News

No traffic, no problem: Starbucks plans to take the coffee to the customer in 2015

Consumers are staying away from brick and mortar stores in favor of online shopping, slowing traffic growth in Starbucks' stores. Starbucks is navigating the trend by adding mobile order and pay, and launching delivery.

October 31, 2014

Starbucks Q4 2014 report revealed that traffic contributed a meager 1 percent to same store comp growth of 5 percent.

Starbucks' answer? Make it easier for customers to get their Starbucks fix whenever, however and wherever they choose.

"We are not satisfied with 1 percent traffic growth in the Americas and are taking immediate steps to grow traffic," said COO Troy Alstead in an Oct. 30 investor call.

John Culver, group president, Starbucks Coffee China and Asia Pacific, Channel Development and Emerging Brands, attributes the slow traffic to a macro shift in consumer behavior identified last year.

More customers are skipping bricks and mortar shopping in favor of snagging online deals. That means fewer opportunities for customers to be tempted pop into a Starbucks for a pumpkin spice latte and a quick snack.

The trend is impacting restaurants and retailers across the board, said Culver.

"This is not a Starbucks issue," said Culver. "All the companies that you follow and all the retail companies that are reporting in other spaces are experiencing a downturn in traffic that is a result of a cultural macro shift that I spoke about in Q1 of last year."

But Culver and other Starbucks leaders believe the brand is well positioned to respond to the trend and adapt to changing consumer patterns.

Starbucks, a long-time leader in loyalty and mobile payment – 16 percent of all transaction conducted in U.S. Starbucks stores are concuted via mobile device – is getting ready to pilot Mobile Order and Pay in Portland in December, with plans to roll out nationwide in 2015.

"Our research confirms that we can drive even more traffic and incrementality and offer even more customers more convenience in more locations by allowing them to place orders ahead of time via their mobile devices and pick up their orders up without waiting in line," said Howard Schultz, chairman, president and chief executive officer.

But if Mobile Order and Pay isn't quite enough to drive customers to stores, Starbucks has another trick up its sleeve it plans to play in the back half of 2015: food and beverage delivery.

"Imagine the ability to create a standing order that Starbucks delivered hot or iced to your desk daily, that's our version of ecommerce on steroids," said Schultz. The service is expected to roll out in select markets in late 2015.

Consumers are seeking convenience

The consumer trend away from shopping in traditional brick and mortar stores is accompanied by a shift away from giving physical goods and towards giving gift cards.

Roughly one in eight Americans received a Starbucks gift card last holiday season, for a total of $1.4 billion in card loads for the brand in Q1.

Starbucks is stepping up its gift card and loyalty programs this holiday season with its Starbucks for Life promotion. Customers who use gift or loyalty cards or their My Starbucks Rewards account to pay for purchases will be eligible to win food and beverage prizes, and 13 card holders in North American will win "Starbucks for Life," a free drink or food item every day for 30 years. The promotion starts Dec. 2 and will continue for five weeks throughout the holiday season.

Convenience is the underlying theme shifting consumer trends, according to Schultz.

For instance, drive-thru sales outpaced overall sales in the final quarter of the year. Sales from drive-thru stores, which account for 42 percent of Starbucks' company owned store portfolio, generated nearly 50 percent of company-owned store sales in Q4.

"We strongly believe that the opportunity is around convenience," said Schultz. "Leveraging will be around drive-thrus and creating convenient opportunities for customers to get access to Starbucks is going to be another way in which we are going to win."

Other tidbits from the Starbucks Q4 report:

• Starbucks is now opening an average of one new store every day in China, with the pace expected to accelerate in coming years.
• Teavana hand-shaken iced tea drove more than 20 percent growth on Starbucks' iced tea platform, which experienced double-digit growth year over year.
• All dayparts grew year over year, with not more than 45 percent of traffic coming before 11 a.m. Food contributed 2 points to Americas comp growth in Q4.

Photo courtesy of Wikimedia.