Starbucks Understands Mobile

Starbucks  SBUX 1.29%  on Thursday reported a stellar fiscal third quarter report that sent the company’s shares to fresh all-time highs. Same-store sales were up 8% globally, bolstered by a 9% increase in the U.S. as traffic dramatically increased. All regions performed well, and for the upcoming fiscal 2014 Starbucks projected revenue will increase about 10% to 13% bolstered by new store openings and growth as existing locations.

But the coffee giant’s executives talked more about investments in mobile rather than discuss the latest coffee or tea brews.

That’s because Starbucks says investments in the mobile experience, including a growing loyalty card program and digital payment apps, are what’s helping power the company’s growth.

“Mobile order and pay is enabling us to serve more customers more quickly and efficiently and to significantly reduce attrition off the line,” Chairman and CEO Howard Schultz told analysts.

Starbucks tossed out a few key statistics to make its case for why investments in mobile, while costly, are a worthy expense. The “My Starbucks Rewards” loyalty program now has 10.4 million active members, up 28% from a year ago, and those shoppers now account for about 30% of business in North America. Mobile payments account for 20% of all in-store transactions in the U.S., more than double the figure Starbucks reported two years ago. The company has also signed up recent partnerships with The New York Times, music streaming service Spotify and ride-sharing startup Lyft in an attempt to win over even more coffee and tea lovers.

Schultz pointed to comments he made two years ago when he noted that traditional brick and mortar retailers needed to recognize that there was a shift in consumer behavior when it came to mobile. He said most competitors invested in digital advertising, but Starbucks has spent money on improving the in-store experience by adding mobile to the check out and even in limited markets, ordering.

This shouldn’t be a surprise, as Starbucks was always ahead of the curve. It introduced WiFi in its stores back in 2001, and at that time, even charged for the service (it is now free). The rationale was that if coffee lovers were using Starbucks restaurants for their Internet needs, they’d spend some money on drinks and food while spending time in Starbucks’ restaurants. Not all investments outside of the coffee experience paid off (the first WiFi provider went bankrupt and a music label shut down). But Starbucks should get some credit for thinking ahead of the pack.

“Mobile order & pay continues to be one of SBUX’s most exciting digital initiatives and is expanding nationwide by the holiday season this year,” said Wells Fargo analyst Bonnie Herzog in a research note. Herzog said even despite Starbucks’ investments for this fiscal year, most notably to support the company’s “digital ecosystem,” she believed the coffee company was poised “to deliver strong results through innovation and its vast international opportunity, setting the stage for further incremental growth in FY16 and beyond.”?