A Starbucks executive pointed to the important role that mobile payments plays for the company in a recent conference call with analysts to discuss its financial results for the first quarter of 2012. During the call, the executive said offering mobile payments is a competitive advantage that is helping to drive revenue increases for the company.
“We are the number one company not in the U.S. but in the world in terms of mobile payment, transactions and dollars,” said Howard Schultz, president and CEO of Starbucks, Seattle, WA, during the conference call.
“The macro issues that are facing many companies, we have been able to turn into a competitive advantage with regard to value, social digital media and mobile payment,” he said.
First mover advantage
In December, Starbucks revealed that it has had 26 million mobile transactions since the launch of its mobile payment program in January 2011.
The Starbucks app for iPhone and Android enables customers to check their balance, reload their card with any major credit card and view their transactions. It delivers a bar code to users that can be downloaded onto a phone and scanned at the point of sale.
During the first quarter ended Jan. 1, Starbucks reported total net revenues increased 16 percent to a record $3.4 billion. The merchant said the number of average daily transactions per store in the United States for the first quarter was up, with the Starbucks Card loyalty card and the mobile payment app tied to the card supporting the increased frequency.
U.S. customers loaded $0.5 billion onto their Starbucks Cards in December, a 23 percent increase over the previous December. Starbucks also gained 413,000 new members to the My Starbucks Rewards program in December, bringing total membership to more than 3.7 million.
One in four customers uses their Starbucks Card for tender. The merchant did not specify how many of these use the mobile payment app.
“This is the first and largest consumer of adoption of mobile payments to date which is absolutely significant,” said Denée Carrington, a senior analyst at Forrester Research, Cambridge. “Starbucks points to topline financial benefit as well as cost savings via efficiency which – if true – would certainly provide a great use case of markets.”
Several factors contribute to Starbucks’ success in mobile payments, including that coffee is a frequently purchased item and that customers are typically looking to get in and out of a store quickly, per Ms. Carrington.
Additionally, Starbucks owns the POS terminals in its locations, making the transaction a closed loop. This also enables Starbucks to easily make changes.
Finally, Starbucks has a close relationship with many consumers who are members of its loyalty program.
“Delivering on a mobile app was an extension of a relationship that already exists,” Ms. Carrington said.
“The app builds on the positive customer experience that will support Starbucks growth,” she said. “Starbucks could not have had success if the customer experience was extremely poor.”
Can success be repeated?
The question is if any other retailers have the same attributes that could make mobile payments work as successfully. For example, city transit organizations also sell a product that is frequently used, have customers who are looking to conduct transactions very quickly and own the POS devices.
“I think there are specific segments that can make this happen,” Ms. Carrington said.
“There are a lot of different ways to deliver mobile payments at POS,” she said. “We will see a lot of different delivery mechanisms this year tried out – everybody else is in the early mode trial phase.”
During the conference call with analysts, Mr. Schultz discussed the seismic shift in consumer behavior in the past few years and what role mobile is playing here. In addition to the pressure on consumers as a result of the recession, he said that technological developments have made social digital media a primary vehicle for accessing information and that mobile payments and mobile commerce are going to change the way that consumers buy things.
Starbucks has been able to lower its cost of customer acquisition via traditional advertising by building a strong social media presence via Facebook, Twitter and Foursquare, per Mr. Schultz.
With one in four, or 25 percent, of customers currently paying with a loyalty card, it looks as if Starbucks has room for more growth in the mobile payments space.
“I would imagine that a good portion of Starbucks’ customer base has a mobile phone,” Ms. Carrington said. “There is an opportunity to grow as more of its customers have phones that support the app.”