Is Starbucks Banking On Customer Convenience To Drive Volumes?

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After it launched its “Mobile Order and Pay” system last year, Starbucks (NYSE:SBUX) is now testing an expansion of this system to make it even more convenient for consumers to pick up their coffee from a store. The company recently began testing curbside pickup at one of its stores in Washington, whereby a barista brings the customer’s order (ordered via the mobile app) right to their car. This service is aimed at reducing parking hassles in stores that do not have easily accessible parking. Mobile order and pay already accounts for nearly 10% of the orders at some of Starbucks’ busiest stores and Business Insider’s premium research expects it to account for nearly 22% of the company’s total U.S. transactions by 2020. Time-strapped consumers seek more convenient options to reduce the time it takes to get their beverages. In striving to maximize customer convenience in various ways, Starbucks can drive both higher customer traffic and increasing beverage sales.

Driving Loyalty Through A More Convenient Mobile Order And Pay System

According to BI Intelligence, mobile ordering platforms have been proven to intensify customer loyalty, increase purchase frequency and lift average ticket sizes through order customization and easier checkout process. These platforms are likely to be a critical channel contributing to the growth of the QSR (Quick Service Restaurant) industry. By providing curbside pick-up for orders placed via the mobile ordering platform, Starbucks is looking to increase the convenience of this platform, thus attracting more consumers to avail themselves of it. Other retailers have also explored similar options with Walmart providing a “car delivery” service at its stores for grocery orders placed online.

The number of daily customers in Starbucks’ stores is a key driver of the company’s valuation and we expect this figure to increase steadily from around 510 in 2016 to around 670 by the end of our forecast period.

Shorter waiting time and convenient ordering and pick up options can drive these volumes higher. If the number of daily customers at Starbucks stores reaches 750 by the end of our forecast period there can be a nearly 10% upside in our price estimate.

While Starbucks is looking to improve user convenience via its curbside pick up option, there will likely be several challenges in implementing this service on a larger scale. Traffic congestion from drivers awaiting drinks and additional staff requirements to serve these customers are two obvious issues. The company is currently testing this option and a larger roll-out could be possible once these teething issues are ironed out.  Whether the curbside pick up initiative succeeds or not, it reveals that Starbucks is constantly identifying ways to make it easier for consumers to get their coffee. We believe these initiatives are significant as mobile order and pay drives growth in the QSR industry in future. Consumer convenience, shorter waiting times and easier check out options will all be critical in driving volumes for Starbucks in the long term.

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