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Starbucks: Quantifying Visit Trends Between Loyal and Occasional Guests

RJ Hottovy
Feb 3, 2024
Starbucks: Quantifying Visit Trends Between Loyal and Occasional Guests

A few weeks back, we asked whether the coffee category–one of the restaurant category’s winner’s for 2023–could sustain its momentum into 2024? After Starbucks’ latest quarterly update this week (fiscal Q1 2024, the quarter ended December 2023), it turns out that the answer is complicated.

Starbucks’ U.S. comparable-store sales growth of 5% was driven by a 4% increase in average ticket due to pricing, mix and customization (resulting in the highest quarterly average ticket in the company’s 50-year history) and a 1% increase in comparable transactions (putting the company on the short list of restaurant chains currently seeing year-over-year transaction growth). Management noted that it’s most loyal customers were driving the transaction growth, with active Rewards members (for more than 90 days) growing 13% year-over-year to a record 34.3 million in the U.S. Starbucks also called out that the frequency of its most loyal U.S. customers increased quarter-over-quarter and spend per member reached a record this quarter helped by holiday promotions.

Loyal customer visits were certainly the high point from this quarter for Starbucks, but what about less frequent visitors? This is where much of the focus was coming out of the company’s update, as management noted a shift in behavior among occasional U.S. customers as the quarter progressed. Starbucks noted that it had great momentum heading into this past quarter, with strong visit trends in August and September that continued into October (below). Beginning in mid-November, however, visitation trends were impacted by unexpected factors according to the company. Specifically, management noted that “events in the Middle East also had an impact in the U.S., driven by misperceptions about our position” and less frequent visits among its occasional U.S. customers–those who tend to visit in the afternoon. Our visitation data aligns with this commentary and show a weakening in trends starting in mid-November.

Our visitation frequency data also aligns with management’s commentary. Below, we’ve presented year-over-year visit trends by visit frequency cohort for the most recent quarter compared to a year ago. We see that visit trends for the occasional visitors (under 6 visits for the quarter) decreased on a year-over-year basis, while visits for more loyal customers (7-20 visits for the quarter) increased (visits among 20+ visit customers decreased, but there is more variability in the data given that it represents a relatively small percentage of visitors).

Starbucks management outlined several initiatives to better engage with its occasional customers, including targeted offers aimed at bringing occasional customers into its loyalty program, personalized incentives via the Starbucks app, and new product innovations. Management also discussed several new products that are on the horizon for Valentine’s Day (a chocolate-covered strawberry Creme Frappuccino and a Chocolate Hazelnut Cookie Cold Brew) as well as plans to launch three new beverage platforms over the coming months aimed at its Gen Z and millennial customers. We see this as a positive--we've seen strong consumer visitation trends for new menu innovations this past year–and it helps the company contend with other players vying for this audience (including Dutch Bros and McDonald’s new CosMc's concept). Starbucks is also innovating beyond the beverage front, including food that appeals to different dayparts like the potato, cheddar and chive bakes and the chicken, maple butter and egg sandwich. Our data confirms that Starbucks has seen the positive impact of these new initiatives with its more occasional customers, as visitation trends among this cohort began to rebound in December.
The company also spoke about significant whitespace opportunities in the U.S. given the shift in consumer population. The company plans to grow its U.S. 16,000 store base (company-owned and licensed) by at least 4% this year--including more drive-thru locations--which will allow them to better address migration trends across the U.S. and the shift to suburban locations for many consumers. Starbucks’ management noted that its most recent age class of company-operated new stores in the U.S. is averaging unit volumes (AUVs) of approximately $2 million with return on investment (ROI) of approximately 50%.  Given the strong returns, we expect Starbucks to come in ahead of its 4% unit growth target, helping to keep coffee category visits strong despite its strong performance in 2023.

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RJ Hottovy

Head of Analytical Research, Placer.ai

R.J. Hottovy, CFA has covered the restaurant, retail, and e-commerce sectors for 20 years as an equity analyst and strategist for Morningstar, William Blair & Co., and Deutsche Bank. R.J. also brings a wealth of experience with early-stage investments as a committee member for the IrishAngels / Vitalize venture capital group. Over the past three years, he advised over 50 food service companies on more than $200 million in early-stage capital raises and M&A transactions.

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