Financing

Starbucks hopes a more open mobile app can help reverse sales problems

The coffee shop chain in July plans to open its app to everybody, not just loyalty club members. But it is already promoting its value there as it works to rebuild sales from occasional customers.
Starbucks offers
Starbucks has been promoting its app offers at its stores. | Photo by Jonathan Maze.

The best offers are on the app.

That may be the official motto of the 2024 fast-food restaurant industry, thanks in part to Starbucks, which has been marketing its app offers with signage at its locations, among other things.

But come July, the Seattle-based coffee giant hopes to prove it, opening the mobile app to everybody who comes into one of the chain’s shops, whether they are a member of its loyalty program or not.

“That will give them visibility to the experience that [mobile order and pay, or MOP] offers,” CFO Rachel Ruggeri told analysts on Wednesday, according to a transcript on the financial services site AlphaSense. “We know with our customers today, when they leverage MOP and they have convenience and they’re able to customize, it leads to habituation.”

The implications could be important. Starbucks watched its sales turn south in mid-November, and they’ve remained there so far in 2024—despite otherwise successful new product offerings such as a line of lavender beverages.

The company’s problems are with occasional customers, who have dramatically reduced their visits to the chain’s shops. Starbucks is focused on a host of efforts to improve that, including improvements in operations and technology to eliminate supply problems in the morning and new product innovation, including an oncoming energy drink.

The chain’s boba product, Summer-Berry Refreshers with Pearls, introduced in May, has performed well enough to improve sales on a “sequential” basis.

Starbucks is betting the convenience of mobile ordering will help more, in part by convincing more of those occasional customers to use the app. And executives also hope it improves the company’s value perception among those more occasional users.

Starbucks’ value perception among loyal customers has improved since 2019, according to consumer survey data from Restaurant Business sister company Technomic. It has fallen for more occasional customers, who visit less than once per month.

“There’s still an opportunity as it relates to value perception,” Ruggeri said. The company targeted its loyalty members with more specific offers in May. And it started telling people that such offers are available if they simply sign up.

“We’re also focused on the best offers in the app as a campaign to address customers and show them the value that they get, not only when they download but when they activate and then when they continue to increase frequency and overall spend,” Ruggeri said. The campaign has led to growth in Starbucks Rewards membership.

Starbucks is hardly alone with this problem. Major brands have focused on getting more customers to use their mobile apps, which provide a host of benefits to operators such as more targeted marketing, larger average checks and lower overall costs.

As such, companies like McDonald’s and Subway have concentrated their offers to those apps. Subway has routinely run aggressive deals on its mobile app. McDonald’s consistently runs offers that way.

Yet many consumers don’t want to download a lot of apps on their phone. And the lack of advertising for those offers means the brands aren’t getting the type of value halo that a large national offer can bring.

With declining traffic now an industry-wide problem, more brands are shifting their focus to general nationalized offers.

Starbucks, however, has positioned itself as a more premium brand and has generally avoided the types of discounts seen at most fast-food chains. But it has provided its Starbucks Rewards members with plenty of offers, usually targeted at certain dayparts or days of the week when demand is weaker.

As such, the company’s value hopes rest in getting more customers onto the app.

“Our most loyal customers indicate they get value for what they” pay, Ruggeri said. “That’s coming from a combination of not only actual price but the product and overall marketing.”

Whether this works remains to be seen. Starbucks has other issues related to its app, such as heavy mobile order demand crowding stores and making workers busier than ever. Yet Starbucks isn’t exactly the type of chain to come out with a bundled $5 value meal. Thus, the best offers remain on the app.

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