched their own NFT collections in an effort to stay on top of evolving technology and consumer trends.
Entering the NFT space seems like the next logical step in Starbucks' brand evolution, especially in a world that is becoming more digital. In order to attract a younger demographic, the business needs to find ways to maintain its powerful brand relevance. The odds of successfully navigating the NFT space are stacked in the company's favor thanks to its already impressive technological foundation.
Starbucks is known for its top-notch loyalty program, which had 26.7 million active members in the U.S. as of April 3. Having been launched over a decade ago, the business has tons of consumer data that it uses to drive deeper connections and engagement. Imagine opening the Starbucks mobile app, already a well-designed and easy-to-use experience, and being able to buy newly minted NFTs. It can increase loyalty among existing customers while attracting new ones as well.
Schultz wants the CEO who replaces him to be familiar with Web3 technology. That's because he envisions a world where Starbucks blends its superior physical consumer experience with a seamless digital one, hoping to boost store-level productivity and efficiency. The possibility of higher revenue and profitability certainly helps, too.
It's too early to gauge how impactful NFTs can be to Starbucks' business from a financial perspective. But with the possibility that crypto and Web3 become more important over time, this is a low-risk bet to stay ahead of the curve. Ultimately, it will help keep the brand, Starbucks' true competitive advantage, at the forefront of consumers' minds. This is what investors want.
