Starbucks confident rewards overhaul will increase sales

Starbucks expressed confidence an overhaul of its rewards program will drive up sales over the long term, but warned the transition could be bumpy.

The company reported disappointing sales growth Thursday for the first three months of the year. Global comparable sales rose six per cent, including a seven-per-cent increase in its flagship U.S. market.

While the reward changes went into effect just last week, Starbucks said early signs are encouraging and customer spending is up across loyalty program members, including those who stood to lose out from the change.

“We are not seeing any of the noise that has been speculated on,” said Matt Ryan, Starbucks’ chief strategy officer, in a call with analysts.

The loyalty program in the U.S. now rewards “stars” based on how much people spend, rather than how often they visit. That means customers who buy a plain $2.50 coffee or other small items now must spend more to earn a free drink or food item.

The change had prompted worries that angered customers would take their business elsewhere.

Despite the positive early signs, however, Starbucks executives warned there could be “noise” and “bumpiness” in coming quarters as customers adjust to the change.

Starbucks has said it plans to give customers new ways to earn stars, including outside its cafes. Later this year, for example, the company plans to introduce a Visa prepaid debit card that lets people earn stars.

For the quarter ended March 27, Starbucks said U.S. sales benefited from people buying more food items like breakfast sandwiches and salads intended to draw people in the afternoons. It said food surpassed more than 20 per cent of sales in the U.S. for the first time.

Total revenue rose nine per cent to $4.99 billion US, which was short of the $5.03 billion analysts expected, according to FactSet.

Profit rose 16 per cent to $575.1 million, or 39 cents per share, in line with expectations.