Order Ahead Too Successful at Starbucks?

by Raymond Pucci 0

Is mobile order and pay becoming too successful for quick service restaurants to handle? That seems to be the case at Starbucks where top execs are looking for solutions such as by adding store staff and re-engineering the pick-up process, according to the following article.

For some time now, restaurant chains have been adding mobile order-ahead options, betting they’d be popular with their customers. But even they were caught off guard with just how big of a hit the technology is turning out to be. TGI Friday’s Inc. mixed up orders, and Starbucks Corp. struggled with overcrowding that scared off regular walk-in-and-pay customers. And that’s likely just the beginning for a technology that’s only now really starting to catch on.

So swift is the growth of the technology that chains are having to rethink the way they do business, from putting a guy at the front door to greet customers to adding extra grab-and-go parking spaces. Pizza Hut Inc. is retooling its app to include order histories and suggest popular sizes to speed up the process. Fast-food chain Chick-fil-A Inc. already delivers orders curbside at about a third of its locations, and is studying whether to let customers grab their grub using drive-through lanes. Even mom-and-pop joints are jumping in: Eastman Egg Co., which runs three sandwich shops in Chicago and saw its monthly order-head sales rise 180 percent in December from a year earlier, is installing separate pick-up stations for mobile orders.

Starbucks, an early pioneer of the technology, figured out the downside of not being prepared after it introduced the feature nationwide in late 2015. Order-ahead customers flooded some stores, making it look like lines were extra long. Last quarter, mobile orders represented at least 20 percent of sales during peak traffic times at nearly 1,200 Starbucks stores. A year ago, only 13 of the company’s coffeehouses could make that claim. Order-ahead apps drove 7 percent of all transactions last quarter, double the figure a year earlier. As walk-in customers look at the number of people hovering around the counter, it “might create a signal to them that they are going to wait to do their transaction,” Kevin Johnson, who will take over as Starbucks CEO in April, said on the company’s quarterly earnings call on Jan. 26. “We’re now laser-focused on fixing this problem,” outgoing CEO Howard Schultz added.

Jumping the line is becoming a widely adopted feature at Quick Service Restaurants (QSRs). Think how airlines have perfected the technique of early boarding as a loyalty perk for its frequent flyers. So QSRs like Starbucks, Dunkin’ Donuts, Chick-fil-A, Chipotle, and others are giving mobile phone users a way to save a few minutes out of their day by not standing in line, as well as a seamless payment transaction. Meanwhile, the stores benefit with this newly found sales channel. So as ordering ahead creates new in-store lines, expect the QSRs to refine their order ahead process as they enjoy a growing revenue stream.

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

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