Is Crypto Ready for Retail Prime Time?

On November 11, 2021, AMC Entertainment (AMC) CEO Adam Aron tweeted that it would accept Bitcoin (BTC) and other cryptocurrencies for theatergoers paying online. It wasn’t the first large business to take the plunge but it certainly was one of the most followed by retail investors.

Not only is AMC accepting cryptocurrencies for online payments, but it’s also considered launching its own cryptocurrency and is seriously interested in creating commemorative non-fungible tokens (NFTs) in partnership with the studios that produce some of the blockbusters that appear in their theaters.

Crypto fans are likely in favor of anything that adds more value to their investments. However, if cryptocurrencies want to join the mainstream, they’ll have to convince retailers that what they’re providing is beneficial to the bottom line. Anything less than that won’t gain traction.

Here’s One Reason Retail Might Be Interested
Retailers might be interested in accepting cryptocurrencies for two reasons.

First, anything you can do to make a customer engagement frictionless, whether it be offering plus sizes, espresso coffee, multiple methods of payment, or whatever else customers are demanding these days, is a must. Customers will go elsewhere if they feel a retailer provides a less-than-optimum shopping experience, in-store or online.

One of the most customer-friendly businesses on a global scale is Starbucks (SBUX). In November, it announced that its partnership with Bakkt, a digital wallet, will allow Starbucks Rewards members to reload their Starbucks card with cryptocurrencies, including Bitcoin.    

“We continue to nurture and deepen our direct personalized digital relationship with our members with enhancements to the program like Stars for Everyone to expand reach and through payment partnerships with PayPal and Bakkt, where a customer can now reload their Starbucks card with a range of cryptocurrencies including Bitcoin, Ethereum and others by converting digital currencies to physical currency and reloading their Starbucks card,”  Johnson stated in its Q4 2021 conference call.

Why is this important?

Approximately 51% of its sales at company-operated stores in the U.S. is from its Starbucks Rewards members. Anything that drives sales while enhancing the experience is a win/win for the company. Ultimately, the company’s rewards program will involve more than just Starbucks.

For example, it currently has a partnership with Air Canada (ACDVF) that links the two companies’ loyalty programs. When you load money onto your digital Starbucks card or buy a coffee, you get Aeroplan points, the airline’s loyalty program.

Starbucks CEO Kevin Johnson envisions the tokenization of its rewards program to the point where members get rewards for all kinds of different consumer brands including retailers.

In the end, Starbucks has no idea whether cryptocurrencies will one day replace the U.S. greenback as the preferred method of payment, so it’s getting out in front of the issue before it actually happens.

The Second Reason Retailers Might Be Interested
For most people who buy cryptocurrencies today, it’s an investment. According to a July 2021 online survey by Bakkt, 58% of those surveyed said they bought crypto as a long-term investment. People between the ages of 18 and 44 are most interested in holding for the long haul. Older people were less likely to hold for the long term.

Of course, the biggest reason younger people are more likely to hold long-term is that they tend to be more educated about the subject.

So, if we assume that a majority of the population is buying crypto as an investment, it follows that retailers and restaurant chains likely see it in the same light.

Retail Info Systems recently discussed cryptocurrency trends in retail for 2022. Here’s what it had to say on the subject:

“Receiving payments in a hyper-deflationary cryptocurrency is advantageous for retailers. It can be to their benefit to keep at least a portion of those holdings over the long term,” stated Retail Info Systems contributor Nick Agar.

“The transition toward accepting payment through crypto will prove convenient for retailers. Everything needed to make the transactions should be accessible online.”

Let’s consider this simple example.

If a particular Starbucks store has annual sales of $3 million and a 20% store profit margin, it would send $540,000 [$2.7 million multiplied by 20%] in profit back to headquarters in Seattle. If it accepts 10% in crypto and then hangs onto the crypto for a couple of years, it could end up much farther ahead.

Let’s say that in two years the crypto is worthless. That’s a loss of $300,000 [$3 million multiplied by 10%]. So, even with the loss, it would have a store profit of $240,000 [$540,000 minus $300,000].

Conversely, let’s assume that the crypto doubles in value. The store profit increases from $540,000 to $1.14 million [$600,000 plus $540,000].

A company as large as Starbucks could easily afford to roll the dice in this situation. Where it will get tricky is when the 10% of sales with crypto moves considerably higher. If you think it has a currency issue now, that will really keep the CFO busy.

While I don’t understand why someone would use crypto to pay for a coffee -- unless that person assigned a fixed amount of tokens or coins each month as a spending plan -- I think it makes perfect sense for retailers of all sizes.

Crypto and retail will continue to be a big story in 2022.