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Mobile ordering, payments responsible for 20pc of Starbucks’ October transactions

Starbucks experienced a considerable rise in revenue this third quarter, with sales toppling 18 percent higher, with stores that were early adopters of the chain’s mobile ordering and payments options the biggest winners.

The beverage marketer has also seen mobile ordering and payment account for 20 percent of its revenue this month, underscoring growing consumer demand for streamlined ways of purchasing on-the-go food and drink. Other quick service restaurants and retailers would be well-poised to follow Starbucks’ model of mobile innovation, which bestowed the brand with a $4.9 billion total revenue in Q3.

“Starbucks is a leader in the mobile apps space and has been extremely successful in getting its customers to download and use its app,” said David Naumann, director of marketing at Boston Retail Partners, Boston. “Consumers are reaching app fatigue and retailers are competing for precious space on consumers’ smartphone screens.

“The key to mobile app success is to provide real value so that customers are compelled to download and use the app,” he said. “Starbucks has cracked the code by combining loyalty rewards, ordering and payment benefits on its mobile app.

“Retailers can learn from Starbucks’ mobile app success by adopting similar principles.”

Sales brimming over
The coffee brand met expectations from fiscal experts when it released its latest earnings last Thursday, further displaying the power of digital transactions in bricks-and-mortar stores’ business models. The growth in sales was also due in part to global customer traffic increasing by four percent.

Meanwhile, same-store sales in the United States grew by eight percent.

However, the most significant numbers stemmed from the chain’s adoption of mobile and ordering payment options, which reached their fullest potential yet during this past quarter.

“Mobile payments account for 20 percent of Starbucks’ overall revenue,” said Djamel Agaoua, senior vice president at Cheetah Mobile/Cheetah Ad Platform, San Francisco. “As people continue to adopt Starbucks’ Mobile Order and Pay, we can expect that percentage to climb.

“Earnings will rise over the next few quarters as the brand finds more ways to to make its app a part of people’s lives and an essential component in how they consume their morning coffee,” he said.

“By leveraging data, including location and food/beverage preferences and purchases, Starbucks and other brands can increase user engagement and revenue by upselling—all the while providing customers with value and a more personalized experience—perhaps a coupon for their favorite beverage and recommendations and discounts on items they may enjoy.”

Starbucks officially made its Mobile Order and Pay feature available for consumers nationwide this past September for Android and iOS devices while gearing up for an October release in Britain and Canada (see story). Application users are able to skip in-store lines upon arrival on premises and grab their already-paid-for beverages.

The company claimed that early adopter stores saw increased sales, thanks to mobile’s influence.

Starbucks also posits that it has made improvements in traffic and production lines that have improved operations during peak times.

Keeping revenue steady
The brand will likely experience a similarly lucrative fourth quarter, as many of its consumers come out in hordes to purchase holiday-themed drinks and treats and get their hands on its famous red seasonal cups.

Starbucks’ CEO, Howard Schultz, had previously indicated that double-digit growth was not sustainable for the chain for long-term periods. However, on Thursday, the brand predicted a minimum 10 percent growth for the 2016 fiscal year.

To keep its mobile sales strong, Starbucks is in the process of fine-tuning several new initiatives. It plans to team up with the Postmates app, which already counts McDonald’s as one of its top collaborators, to bring another delivery program to Seattle residents by the end of 2015.

It will also continue perfecting the Green Apron Delivery service, which enables customers in select Manhattan locations to order participating beverages, breakfast and lunch options to be personally delivered by a Starbucks barista.

The pilot was introduced at New York’s Empire State Building earlier this month.

If this service takes off with consumers, it could develop the perfect balance between managing higher in-store sales, thanks to Mobile Order and Pay, and strong out-of-store sales from delivery platforms.

While Starbucks is enjoying its upward trajectory at the hands of mobile, other brands have been leaning more heavily on digital offerings to bump up their own wobbly profits.

Fellow food and beverage marketer Panera Bread is continuing to convert more of its locations into its Panera 2.0 initiative, which includes a bigger focus on mobile ordering, payments and delivery options, as the company experiences downtrodden profits due to costs (see story).

“Many other companies see their apps as a low-value item that generates cost,” Mr. Agaoua said. “Companies just don’t quite know what to do with their apps or know how to get users to actively engage.

“Starbucks has truly been a pioneer at leveraging mobile and has turned its app into a major revenue driver,” he said. “Brands need to understand that measuring and responding to a user’s engagement with apps is infinitely more important than simply getting them to install one.

“Once brands are able to leverage mobile and the extraordinary amount of data that can be collected, they will begin to see success—making data transparency crucial when choosing an agency partner.”

Final Take
Alex Samuely, staff writer on Mobile Commerce Daily, New York