Starbucks is opening a new coffee shop that only accepts orders placed on a mobile device.
The coffee giant will open the new store this week at its Seattle headquarters as it continues to test technology that allows customers to order ahead with the company’s mobile app.
Starbucks now has more than 9 million mobile paying customers, more than a third of which use the Mobile Order & Pay program that lets customers order with their smartphone and skip the line.
However, Starbucks has a problem. The uptick in mobile orders is creating congestion inside stores for mobile order-ahead customers trying to pick up their coffee and food at hand-off stations. As Starbucks Chairman Howard Schultz detailed on the company’s latest earnings call, this not only affects customers who are picking up items, but also potential customers who may notice the in-store traffic and end up not purchasing anything.
“We’re going to redesign new stores and existing remodels to reflect the fact that Mobile Order & Pay, although in its nascent stage, is obviously going to be a significant part of the morning business,” Schultz said in a conference call with analysts following the earnings report.
In response, Starbucks is adding dedicated stations for mobile order-ahead customers, distinct from existing in-store registers.
Investors are closely watching how Starbucks responds to the new issue. TheStreet’s Jim Cramer said Monday that if Starbucks can solve “the throughput problem with mobile ordering,” then its stock — which is down 6 percent in the past year — can “go much higher,” he noted.
“Starbucks has to become a technology company that gets your coffee to you without a throughput problem,” Cramer added.
Now Starbucks will test a store that only services these mobile orders. In a letter to employees, reported by The Puget Sound Business Journal, Starbucks noted that one of its existing stores inside the HQ (Sodo 8) is among the top three mobile-ordering locations in the U.S. The new store, located across from Sodo 8, will service all mobile orders placed by the more than 5,000 employees in the building and will only feature counter space with a barista managing the orders.
“An early experiment, this first of its kind experience will be tailored specifically for convenience and we expect to learn from this location as it complements the current SoDo 8 store, which will remain unchanged on the 8th floor,” reads the letter, penned by Senior VP of Global Store Development Andy Adams.
Testing new in-store technology with employees initially is a similar strategy employed by Amazon with its new Amazon Go and Amazon FreshDirect stores in Seattle.
Mobile Order & Pay, which launched in 2015, represented 7 percent of the company’s U.S. transactions in the most recent quarter. That’s up 3 percent the prior year and 1 percent from the previous quarter.
There were also 1,200 stores in the U.S. that saw more than 20 percent of transaction volume come from MOP during peak hours last quarter; that’s up from 600 stores in the prior quarter.
Johnson officially takes over as CEO
Monday marked Kevin Johnson’s first day as CEO of Starbucks, which posted this Q&A with its new leader. The former Microsoft executive takes over for Schultz, who passed the keys to the company to Johnson last month at Starbucks’ 25th annual shareholders meeting in Seattle. Schultz will now spend more time on strategic initiatives including Starbucks Reserve Roasteries, retail stores, and social issues.
The executive shift, first announced in December, signifies Starbucks’ focus on technology. Johnson not only spent 16 years at Microsoft, where he led worldwide sales for two years before running the Windows and Online Services division for three years, but was also CEO of Juniper Networks for five years.
“Above all, he is a servant leader with a tremendous sense of humanity, compassion, and deep understanding of the human condition,” Schultz said at the shareholders meeting.
While Johnson was COO, Starbucks rolled out a handful of new tech-powered initiatives like mobile ordering and delivery, in addition to bringing its app and rewards program to China. Johnson is also familiar with the company, having been a board member for the past eight years.
Starbucks’s use of technology goes beyond mobile ordering — it is now using artificial intelligence and the cloud to drive sales and bolster its personalization technology, for example. It also unveiled a new “innovative conversational ordering system” this past December.
At the shareholders meeting, Starbucks announced a partnership with Ford and Amazon that will enable customers to order products from inside their vehicle using only their voice. Starbucks also showed off a new social gifting feature for Apple Messages.
Starbucks, which has more than 24,000 stores and employs more than 330,000 people, played a short video at the shareholders meeting that described Johnson’s life and values which you can watch below: