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Starbucks Corporation Is a Digital Darling

By Rich Duprey – Jan 29, 2014 at 10:49PM

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The coffee shop is navigating the consumer migration from bricks to clicks.

If there's one takeaway from this past quarterly earnings report that CEO Howard Schultz wants you to remember, it's that because Starbucks (SBUX 1.93%) has mobile payment apps and digital gift cards, it's got a bead on how to capitalize on consumers who've gone mobile. Although deep down it's still little more than a glorified greasy spoon, as consumers shift from bricks to clicks, this java jock is ready to digitally pave the way forward.

"We're just beginning to appreciate the full magnitude and possibilities of the Starbucks mobile payment platform opportunity," Schultz says, noting that the trend is still in its "nascent stage," and with consumers who proved all too willing to stay home this Christmas to do their shopping, getting them out of their lounge chairs and into its lounges remains a priority.

Sales growth slowed last quarter, as comps rose just 5% in the first fiscal quarter of 2014, compared with 8% in the fourth and 9% in the third, yet because it activated a bunch of new gift cards in the quarter -- 40 million new activations valued at over $610 million in the U.S. and Canada, including more than 2 million new activations per day leading right up to Christmas -- those digital assets ought to translate into new traffic. Moreover, because most of those activations were for new recipients, Starbucks stands to benefit from a fresh influx of customers.

According to retail behemoth Wal-Mart (WMT 0.43%), it anticipates that online sales will grow 30% this year to $13 billion, as it has developed innovative ship-to-store delivery policies that were subsequently emulated by the likes of TargetMacy's, and others. Do-it-yourself big-box retailer Home Depot (HD 0.90%) said it expected its online sales to hit $2.7 billion in 2013, a 50% increase from the year before. In both of those cases, however, you don't exactly view the companies as digital divas.

Starbucks is different. It transcends the bricks-and-mortar mentality better than others. Where Home Depot put the brakes on building more stores and Wal-Mart is going small, Starbucks figures it can leverage its vast physical footprint through the use of digital initiatives.

Moreover, Starbucks is one of the most engaged companies on social media. Its Facebook page has 36 million likes, its Twitter page has 5.6 million followers, there are more than 2 million more on Instagram, and there are even 135,000 followers on Pinterest, cultivating those contacts and personalizing their experience through programs such as its My Starbucks Rewards loyalty program. Although I dislike Starbucks coffee -- I find it bitter and harsh, if not often burnt -- it's obvious the coffee slinger has a committed, loyal fan base willing to follow where it leads. More so than other retailers that have sought to manufacture an online presence, the Starbucks experience is unique. 

Whole Foods Market (WFM) is tentatively testing the waters to better engage its customers, trying out a discount loyalty card program to introduce shoppers to the store brand.  With almost 1.5 million Facebook likes and a half-million Twitter followers, the organic grocer isn't exactly disengaged on social media, but it's a far more tepid outreach than what Starbucks has accomplished.

Considering it saw $1.4 billion loaded onto its gift cards in the first quarter, the coffee shop will reap the rewards of millions of customers who will be visiting its stores to redeem them. And that's something Starbucks investors ought to take away with them.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors.

Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Home Depot, Starbucks, and Whole Foods Market and owns shares of Starbucks and Whole Foods Market. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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