Next year, Starbucks customers will be able to order and pay for their favorite latte and a croissant on their smartphones — and have it delivered.
Starbucks Corp. plans to add delivery in select markets in the second half of 2015, a move that company officials say will help combat declining traffic, as consumers shift to online shopping.
In a call with analysts Thursday following fourth-quarter and full-year earnings, executives said they were not satisfied with a slip in traffic growth to 1 percent during the fourth quarter, compared with a 2-percent increase in traffic during the third quarter.
Howard Schultz, chairman, president and chief executive of the Seattle-based coffeehouse operator, said neither throughput challenges nor competition were to blame. Instead, he attributed softness to a consumer shift away from brick-and-mortar shopping to smartphones. Starbucks’ delivery will capture smartphone-tethered consumers by bringing the brand to them, Schultz said.
“Imagine the ability to create a standing order that Starbucks delivered, hot or iced, to your desk daily,” he said. “That’s our version of e-commerce on steroids.”
The company did not reveal details, but officials said the actual delivery will likely be handled internally by Starbucks employees, not by a third-party delivery service.
The demand for convenience is proving to be a significant sales driver, Schultz noted.
Starbucks has been growing its drive-thru units, for example, which now account for about 42 percent of the chain’s roughly 14,000 locations in the Americas. Those units are showing some of the strongest performance within the system, in part because of simple convenience. Customers can grab a Starbucks item to go without leaving the car.
Delivery will be fully integrated into the mobile ordering initiative Starbucks plans to roll out next year, Schultz said.
Mobile ordering is scheduled to debut in Portland, Ore., locations before the end of the year. The national rollout is scheduled for 2015.
Schultz promised that Starbucks’ version of mobile ordering will be unlike any other, with its seamless integration into the brand’s loyalty program and a built-in rewards system. The chain is already a leader in offering guests the ability to pay by smartphone.
Starbucks chief digital officer Adam Brotman said the company already has 12 million customers that are “highly active” on its mobile app, and has 8 million active loyalty members. Mobile payments account for close to 7 million transactions per week, or 16 percent of all Starbucks transactions.
“That’s going to give us a huge competitive advantage going forward, and gives us the belief this is going to significantly drive throughput in incremental transactions,” Brotman said.
But mobile payment and consumer adoption of the technology overall is still in its infancy, Schultz noted.
In 2013, payment purchases on all mobile devices in the U.S. totaled $1.3 billion, he said. More than 90 percent of those purchases took place at a Starbucks.
“I can assure you that Starbucks will have a major role to play, both inside and outside our stores, as the nascent mobile payment industry evolves,” Schultz said.
Starbucks’ growing food program will also enhance its delivery service.
During the fourth quarter, food sales contributed 2 percentage points to the chain’s same-store sales increase of 5 percent in the Americas region, and helped grow traffic during the midday hours of 11 a.m. to 3 p.m.
While the chain’s new La Boulange breakfast platform is performing well, forthcoming lunch offerings are expected to further drive midday growth.
Starbucks anticipates a strong holiday season with mobile-focused promotions, including a chance for 13 customers to win Starbucks for Life by using their Starbucks card or paying with a mobile device during the season.
The brand also has a lineup of 100 unique gift cards. Last year, consumers bought about $1 billion in Starbucks gift cards during the holiday season.
Contact Lisa Jennings at [email protected].
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