Starbucks' cold beverages are massively outselling hot coffee in the US

Call it a cold brew boom.

At Starbucks (SBUX) locations across America, iced coffee drinks are red hot, with cold beverages now massively out-selling hot cups of Joe. During the fiscal third quarter ended June 27, cold beverages accounted for 74% of total domestic beverage sales — a new record and up ten percentage points over the past two years.

"We continue to see strong demand for Starbucks Cold Brew, Nitro Cold Brew, and Starbucks Refresher beverages, while iced shaken espresso alone contributed more than a third of the iced espresso growth in the quarter," CEO Kevin Johnson said on the earnings call with analysts on Tuesday evening.

On that call, the word "cold" was mentioned 24 times, while "hot" came up twice, according to Yahoo Finance's tally. "Cold" was also mentioned almost as many times as "coffee" on the call.

The cold beverages, generally ticket and margin accretive, are particularly popular with the younger customer base.

"I tell ya — customers love them, and especially the millennial and the Gen Z cohorts, they really enjoy those cold beverages," Johnson told Yahoo Finance Live in an interview on Wednesday.

He added: "So that is really a big part of what's driving growth in terms of the platform is the fact that we have these personal, handcrafted beverages, both hot and cold, that customers love."

A girl drinks iced coffee in a Starbucks coffee shop in Tianjin, China, on April 30, 2019. (Photo by Zhang Peng/LightRocket via Getty Images)
A girl drinks iced coffee in a Starbucks coffee shop in Tianjin, China, on April 30, 2019. (Photo by Zhang Peng/LightRocket via Getty Images) (Zhang Peng via Getty Images)

During the quarter, the coffee giant's U.S. revenue skyrocketed 90% year-on-year, with same-store sales increasing 83% from a year ago — boosted by cold beverage sales and digitally-savvy customers on its popular mobile app.

During the fiscal third quarter, 90-day active users on the Starbucks Rewards app in the U.S. were up 48% from a year ago to 24.2 million. According to Johnson, those 24 million active members now represent 51% of all spend in U.S. stores, up eight percentage points from pre-pandemic levels.

Starbucks' digital rewards

Digital deals are taking the fast-food industry by storm, and have become a larger component of the COVID-era eating experience for chains like McDonald's (MCD) and Burger King. App-based deals serve the dual purpose of cultivating convenience and loyalty, even if consumers don't eat in the establishment.

"The two transformative elements of modern-day retail are number one, creating a great experience in your brick and mortar store, so that it's a destination for the consumer and then extend that experience with digital mobile relationships," Johnson told Yahoo Finance.

The former CEO of Juniper Networks (JNPR) and a Microsoft (MSFT) veteran, Johnson pointed out that Starbucks' 90-day active users have grown from 19 million at the start of the fiscal year to the most recently reported 24.2 million.

The chain's Rewards program "increases their engagement, their frequency, and their spend. And it also allows us to have a more personalized relationship with them," Johnson said.

"And, this is where our technology, like Deep Brew, personalizes the suggestions and the recommendations, and even the offers that we make to those customers. So it really strengthens the loyalty and the relationship between Starbucks and our customers," he added.

Johnson's vision outlined earlier this year is to double the number of active Rewards members in the U.S. "over the next few years."

In China, active Rewards members rose 71% from a year ago to 17 million users during the quarter.

Julia La Roche is a Correspondent at Yahoo Finance. Follow her on Twitter.

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