PATENT OWNER
`PATENT OWNER
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`EXHIBIT 2031
`EXHIBIT 2031
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`http://seekingalpha.com/article/3695346-starbucks-sbux-management-presents-at-morgan-stanley-
`global-consumer-and-retail-brokers-conference-transcript?part=single
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`Starbucks' (SBUX) Management Presents at
`Morgan Stanley Global Consumer & Retail
`Brokers Conference (Transcript)
`
`Nov. 18, 2015 11:00 AM ET | About: Starbucks Corporation (SBUX) by: SA Transcripts
`
`Starbucks Corporation (NASDAQ:SBUX)
`
`Morgan Stanley Global Consumer & Retail Brokers Conference Call
`
`November 18, 2015 08:00 ET
`
`Executives
`
`Scott Maw - Chief Financial Officer
`
`Analysts
`
`John Glass - Morgan Stanley
`
`John Glass
`
`Good morning, everyone. My name is John Glass, restaurant analyst at Morgan Stanley.
`Welcome to the second day of our consumer conference. It feels right to start the morning with
`coffee and so that’s exactly what we are going to do this morning. Starting back in 1971 and then
`known as Starbucks Coffee, Tea and Spices, today, Starbucks has evolved into one of the largest,
`in my view, best run retailers of our time, my view and having had the experience of watching
`the company grow over the past 20 years, it has been a consistent element of this story where the
`company is continuing to reinvest in its business, in its people and standing clear to a mission of
`serving the best coffee and related items in the business.
`
`2015 I think was a transformational year in many ways in the company’s history, where the
`benefits of the reinvestments really showing up not just in the financial results, but in things like,
`evidence of things like the mobile platform, where I got this coffee this morning without waiting
`in line. I think no doubt that has the ability to drive the business to the next level.
`
`It’s my pleasure to welcome to the conference today, Scott Maw. Scott is the Chief Financial
`Officer of Starbucks. With that, welcome.
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`Scott Maw
`
`Okay. Thanks, John. So, what I am going to do this morning is spend a few minutes taking a
`look at the financial performance of Starbucks, but what I really want to spend the bulk of our
`time this morning is reviewing our strategies for growth, because what I hope to sort of display is
`that the growth that we have had in the past is something that we intend to continue in the future.
`It’s sustainable and it’s really built off the backs of the strategies that we are using today and will
`continue to leverage as we move through time.
`
`Forward-looking statement, it’s important that you understand that we will be making forward-
`looking statements this morning. And let’s just go ahead and take a quick look back on the
`financial performance of the company. So, over the last few years, you can see we have grown
`revenue at about 13% per year reaching over $19 billion this year. If you adjust for foreign
`exchange that number round up to $20 billion in 2015. We had a couple of points of headwind
`from foreign exchange like many companies with international operations were filling that a bit,
`but still sticking to our long-term growth targets despite that. We have 410 basis points of margin
`expansion over this period, 50 basis points in the most recent year. And I will just remind
`everyone that our acquisition of our remaining interest in Japan had a pretty significant impact
`on that operating margin expansion and so it will be much higher if you adjusted for that from
`‘14 to ‘15. And then earnings grew quite strongly over this period, 21% on average on EPS on a
`non-GAAP basis, $1.58 in the most recent year that was 19% growth over non-GAAP EPS the
`year before, and again, 2 full points of foreign exchange impact in that. So, pretty much every
`year, we were going at or above the top end of our range, so we feel pretty good about that
`performance as we look forward.
`
`And I think perhaps most importantly is what’s happened with our comps over the last few years.
`So, we have been at mid to upper single-digit comps every quarter for the last two years, ‘13 and
`‘14, but you can see where transaction comps had sort of continuously trended down towards the
`end of last year. We ended last year with 5 points of total comp, 1 point of transaction comp and
`a pretty healthy ticket in there. There was a fair bit of premiumization in the tax driving that, but
`obviously, 1 point of transaction comp was something we wanted to improve.
`
`And so as we headed into the holiday, we launched a number of initiatives and importantly, I am
`going to talk quite a bit this morning about the investments we have made in our people, our
`employees we call partners and investments we are making in the digital business that we really
`instigated in earnest in January of this calendar year. And those had a significant impact on our
`comps growth like we believe that they would. And you can see transaction comps turn nicely
`during our holiday quarter, which is Q1 in our fiscal, continuing to accelerate each and every
`quarter as we invested more, rolled out more innovation, did more things around the digital
`platform, reaching the peak in the most recent quarter of 8% globally with 4 points of transaction
`comp and 9 points of transaction comp in the U.S. Reminding you all that this is a great big store
`system that we are growing comps at 8%. It’s no easy trick. And that’s where the investments
`and all the things we have going from a strategy standpoint come into play and are so vital.
`
`So, let’s talk a little bit about those strategies. I think it’s really important to remind you we are
`playing the long game. We are a $20 billion company with an average ticket size of $5. We are
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`growing the top line at 10% and the bottom line at, at least 15%. And if you are going to do that
`on our great big network, we are going to have to think strategically and frankly aggressively
`about the types of investments that we make and the types of things that we drive from an
`innovation standpoint. Our growth is built on innovation. It’s built on the experience that our
`people provide in the stores. And if we don’t invest, if we don’t lean in there, then we are going
`to start to see softness on the top line. And so we are committed across all these strategies.
`
`I will take you through each and every one, but I think the first one and perhaps the most
`important one is winning with our partner. So again, our employees we call them partners,
`because the vast majority of them are eligible to participate in a stock compensation program for
`Starbucks. And what this chart shows is the history of the investments, the history of total pay
`that we have had at Starbucks. We have always lead the industry in terms of total pay through
`things before 2015 like on-chip beverage, our partnership with Arizona State University, which
`in FY ‘14, was 2 years of college benefit, a competitive pay, stock composition that we call Bean
`Stock, which I talked about earlier and then healthcare for part-time workers well ahead of and
`deeper than what’s available in the Affordable Care Act and we have had that for decades at
`Starbucks. So, leading in pay.
`
`As we got into 2015, again, well ahead of and greater than the mandated minimum wage and pay
`changes and benefit changes that are coming down, we leaned in on how we pay our people. So
`that included compensation, that included adding a food benefit on shift, which was a great thing
`for our partners and also a great thing for us, because it reinforces what’s becoming a growing
`part of Starbucks business. Food is growing faster than beverage in our U.S. stores and so
`providing a food benefit was a great way for us to introduce our partners to our food across broad
`day parts. And then we went to 4 years of college paid in ‘15. And for the first time, we really
`started to invest in what we call partner digital. So, all the things that we talked about around
`mobile and Mobile Order & Pay, that’s been building for a while. But frankly, we fall on a little
`bit behind with partner facing digital.
`
`So, I would argue our customer-facing digital and mobile apps are frankly industry leading. I
`don’t think there is anyone out there doing it as well as we do. The technology that faces our
`partners I think we would fall on a little bit behind. So, we have in the last year we were leaned
`in on upgrading our POS system, basic things like improved laptops and printers in the store,
`handheld apps that allowed us to move from paper and pencil inventory system to a scanner
`based inventory system. And again, lot of this technology has been out there a while. We have
`just been a little bit slow to roll it out and so we are significantly accelerating that. And as we
`move into ‘16, even more on partner digital, so more things around apps for scheduling, a little
`bit more technology around how we determine schedules, the easier way for our partners to
`understand things that are going on in the store around buying routines, around our food and
`things like that. So, all of that will accelerate as we get into 2016. And then obviously, we will
`talk about the things we are doing on our digital platform from a customer-facing standpoint.
`
`We also expanded college benefits to include spouses and children of our military partners and
`military spouses, again leaning in well ahead of mandated changes on pay and starting to do
`some things in the international markets. So, like the U.S., our total pay structure in the
`international market tends to lead the industry, but we want to do more in international markets,
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`markets such as China, the UK, we are introducing things like housing benefits that resonate
`with partners in those markets a little bit more than they do in the U.S. and so that’s part of the
`dollars as we look at 2016. And so that adds up to just under $150 million of incremental spend
`in the P&L in 2015, another $100 million to $125 million in 2016.
`
`And I will just remind you, we can click back here that it’s working and so the most important
`thing in all of this is as we have seen the success in the comps as we have seen our turnover
`actually tick down in an industry where everyone is seeing turnover actually tick up as the labor
`market improves. The difference between us and the industry average is now 18 full points on
`turnover. And so as these investments have driven higher returns, lower turnover and higher
`comps, we feel really confident that leaning in and investing is the right answer.
`
`Okay. Moving onto the next part of our strategy, kind of three things and one here, I will talk a
`little bit about how we continue to lead the industry and premiumization of the coffee
`experience. I will talk about Teavana and how that’s driving growth in our U.S. stores and how it
`will drive growth internationally as we move forward. And also, we will talk a little bit about the
`occasions and expanding day parts. So the first one is coffee leadership and I think the place to
`start here is around all the things we are doing with Starbucks Reserve coffee and how we are
`innovating on that front. Just as an example, we have 1,500 stores that have Clover that you can
`see in the upper right hand corner there, Clover machine, which is a fantastic way to enjoy a cup
`of coffee. And that’s up 50% from where we were just a year ago. So we continue to see
`response from our customers, drive transactions, drive profitability by putting more Clover
`machines in, more Starbucks Reserve in more stores. And by the way, we see lots of opportunity
`in that internationally. So the numbers I quoted there were just be the U.S. market. But when we
`look at China and Japan and the UK, we also see significant traction around rolling out the
`Reserve brand.
`
`In China, more and more of our stores have Reserve. More and more of our stores have a Pour
`Over bar where you can interact more with the barista and understand and learn more about the
`coffee. And just as a reminder to everyone, we still are the premium – the premier brand in
`sourcing, roasting and delivering the finest coffees in the world. And probably the pinnacle of
`that experience is our Starbucks Roastery in Seattle. So this is the store, I think many of you have
`been to, it’s several times larger than our normal store. It has roasting capability onsite, so it’s a
`mini roasting plant. We are able to take small batch, very unique coffees and roast them in that
`Roastery and ship them around the world to sell under the Reserve brand. There are several
`different ways to enjoy coffee, you can do a Pour Over, Clover, there is swiping machines, lots
`of different ways to learn about coffee. And then as we move forward, we will take elements of
`that Roastery experience and take it into – up to 500 Starbucks Reserve stores. So these will be
`larger format stores that have elements of that Roastery in it, have a lot of ways to interact with
`the barista, get to understand coffee, we will be all focused around that Star R brand, Starbucks
`Reserve and we will continue to deliver significantly up leveled coffee experience to our
`customers.
`
`And then just to touch briefly on agronomy, so over 99.5% of our coffee is ethically sourced. We
`have seven Farmer Support Centers in different geographies around the world in coffee origin
`companies. Those support centers have dedicated Starbucks agronomists that ensure that not
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`only do we get a sustainable supply of coffee, but that we take what we learn about fertilization
`and about irrigation and what we learn about different species of plants that are more sturdy to
`drought and coffee rust and all those things. We share that with the industry. So it’s a little bit
`about Starbucks and sustainability of our supply and gives us access to unique coffees, but it’s a
`lot about building a sustainable coffee industry and we are definitely dedicated to that.
`
`Let’s talk about Teavana. So Teavana, what we are doing with Teavana and tea is similar to what
`we did with coffee in our stores with the Starbucks brand. So we are focused on elevating the tea
`category in our Starbucks stores and we had a lot of early success. We launched Teavana in
`Starbucks stores I think roughly 18 months ago. It’s driving significant revenue growth. So we
`saw tea sales up 12% in our North American stores with Teavana. It’s contributing to comp
`growth so three out of the last four quarters. We had a full point of comp from tea. That hadn’t
`been the case for previous years even thought tea has been a big part of our beverage sales, we
`hadn’t been growing it significantly until we introduced Teavana and we are increasing attach.
`
`So we will talk in a minute about afternoon day part having the innovation, the authority, the
`capability we have around sourcing and recipes and marketing for Teavana teas allows us to
`offer hot teas and iced teas in the afternoon. And obviously, iced teas is a beverage that you
`would attach food to more readily. So if you come in for an iced tea, you might attach a
`sandwich to it or if you come in for a sandwich at lunch for Starbucks, you might more readily
`attach iced tea and that’s what’s helping with both food attach and overall sales growth in the
`afternoon. So Teavana, a building brand and lots of opportunity as we look forward in the U.S.
`stores and then as we get into the later part of 2016, we will start rolling the Teavana brand out
`internationally with the goal over the next couple of years to have Teavana in all of our
`Starbucks stores worldwide.
`
`Next is talking about day parts, I think many of you know this story, but just to give you some
`numbers. Over the last 5 years, we have seen significant transaction growth. This isn’t ticket.
`This is transaction growth cumulatively over the last 5 years, up 22% in the morning day part.
`And so I think a lot of people thought Starbucks at peak couldn’t add anymore, didn’t have
`anymore capacity, but through a lot of hard work by Cliff Burrows who runs our Americas
`business and his team, we have improved routines at morning. We have improved throughput.
`We have improved attach. And with Mobile Order & Pay, we are about ready to take that to
`another level. So the morning continues to grow nicely, up 22% over the last 5 years. But that
`mid day part, while a bit smaller than the morning day part, up 30%. So lunch and afternoon is
`something that we are increasing relevant to our customers. And food is a part of that, but so are
`things like cold brew, iced beverages and iced tea. And then in the evening, early days for an
`evening program we have plans there. We have seen nice growth, but we think that’s a day part
`where we have lots of capacity and we have started to roll out the evenings program in hundreds
`of stores and that will continue as we move through time.
`
`But what I want to say a little bit at around lunch, what we have done with lunch and with
`breakfast is we have up leveled our food offering significantly. So a few years ago, food was
`probably 17% or so of total revenue in the U.S. business, it’s now up to 20%. So we are growing
`about a point a year. And the goal over the next 5 years is for food to get to 25% of total sales in
`Starbucks. It would be a lot easier if beverage would standstill, but beverage is growing a lot as
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`well, but we are increasing food relevance in all day parts so breakfast sandwiches in the
`morning. Something we have had breakfast sandwiches for a long time, but with lot of a lounge
`and some of the innovation we have done there. We have seen breakfast sandwiches sales double
`over the last three years.
`
`At the lunch day part things like Bistro Boxes, I think much better fresh sandwiches, much better
`warm sandwiches. Many of our stores now have the large showcase as opposed to the smaller
`case that’s underneath the pastry case. And that large showcase makes it easier for customers to
`see the food. We can offer more fresh food and grab and go becomes more convenient and all of
`that is contributing to that 30% day part growth. I still think lunch has a lot of opportunity. I still
`think there are things we can do with limited time offerings, with food continuing to up level and
`offer a broader range of both more indulgent things as well as better for you options. We have
`had some good traction recently in sort of a snack based program in the afternoon where you see
`more grab and go options in Starbucks where you can grab something either at the POS or
`somewhere else in the store and take it with you, so lots of things to come still at lunch.
`
`Next strategy is around store growth. And just a reminder, roughly for less than 10 years ago, we
`opened 2,500 stores with 70% of those stores being in the U.S. As we look forward to 2016, we
`will open 1,800 stores and 70% of those stores will be outside of the U.S., about half to them in
`China, Asia-Pacific. We have gotten much better at international store openings. We will talk a
`little bit about domestic openings, which frankly we have sharpened the pencil and gotten much
`better at that as well. But there is still significant opportunity for store growth in countries such
`as China and Japan. And I am going to talk a little bit about China and Japan just because a lot of
`our store growth is there. And China and Japan represent two of our largest markets, obviously
`Japan being our second largest by revenue now that we own the whole thing.
`
`In China, in 2015 – sorry in CAP, in 2015 we had nine points of comp growth. China was higher
`than that and all of the comp growth in China is traffic. So we are driving significant traffic
`growth in China. The new stores that we opened in 2015 are every bit as profitable of any store
`class that we opened. We are growing our store portfolio in China at about a 30% a year clip,
`that’s what it’s averaged the last couple of years. That’s roughly what we are targeting as we
`move forward into 2016 and the consumer response in China for Starbucks remained strong. So
`we are seeing a building day part in the morning. It’s mostly an afternoon day part. We are
`seeing significant traffic, Tier 1 and Tier 2 cities as we open more stores within those markets.
`Those stores continue to perform really well. We see no evidence of cannibalization. In Tier 3
`and Tier 4 cities, as we enter those cities and add stores to those cities, they are still opening up
`with lines around the block and very strong AUVs and overall profitability. And the profitability
`at the store level in both China and Japan is right up there or even slightly better than what we
`see in the U.S., so lots of opportunity in China.
`
`As we talked about on the most recent conference call, we are not seeing a significant impact
`from the economic slowdown in China. Now, we are watching it. We understand that that’s out
`there certainly in the market, but we are not seeing it on our traffic. We are not seeing it in our
`customers. Our traffic in the fourth quarter of this year was pretty comparable to the traffic of the
`fourth quarter that we have last year. So, there is some seasonality in the fourth quarter for us,
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`but pretty consistent 2-year traffic comps in China/Asia-Pacific and in China, so great result right
`now in China.
`
`In Japan, so we bought back the rest of the market that we didn’t own, significant opportunity
`within our company-owned stores in Japan. We have averaged about 4 points of comp growth
`over the last few years in Japan and since we have taken the ownership that’s actually
`accelerated a bit. So, we have seen particularly over the summer a really strong limited time
`offerings with several different specialty Frappuccino drinks and we are seeing continued
`success and traction in Japan. We will lean in a little bit at the pace of store openings. And
`importantly, there is significant opportunity outside of our company-owned stores in Japan now
`that we own the market entirely. So licensed stores, we have very few licensed stores in Japan
`compared to what you would see in the U.S, UK and Canada. That’s a big opportunity. We have
`opportunity in foodservice, so think about at work, hotels places like that and significant
`opportunity in CPG and we are just getting started to unlock those opportunities in Japan, which
`again is our second largest market in terms of revenue right now.
`
`And then in the U.S. and so again I think a few years ago, people would have thought we were
`saturated in the U.S. and that you couldn’t open another Starbucks without having to expand into
`the walls of the Starbucks that was sitting beside. But what we have learned is there is significant
`real estate opportunity in places that 5 years ago we wouldn’t have thought about opening a store
`and there are significant real estate opportunities within existing markets in traditional Starbucks
`location targets as well. So using things like drive-through only has allowed us to get on or close
`to interstate off-ramps, that’s allowed us to get into industrial areas, where there is no foot traffic,
`but there is enough vehicle traffic to drive a significant profitability. We shrunk the format down
`on Wall Street. We have what we call our express store format. It’s about the third of the size of
`the normal Starbucks store and it’s already doing about the same level of revenue as an average
`Starbucks store and it’s literally across the street from a large Starbucks store with no
`cannibalization. So, we are capturing incremental locations, incremental transactions and really
`seeing no net cannibalization.
`
`Drive-through stores, I think most of you know stores that have both a café, eat-in and a drive-
`through are a vast majority of the stores that we opened in the U.S. over the last few years. That
`will continue those stores to drive higher profitability and higher revenue. And then we are
`flexible in formats with things like mobile trucks. We have stores on trains. We have stores that
`you can ski up to. Everywhere that we think there is opportunity, we are flexible in how we
`approach that market.
`
`Importantly, our stores all have locally relevant design. Our designers are really great at
`integrating locally relevant design, whether you are in China or in Omaha, we are able to sort of
`adapt our store format to pickup what’s locally relevant in the geography and I think we are
`getting increasingly good at that and driving some great design concepts and then larger format
`stores. So, we will have a few roasteries. We will have more than one in Seattle. We talked about
`the Reserve stores. Those will be larger store format. Again, a little bit of different occasion, a
`higher premium coffee experience for customers that want to come and stay longer.
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`Okay. Let’s talk about Channel Development and CPG. CPG grew at 14% in the most recent
`quarter, had a little bit of FX in there, 2 points of FX, so really closer to 16%, so really a great
`year for Channel Development in the quarter. 80% of U.S. coffee occasions don’t occur in coffee
`shops and so our goal with CPG is to take Starbucks product, Starbucks brand and the excellent
`quality of Starbucks coffee and allow our customers to enjoy that wherever they work with and
`play. And so we have 500 signature isles in various grocery stores and signature isle is really an
`up-leveled space within the store. If you were to look at it, you would see signage that actually
`reflects and looks a little bit like the signage you would see in a Starbucks store. There is some of
`the wood you can see a little bit in the picture, some of the wood accents are similar to what you
`would see in the Starbucks store. But as you walk up to these signature aisles, you can see VIA,
`K-Cup, packaged coffee and we see a significant increase in sales as we rollout signature aisle.
`So, our grocery customers love it and we like it as well.
`
`21 million stars now awarded down the aisle. So, these are people buying packaged coffee and
`entering in Star Codes to get their Star Credit. And just so you know, Stars is related to our My
`Starbucks Rewards program in case you don’t know. It takes about 12 stars to get a free drink.
`So, if you do the math, we are pretty close to 2 million free drinks earned on packaged coffee
`down the aisle. And we don’t yet have Star ability on K-Cup packages. So, that’s something that
`we are continuing to work on, but as we roll that out, that’s an additional opportunity. We are the
`share leader in the most recent quarter in both roast and ground, premium roast and ground and
`in K-Cups. That’s the first time we have had that happen, which is great and we have a
`significant international opportunity. So, we signed deals in the last nine months or so with
`Tingyi in China, which is a massive manufacturing and distribution company to help bring
`Starbucks products like bottled Frappuccino to that market and increase our points of
`distribution.
`
`And in Latin America, we extended our partnership with PepsiCo, which has our North
`American bottling and distribution operations for bottled Frappuccino and double shot and things
`like that and now gives us access to the huge Latin American market. So, as we get into 2016, we
`will start to create the right kind of locally relevant recipes working with those partners and then
`distribute out into points of distribution with using their network.
`
`And last but not least on the strategy side is our unique and powerful digital ecosystem. And I
`think what’s important is to understand how things all link together and how integrated our
`proposal is here and how difficult it is for anyone to match and also how beneficial it is, most
`importantly, how beneficial it is to our customers.
`
`And so the first, the lynchpin, the foundation of it is really our store network and our customer
`network. So, we have 23,000 stores around the world. We do 80 million transactions every week
`and so that gives us a lot of sort of network effect with our customers to entice them to do more
`transactions with us. It’s convenient. It’s the service that’s provided by all of our fantastic
`partners in the stores, the Starbucks experience, its frequency and being relevant to those
`customers in our store network. Off the back of that, we have a massive card program. We had
`$5 billion in card loads during 2015. 1 in 7 adults in America got a Starbucks card. I always tell
`people, I get Starbucks Cards from people like everyone gets a Starbucks Card. 35% of
`transactions are on some form of the card whether that’s mobile or a physical card.
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`And what that allows us to do is build off that customer base and that card interaction and drive
`loyalty. So, we have 10 million active loyalty members in the U.S. That’s up 28% in the fourth
`quarter from the same quarter a year ago. And it’s very high value to our customers and efficient
`cost to us. So, the average reward redemption of the stars that people earn is a little less than $5.
`So, for a relatively low transaction amount, there is a huge desire for customers to get that free
`coffee and it’s because of the frequency and the quality of the service and product that we
`provide. And what I would say is if I was to walk out and handout 100 $5 Starbucks Cards, I bet
`90% of those cards would be redeemed either by you or someone you know. If I was to walk out
`and handout $5 cards for an airline, a hotel, premium restaurant, I don’t think we would see a
`90% redemption rate. And so the relevance and the frequency and the convenience of the
`Starbucks Card is what really drives power to the program. So, we convert the gift cards into
`loyalty card customers. Those customers spend several times more than non-loyalty customers at
`Starbucks and drive more dollar profitability.
`
`And then our mobile app, one of the most downloaded apps out there. 21% of our transactions in
`the U.S. are done, payment transactions are done on the mobile device. I guarantee in the U.S.
`there is no one else even close as far as the number of mobile payments. It’s got convenient
`features like store locator, menu, obviously the app and the stability of that app and the way that
`it’s integrated into our store network allows for Mobile Order & Pay. So, Mobile Order & Pay
`completely integrated into the technology stack so that it has locally relevant menus based upon
`what store you are ordering from. It goes right into the POS in the stores so that the partners had
`the exact same experience from those mobile orders. There is no separate place in the store to
`order.
`
`If something needs to be researched on a mobile order, the partners go right into the POS just as
`they would do a transaction that was done in the stores they are able to adjust the transaction.
`They don’t have to go out to the cloud and access some separate server. It’s all fully integrated.
`A label printer is done. It goes out through the exact same production line as an in-store order
`and off to the same handoff plane. So everything sort of seamlessly integrated from a customer
`and product standpoint. That bridges to delivery. So in Seattle over the next month or two
`months, you will be able to order, pay and then have spot – not Spotify – but Postmates sorry,
`Postmates deliver it to you wherever you are, your office or home. And that’s the test for us and
`we will see how that goes, but again all integrated into the app.
`
`And then, by the end of year we will rollout some functionality through our partnership with
`Spotify. So we have signed deals with Spotify, New York Times and Lyft where they will buy
`stars from us and provide stars to their membership to incent either membership or ridership in
`the case of Lyft. Those stars come back into the stores and obviously, we get paid for those stars
`at a full retail value. They come back into the stores with our customers, so there is a chance for
`incrementality there.
`
`There are other benefits in the case of Spotify. We will work with Spotify to curate a playlist, a
`unique playlist for every store that our partners can vote on the playlist. They can modify the
`playlist within certain sort of limits and over time, really create a unique radio station in each and
`every Starbucks. Customers can like songs. They can influence what’s played in the stores. They
`can access information about what’s playing over head and all of that again integrated into our
`
`

`
`app. So lots of opportunities and I would say those three deals are just the beginning. We are
`truly just getting started here. We have some exciting things that we will announce as we get
`further into fiscal 2016 around this program and