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How mobile helped Starbucks boost foot traffic by 2pc

Starbucks’ focus on mobile to help drive holiday foot traffic appears to have been a success, with the company reporting gains not only in traffic and but also a strong response to its holiday promotion, Starbucks for Life.

While other bricks-and-mortar merchants talk up the potential of mobile in-store, Starbucks is leading the way with a platform that puts mobile at the center of payments, loyalty and ordering. Last week, the coffee house chain reported gains across many areas of its business during its fiscal first quarter, with mobile a key driver of success in many cases.

“Starbucks mobile adoption is impressive but it doesn’t validate the market as a whole,” said Drew Sievers, founding partner at fintech investor Operative Capital. “There is no magic formula or code that they’ve cracked.

“They are successful because of their relatively unique set of key factors,” he said. “They had over 40 million prepaid cards, combined with relatively affluent, smartphone-toting, caffeine-addicted, daily buyers of a low-price product.

“That is a perfect storm in mobile payments and no one else has that combination.

Holiday in-store experience
During a conference call with analysts to discuss the company’s first quarter results, president/CEO Howard Schultz attributed Starbucks’ financial gains to a re-imagined in-store holiday experience that integrated new seasonal food and beverage offerings with its digital, loyalty, card, mobile and in-store efforts.

Starbucks recognized after the 2013 holiday season that consumer behavior is evolving toward a bigger focus on mobile-enabled ecommerce, resulting in less foot traffic in malls and stores.

For the 2014 holiday season, the chain put in place a program to address this trend that included the five-week Starbucks for Life promotion, with every customer who used a gift card or her My Starbucks rewards account to pay for a purchase eligible to win one of almost 500,000 food and beverage prizes (see story).

The company reported that more than 13 million customers entered the sweepstakes during a 31-day period.

Gift cards
One holiday success highlighted by the company is its Starbucks gift cards, which help drive membership in the mobile-based Starbucks Rewards program and traffic to its stores.

For the 2014 holiday period, Starbucks introduced a new card wall and expanded selection of proprietary Starbucks gift cards.

Approximately 2.6 million Starbucks cards were activated on Dec. 23 and $1.6 billion was loaded on cards in U.S. and Canada in the first quarter, up 17 percent.

Starbucks added almost 900,000 new members to its mobile-based My Starbucks rewards program during the first quarter. Membership now totals more than 9 million, up 23 percent from a year ago.

Overall, Starbucks’ global comp-store sales grew 5 percent during the first quarter, with 2 percent coming from increased traffic.

Mobile ordering
Starbucks also continues to see broad customer adoption of its mobile payment technologies, with more than 13 million customers using its mobile apps in the United States.

Additionally, the company reports that it is averaging more than 7 million mobile transactions in its stores each week. This number has consistently grown over the past year.

In December, Starbucks introduced Mobile Order and Pay into 150 stores in Portland, OR, and has plans to roll it out to more than 600 stores in the Pacific Northwest in the near future. A national rollout is expected to be completed in later this year.

A number of quick-serve restaurants have started to test mobile ordering. Initial reports suggests some of these businesses are struggling with integrating mobile ordering into their operations, with wait times shorter for customers who walk in without pre-ordering.

Starbucks states its mobile ordering program is progressing smoothly and expects it to drive mobile payment transactions by enabling customers to avoid lines and have a better Starbucks experience.

One reason Starbucks expects an easy transition to mobile ordering is because of how the proprietary technology integrates with the chain’s existing mobile platform.

“Our experience to-date confirms that once fully rolled out, Mobile Order and Pay will drive a significant increase in mobile payment transaction in our stores overall and have a flywheel positive effect on our overall business, driving both increase MSR membership and app usage and creating significant additional one-to-one marketing opportunities,” Mr. Schultz said during the conference call with analysts.

Express locations
In 2015, Starbucks has plans for additional enhancements to the My Starbucks rewards program. The chain is also preparing to launch delivery this year.

Mobile will play an important role in the introduction of a pilot project in New York focused on express locations that will offer a streamlined assortment and integrate mobile payments and mobile ordering to provide a faster experience.

“In traditional advertising and marketing to try and overcome this seismic shift in consumer behavior is probably not going to work for most people,” Mr. Schultz said.

“The relationship that we have build with our customers though mobile payment through MSR, through Gold members and now Mobile Order & Pay and delivery is a significant driver in not only elevating the relationship that we have with our customers, but significantly lowering our traditional cost of customer acquisition, especially when you compare it to other national retailers,” he said.

Final Take
Chantal Tode is senior editor on Mobile Commerce Daily, New York