Starbucks (NASDAQ: SBUX) has led the way for not just fast-casual restaurants, but all of retail when it comes to using customer-facing technology in its stores. The company was the first major chain to integrate digital payment into its app, making it a common sight to see people pay by holding up their phones to a scanner. That happened well before payment via phone become a relatively common thing, and it forced other chains to follow.
Starbucks also led the way with Mobile Order & Pay. That technology allows people to skip the line, creating a better experience for regular customers while offering shorter lines for casual visitors. That system, which has since been copied by rivals Dunkin’ Brands (NASDAQ: DNKN), and Panera Bread (NASDAQ: PNRA) (along with countless other food chains) lets more people working in the limited space behind the counter focus on food preparation rather than order-taking. Doing that allows for not just a better, faster customer experience, but it lets the store serve more people, driving sales numbers up.
In some ways, Starbucks has been a technology company for the past few years as much as it has been a coffee purveyor. Now, in a presentation at its Dec. 7 Investor Day, the chain laid out its next steps for remaining ahead of the curve when it comes to integrating technology into its retail experience.
Technology has been an important part of the Starbucks experience. Image source: Starbucks.
What happens next for Starbucks?
“We look at digital not as a marketing channel, but as a foundational part of the customer experience at Starbucks,” said Chief Strategy Officer (CSO) Matt Ryan. “That’s why we have a different track record with digital from so many other companies who just treat it as marketing.”
The next step in evolving that platform will be the company’s using what it has learned about its customers to better serve them. Imagine walking up to a Starbucks counter and the artificial intelligence (AI) in its app knows not only your history, but the past preferences of people with your ordering habits. That will allow the company to deliver personalized suggestions, not only based on what you have ordered, but what you might want to try.
This follows on what Starbucks has already been doing on a gross level. Currently the company can use real-time data to make special offers to customers via email. Say, for example, that you traditionally stop in to a Starbucks once or twice a week in the afternoon for a latte. The chain can take that info and offer you incentives — discounts or rewards program bonuses — to get you to make that visit more often or to entice you to add a food item to your latte.
AI will take that even further. Going forward, with customer permission (something Chief Technology Officer Gerri Martin-Flickinger made very clear would be asked for when she spoke) Starbucks will be able to deliver a customized experience that gets better the more you visit.
“It is not a single algorithm used across the entire population; it is a data-driven AI algorithm based on your own preference and behaviors” she said. “The real-time personalization engine uses a lot of different inputs. Some of those are very specific to the individual, like their preferences, their buying patterns, but others are very contextual, like weather, or information that we know is going on regionally… This tends to drive up ticket and transactions.”
There is a big opportunity
Ryan noted that Starbucks believes that the away-from-home coffee drinker market consists of 150 million people in the United States. The chain currently serves about half of them each month and the CSO believes that technology can help drive growth from those 75 million people who already visit the coffee chain.
“Of that 75 million, most are not members of our rewards program, only 12 million are, and about 8 million of them have converted to mobile, which has driven a lot of incrementality as mobile customers are more engaged than people who just use a card,” he said.
Mobile Order & Pay, he said, is also a potential source for growth as only 2.5 million of the 8 million mobile customers use that technology. “I lay this out because at each step we have an opportunity to drive incrementality in terms of transaction and even the ticket,” he said. “Each one of these things represents an opportunity to grow our business.”
Going forward,it’s easy to see how AI can further those goals while also continuing to give the chain an edge over rivals like Dunkin’ and Panera. A smarter app will drive more customers to use it and that will push sales. A personalized experience should not only increase consumer satisfaction, it should also push checks higher, get people to sample new products they are likely to enjoy, and help the company move traffic to slower times of the day.
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Daniel Kline has no position in any stocks mentioned. He uses the Starbucks app nearly every day. The Motley Fool owns shares of and recommends Panera Bread and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
