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Starbucks reported record net revenue of $5.7 billion for Q4 2016. But it also saw US same-store sales growth fall short of expectations for the fifth consecutive quarter — and the culprit, according to the company, may be the overwhelming success of its app's mobile order-ahead function, reports The Wall Street Journal.
Even so, Starbucks' digital offerings will remain a major driver of business and a top strategic focus of the coffee chain.
Starbucks' mobile app continues to be popular among consumers. The Starbucks mobile app accounts for 27% of total in-store purchases at US stores. This is likely largely led by Starbucks Rewards members, which grew 16% year-over-year (YoY) to 12.9 million US members. This popularity is likely to continue to grow as Starbucks adds popular features.
The company’s mobile order-ahead feature has continued to grow, and will ultimately accelerate same-store sales across the board. Starbucks' Mobile Order and Pay represented 7% of US transaction in Q4, which is up 3% from the prior year. This feature will ultimately accelerate digital growth, particularly because customers that order in-app tend to be more engaged and have higher order volume.
However, some of these features may be causing issues for the company, as demand has grown quite quickly. The company believes that in some of its busier stores, employees had a difficult time keeping up with rising mobile orders. This in turn created bottlenecks at pick-up areas that likely led to walk-in customers leaving before ordering a drink. Alleviating these pain points is a major focus of the company, and will be important in its growth.
The firm plans to unveil new features that will only add to its impressive digital offerings, while reducing any friction seen with mobile order-ahead. Digital offerings have been shown to increase ticket size, traffic, and engagement with consumers.
This is likely why the coffee chain has continued to heavily invest into these offerings, and has already set out plans to reduce mobile order-ahead pain points — more baristas have been added to high-volume stores during peak hours and the company is testing out a text notification that would alert consumers when their drinks are ready. This will give the company an opportunity to further engage its consumers with personalized messages, and a better hands-on experience, while also reducing lines, and making ordering simpler for consumers.
Quick-service restaurants (QSRs) — also known as fast-casual restaurants — such as Starbucks have been turning to mobile order-ahead apps to extract higher sales, intensify customer loyalty, and heighten foot traffic.
Mobile order-ahead refers to a consumer-facing mobile payment platform that allows customers to order food remotely, pay for the items on their phone, and pick up their order at a specific restaurant location.
Leading QSRs in the U.S. are beginning to adopt these platforms at an accelerated pace and are benefiting from them. Taco Bell sees 30% higher average order values on mobile compared to in-store, and Starbucks' Mobile Order & Pay already represents 10% of total transactions at high-volume stores, directly contributing to increased company sales.
Mobile order-ahead is still in its early days, but will be a $38 billion industry by 2020, accounting for 10.7% of total QSR industry sales. This will be driven by full adoption among the top QSRs in the US, the growth of mobile commerce, QSR adoption through aggregators like Grubhub, loyalty programs, higher average order values, and new buy buttons.
BI Intelligence, Business Insider's premium research service, has compiled a detailed Mobile Order-Ahead Report that profiles the companies that have proved the mobile order-ahead concept and analyzes the trends contributing to this new industry's growth.
Here are some key takeaways from the report:
Mobile order-ahead apps — platforms that enable consumers to remotely purchase menu items for in-store restaurant pickup — are on the rise among quick-service restaurants (QSRs). We expect sales on these platforms to reach $38 billion by 2020, representing a five-year compound annual growth rate (CAGR) of 57%.
Mobile order-ahead will ultimately have an additive effect on the QSR industry. Mobile ordering platforms have been proven to intensify customer loyalty, increase purchase frequency, and lift average ticket sizes through order customization and easier checkout options. This means that mobile ordering is not a simple substitution for in-store purchasing, but a channel that can enhance the lifetime value of QSR customers. This makes mobile order-ahead a critical channel contributing to the growth of the QSR industry.
Alternative commerce solutions will help propel mobile ordering. Aggregators like Grubhub will onboard smaller fast-casual restaurants into the mobile ecosystem by offering them an existing app to integrate into, lowering the upfront costs of creating a mobile channel of their own. And in-store self-service kiosks will help popularize remote ordering and accustom users to less traditional forms of payment that don't require a cash register.
In full, the report:
Forecasts the growth of the mobile order-ahead industry in the US from 2015 to 2020, including its share of total QSR sales.
Profiles brands that are leading the migration to mobile ordering.
Examines the alternative commerce solutions that could help popularize mobile order-ahead.
Explains the risks and drawbacks to launching a mobile commerce platform.
Assesses the ways both large and small brands can create a mobile order-ahead platform.
Determines which types of fast-casual chains are in the best position to benefit from mobile order-ahead.
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