‘We think this is moving in the wrong direction,’ Bernstein’s Senatore warns
Starbucks Corp.’s new rewards program might help the company improve its margins, but Bernstein analyst Sara Senatore said it looks like a lukewarm deal for customers.
“We think this is moving in the wrong direction,” she wrote of the imminent changes to Starbucks Rewards, which will allow consumers to redeem fewer stars for small things like shots and premium milks but require a higher star threshold for “handcrafted” drinks as well as breakfast and lunch items. The current system allows “gold” members to use a flat number of stars for any item.
Because Starbucks SBUX, +0.51% will be making it harder for customers to redeem rewards on more expensive items, the company could see higher profit margins, according to Senatore. But that assumes consumers don’t start visiting the coffee chain less frequently because they recognize that their stars have been devalued.
“We believe Starbucks’ traffic deceleration reflects a diminished value proposition,” she wrote. “We think the new rewards plan runs the risk of alienating the core customers.”
The revamped program goes into effect on April 16 and will let users redeem 25 stars for syrups and milks; 50 stars for bakery items and brewed hot coffees; 150 stars for “handcrafted” beverages and hot breakfast; and 200 stars for protein boxes and salads. Senatore has seen a “muted” reaction so far from customers on social media, but she said the “real test” will take place when the company actually enacts the changes.
Senatore rates the stock at market-perform with a $66 price target. She’s been expressing concern about the diminished value proposition of Starbucks more generally since last summer.
“Ultimately we’re confident that the upcoming enhancements will lead to both continued growth and customer enjoyment of the program,” a Starbucks spokeswoman told MarketWatch. “We want to make sure we’re bringing immediate value and choice to the members.”
The stock has gained 17% over the past three months, as the S&P 500 SPX, +0.67% has risen 13%.