Starbucks mobile capability fueling growth

by Eric Schroeder
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Mobile Order & Pay is one of Starbucks' game-changing initiatives.

SEATTLE — Mobile Order & Pay, Starbucks’ digital initiative that allows customers to use an iPhone app to order ahead, is one of several game-changing initiatives the Seattle-based company believes will help it deliver world-class service and convenience.

Starbucks introduced Mobile Order & Pay in 150 of its company-operated stores in the Portland area last December and then quickly expanded it to the full 650-store Pacific Northwest region in March. The success of the launch prompted Starbucks to accelerate the roll-out of the offering, and the company now offers the mobile capability in more than 4,000 of its U.S. company-operated stores. Starbucks is on track to offer Mobile Order & Pay capability across the entire U.S. company-operated store portfolio in time for the upcoming important holiday season, said Howard Schultz, chairman and chief executive officer.

Howard Schultz, chairman and c.e.o. of Starbucks.

“Mobile Order & Pay is enabling us to serve more customers more quickly and efficiently and to significantly reduce attrition off the line,” Mr. Schultz said during a July 23 conference call to discuss third-quarter results. “We are already seeing positive impact on operating results, but keep in mind that the roll-out to 4,000 stores occurred only in the last couple of weeks of the third quarter. So the real impact for Mobile Order & Pay and increased convenience remains in the quarters and years to come.

“That said, Mobile Order & Pay is fueling both revenue and profit growth in every market in which it has been deployed with customer adoption starting faster and accelerating with each new phase we roll out. By enabling our customers to order ahead and avoid waiting in line, Mobile Order & Pay is enabling us to capture more on-the-go customer occasions, and the data is clear.

“In those stores where Mobile Order & Pay has been deployed, lines are shorter, service is faster and in-store operations are more efficient. The net result is increased traffic, incrementality that is exceeding expectations, improved throughput and an elevated Starbucks experience for our customers. We will add the Mobile Order & Pay feature to our Android app in the U.S., as well as introduce Mobile Order & Pay technology into our international markets in the months ahead. Importantly, key features like suggested menu recommendations that will drive increased ticket have not yet been deployed as we are still in the beta mode.”

While the full benefits of the Mobile Order & Pay platform are still to come, the initiative was a key piece contributing to strong results at Starbucks during the third quarter. Net income in the third quarter ended June 28 was $626.7 million, equal to 41c per share on the common stock, up 22% from $512.6 million, or 34c per share, in the same period a year ago. Revenues jumped 17.5% to $4,881.2 million from $4,153.7 million. Global comparable store sales increased 7% during the quarter, driven by a 4% increase in traffic, while Americas comp sales increased 8%, driven by a 4% increase in traffic.

In addition to the Mobile Order & Pay technology, another game-changing initiative recently put in play by Starbucks is the “express” store. Starbucks opened its first express store at the end of April in New York City, and Mr. Schultz said the early results “are nothing short of extraordinary.”

Starbucks opened its first express store at the end of April in New York City.

“In approximately 500 square feet of space, we are now handling volumes we would normally expect from a store three times its size, and nearby stores less than a few hundred feet away have not seen any adverse impact or cannibalization,” he said. “This helps validate the assertion that we made at our investor conference last December that many places in the U.S. we have far more demand than our current stores can serve, indicating opportunities to significantly grow our domestic store footprint in the years to come. And the express store is only one of several innovative new formats that we are pursuing to take advantage of the different kinds of real estate opportunities we need to address in order to tap into the demand that exists for more Starbucks occasions.

“The initial success of Mobile Order & Pay and the express store are testaments to the growth potential that remains for us in the U.S. where our ability to serve demand rather than the need to create demand will be key to our achieving our growth.”

 Starbucks also hopes to capitalize on the growing demand for delivery. The company is conducting dual delivery experiments in New York and Northwest markets.

“We have no doubt that delivery, like Mobile Order & Pay, will drive further incrementality and increase profitability and enhance the equity of the Starbucks’ brand,” Mr. Schultz said.
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