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Is Starbucks A Victim Of Its Mobile Pay Success?

Stores are struggling to keep up with demand as Starbucks digital order-ahead patrons are causing those waiting on line to walk away, incoming CEO Kevin Johnson concedes.

Starbucks is having a problem most brick-and-mortar businesses would love to have: too much demand of the coffeehouse chain’s omnichannel offerings.

During Starbucks’ earnings call with analysts, CEO Howard Schultz touted successful numbers, particularly the addition of 1.8 million Starbucks Reward members in the U.S. year-over-year, bringing the total number to 13 million active members not including the 7.5 million loyalty users in China and Asia Pacific.

“Three years ago, I brought to your attention what I anticipated would be a seismic, evolving shift in consumer behavior resulting from the rapid acceleration of digital and online consumer retail purchase activity,” Schultz told analysts.

“Today, that shift is a foregone conclusion, increasingly challenging brick-and-mortar retailers of all descriptions — and being particularly hard on retailers that are not destinations, do not reward loyalty, or offer relevant digital and online capabilities, or have not built deep, authentic experiential connections to their customers,” Schultz concluded.

The Starbucks head pointed to “nothing short of a surge” in new Starbucks card activations and reloads during the quarter amounting to to $2.1 billion — almost $300 million over last year with over $80 million being incremental.

The double-edged sword of Starbucks’ mobile payment success could be a difficult problem for the company’s business over the next few months. Considering that 27 percent of Starbucks’ revenues now comes from mobile payments, any disruption is cause for concern.

Putting the success — or the problem, depending on how you look at it — in context, the company said that 1,200 of its stores experienced a 20 percent increase in mobile pay and order-ahead during its primary business hours, said incoming CEO Kevin Johnson, who is currently serving as Starbucks’ COO and president.

The year before, about 600 stores were experiencing bottlenecks due to the juggling between mobile orders and traditional walk-ins.

“When a customer walked into a store previously, they would look at the cashier line,”  Johnson said during the earnings call. “Now when customers come into the store, they look at the [crowd of people waiting] and see that now we have congestion there.”

Still, Johnson and Schultz pointed to brick-and-mortar rivals and its success in online ordering as a problem most would love to have, as well why Starbucks is immune from other issues plaguing physical brands.

“Unlike retailers whose omnichannel activities comes at a significant price discount or cannibalizes the in-store business, further pressuring business models, Starbucks does not,” Schultz said. “Our card reloads can only be redeemed at a store. And that’s a clear advantage we can build on.”

About The Author
David Kaplan David Kaplan @davidakaplan

A New York City-based journalist for over 20 years, David Kaplan is managing editor of GeoMarketing.com. A former editor and reporter at AdExchanger, paidContent, Adweek and MediaPost.