3 reasons why the Starbucks app would fail at your restaurant

May 13, 2014 | by Noah Glass
3 reasons why the Starbucks app would fail at your restaurant

Most of us like our morning coffee, many of us love it – and some of us can’t live without it. That means coffee shops can depend on highly routine, habitual transactions made by loyal coffee customers who might visit more than a dozen times a month. One could almost hear the glee in Starbucks CEO Howard Schultz’s words as he described "the Starbucks daily ritual” on the company’s 2014 Q1 Earnings Call late last month. And that’s the essence of Starbucks’ success in convincing more than 10 million customers to use their smartphones to make mobile payments at the cash register.

According to Schultz, Starbucks is now processing well over 5 million mobile payment transactions each week (14 percent of Starbucks’ tenders), making the brand the "undisputed leader in digital retail technology.” Many restaurants and retailers would agree with Schultz’s self-assessment, and there may soon be an opportunity for Starbucks to deliver a white-label app to its admiring peers. On the April 24 call, Schultz hedged his commentary on this topic, stating:

"We have not made the decision as to what we will do, but I can share with you that we are actively pursuing a number of conversations because we strongly believe that (there is a) tidal wave of consumer adoption of smartphones and mobile commerce, and we are in the sweet spot of being in a position to take advantage of (the wave) in a very unique fashion."

With smartphones now in the hands of 70 percent of mobile phone users, it would be hard to disagree that consumer adoption of smartphone is the personal technology trend of our time that restaurants must embrace. I founded Olo in 2005 on the belief that this trend would forever change the way customers and restaurants interact and transact, ushering in the age of mobile commerce. However, just because customers are using the smartphone to pay for coffee at Starbucks does not mean that the Starbucks approach to mobile will work for other restaurant brands.

In many ways, where Starbucks goes, so goes the nation. But when it comes to mobile payment, operators might want to forge a different path, guided by careful consideration of business strategy and fundamentals. Here’s why:

1. Your customers don’t visit your restaurants as frequently.

The magic trick of the Starbucks Card is that the customer preloads funds onto it. Think about that: Starbucks customers loan the brand money by paying in advance for future purchases. That notion is the very basis of Starbucks mobile payments. You cannot use the app to pay by credit card. Instead, you pay by increasing your stored value account with your credit card or PayPal account and then drawing down on the balance. Many restaurant brands believe they could do something similar, offering customers a restaurant-branded tender type to decrease their cost per transaction. The problem is that customers will only open a “debit savings” account with your brand if they are high-frequency customers. Starbucks benefits from selling a product that loyal customers purchase over a dozen times a month. Do you? If not, your efforts to get customers to advance cash in the form of a stored value account balance are likely to fail.

2. Mobile payment has no value without added value. 

Mobile payment does not add value to the customer experience in and of itself. That’s why even brands like Starbucks pair mobile payments with a loyalty offering like My Starbucks Rewards. Paying with your smartphone instead of paying with your credit card doesn’t present a natural utility to customers, so brands need to create false benefits (read: freebies) in order to change customer behavior. Starbucks provides gold members a free beverage or food item for every dozen transactions. And not just once – gold members get a freebie after every dozen transactions. If you’re Starbucks and have an incredibly high gross margin business, that may not bother you very much. But if you’re like most restaurant brands and have a 30 percent food and paper cost or higher, you may begin to wonder if that kind of benefit truly adds up to good business.

3. Faster, more accurate and more personal = more important.

Simply being able to pay with their smartphone and get rewards every now and again is not enough to compel customers to use an app. A recent Deloitte study indicates that most restaurant loyalty programs are underutilized, primarily because many other factors influence a customer’s decision to frequent a restaurant – and many have to do with people, not technology. If a restaurant’s service is slow, inaccurate and impersonal, customers aren’t going to be racing to download and use its app – even if Starbucks agrees to build it.

So instead of jumping on the mobile payments bandwagon (or food truck), consider that mobile ordering is what customers really want. A recent CFI Group Study revealed that more than 75 percent of survey respondents found it important to be able to order via mobile or online and pick up purchases in store. By enabling mobile ordering within a mobile app – a key feature that Starbucks has not implemented – customers get the faster, more accurate and more personal service they truly crave.

On April 2, I was proud to share the stage with Laura Radewald, Chief Marketing Officer of Dunn Bros Coffee, to announce that Dunn Bros will be the first coffee brand to deploy mobile ordering in its app through the Olo platform, providing its customers with mobile ordering, mobile payments and mobile loyalty all in a single app. The trailblazing Dunn Bros, which proudly sets “The Bold Standard” in the coffee segment, is about to truly become the “undisputed leader in retail technology,” giving customers what they really want: mobile ordering that lets them skip the line and bypass the cash register entirely.



Topics: Coffee / Specialty Beverages, Loyalty Programs, Marketing / Branding / Promotion, Mobile Payments, Online / Mobile / Social

Noah Glass
Noah Glass is the Founder & CEO of Olo. Since 2005, Olo has helped restaurant brands increase revenue per square foot through faster, more accurate, and more personal service with digital ordering. wwwView Noah Glass's profile on LinkedIn

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