Starbucks Mobile Pay Continues Growth, But Overall Sales Disappoint

by Raymond Pucci 0

Mobile order and pay drives growth at Starbucks, but not enough to satisfy Wall Street. As the following article reports, Starbucks’ recent quarterly results did not measure up to investor expectations, but there were some positive signs.

Shares of Starbucks were down 6 percent Thursday after the coffee giant missed on earnings expectations for its fourth quarter. The company posted $5.7 billion in revenue, which was flat from the year prior and missed analyst expectations of $5.8 billion. Its non-GAAP earnings per share of $0.55 met expectations and was up 10 percent from the year-ago quarter.

Mobile Order and Pay, a feature that lets customers order with their smartphone via Starbucks’ app and skip the line, accounted for 10 percent of transactions. That’s up from 9 percent in the previous quarter, and 6 percent in the year-ago quarter.

On the earnings call, Starbucks CEO Kevin Johnson said that the company will soon open Mobile Order and Pay to all customers — currently, it is only available to Starbucks Rewards members.

Johnson also said that customer satisfaction scores from Mobile Order and Pay reached record highs last quarter. The growth of Mobile Order and Pay caused congestion issues inside stores for customers trying to pick up their coffee and food. Starbucks responded earlier this year by adding dedicated stations for mobile order-ahead customers, distinct from existing in-store registers, and giving baristas new tablets.

Starbucks did not provide data on payments made via mobile; it previously reported this number. Mobile payments accounted for 30 percent of transactions in U.S. stores during the company’s third quarter, which was up from 29 percent in the previous quarter and 27 percent in Q1.

Starbucks’ Rewards program grew by 11 percent from last year; there are now 13.3 million active members in the U.S. that account for 36 percent of U.S. company-operated store sales. However, membership has remained stagnant at 13.3 million since April, when Starbucks reported its Q2 earnings. That’s also when Starbucks tweaked the program to reward customers based on money they spend rather than how often they visit.

So the good news for Starbucks is that mobile order and pay continues to grow, although there still are some store process and traffic issues along with it. But that will be worked out in time. The bigger issue is that overall store sales are not growing as fast as expected. While mobile order and pay has been a new and promising sales channel, other Quick Services Restaurants (QSRs) are getting into the act as well and gaining customers, some of whom could be from Starbucks. Meanwhile we seemingly have reached a saturation point of QSRs in the U.S. so there can only be so much growth unless differentiated product or service offerings attract more thirsty and hungry customers.

Overview by Raymond Pucci, Associate Director, Research Services at Mercator Advisory Group

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