Starbucks Corp taking its mobile app to new heights with overseas expansion

Starbucks Corp., an innovator to get consumers to purchase products having a mobile phone, is boosting paying for digital ventures this season because it improves the capacity for its app in Asia, Europe and Latin America.

The coffee chain is promoting a brand new feature, introduced last year nationwide at U.S. stores, that lets customers order and purchase beverages ahead of time and pick them up without waiting in the cashier line. It intends to bring the Mobile Order & Pay program to China and Japan in 2016. Starbucks is also testing delivery through the app this year within the U.S., where it’ll unveil features for example personalized food recommendations.

“The app is very important,” said Adam Brotman, the Seattle-based chain’s chief digital officer. “It’s become one of our core strategies.”

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How an espresso purveyor – and never a technology company like Google Inc. or Apple Inc. – was a leader in mobile payments is really a proof of the acumen of Ceo Howard Schultz. In 2011, while tech companies like Google tried to get customers to use complicated mobile-payment systems requiring new phones and revamped in-store terminals, Starbucks introduced an application that used simple QR codes. And perhaps just like important, the chain offered rewards like free beverages for using it.

The app was an immediate hit, becoming what Richard Crone, CEO of mobile-strategy specialist Crone Consulting LLC, called “probably the most successful launch of a new payment type in history.”



Reshaping Cafes

Within a couple of years, Starbucks’ mobile app will take into account more than Half of all transactions in company-owned U.S. stores, Brotman said. Which means it may help reshape how cafes look, putting Starbucks on the right track to become a mobile-first company, akin to Facebook Inc. and Uber Technologies Inc.



More than 21 percent of transactions at company-owned U.S. stores now come with the app. In February, about 7 million orders were placed through mobile devices in U.S. cafs, the company said. The order-ahead feature already makes up about about 15 per cent of these payments, and three percent of total transactions.

China Focus

One of the main areas of focus is China, the company’s biggest-growth market. Schultz has touted mobile payment as to be able to boost sales in the Asian nation as consumers there’ve gone quickly from rotary to smartphones.

“The adoption that we believe we will have in China is going to be more significant and quicker than it has been in the U.S., that has already stunned us,” Schultz told analysts on the business call in January.

The mobile and order-and-pay is simply going to keep driving their growth moving forward.

The app is increasing transactions by 15 per cent to twenty per cent within the U.S. – a portion that will only increase, according to Jack Russo, an analyst at Edward Jones & Co. Those extra purchases are one of the reasons for Starbucks’ 17 % revenue growth last fiscal year the largest gain since 2007, once the company was half its current size.

“The mobile and order-and-pay is just going to keep driving their growth moving forward,” BTIG LLC analyst Peter Saleh said. “It will help to drive their average check higher. Additionally, it offers them with many different data.”

This year, Starbucks is also planning to start recommending additional purchases to its customers through the type of smart technology long utilized by Netflix Inc. and Amazon.com Inc. With increased personalized recommendations, Starbucks could potentially increase each sale amount up to 50 per cent, according to Crone, the mobile-payments consultant.

Apple Store

As the app is constantly on the flourish, it could affect the way Starbucks operates.

“You might see a real change in the store layout,” said Crone. “You’ll see a Starbucks that appears like the Apple store. You got rid of the counter, you got eliminate the queues, you have latte stations and espresso stations, in which you simply walk up to the station.”

The app is also reshaping the company’s finances. In the first fiscal quarter ended in December, consumers loaded US$1.9 billion on their Starbucks cards, a few of which are from the apps, an 18 percent increase over last year.

Playing Catch-Up

For that reason, Starbucks is quick to purchase technology. The organization doesn’t break out specific spending on digital initiatives, but it said hello will invest as much as US$300 million globally on what it called “partner and digital” projects in 2016, up from about US$145 million in fiscal 2015. In comparison, large pizza chains are spending just US$25 million to US$30 million per year on their digital ventures, based on Saleh. A number of other restaurants are just starting to play catch-up to Starbucks, after seeing its app drive sales.

Customers may even see Starbucks-like technology at other companies someday. Because the app was made mostly in-house, other retailers are contacting the coffee chain about licensing it, Brotman said.

“It’s something that we’re considering,” he explained, adding that licenses are unlikely being available in the near future. “We’ve had these great conversations with other companies. Those conversations are continuing.”

Bloomberg News