Why Starbucks Mobile Orders Could Be a Disaster

Starbucks is rolling out a new mobile ordering system. Chipotle stumbled out of the gate with its own online system; will Starbucks do the same?

Mar 22, 2014 at 7:00AM

Starbucks (NASDAQ:SBUX) recently announced that it will test a system allowing customers to place their orders via smartphone before they arrive at the store. Chipotle Mexican Grill (NYSE:CMG) and other fast-casual chains have accepted online orders for years. However, the rollout of Chipotle's system was anything but smooth -- it took several years of trial and error for the company to finally get things right. Could the same problems hinder implementation of Starbucks' mobile orders?

Coffee at your fingertips
Starbucks Chief Digital Officer Adam Brotman told Bloomberg that the company is "actively working" on allowing customers to select their drink or food purchases while in line or before arriving at the shop. The effort is designed to speed up service and raise awareness of Starbucks' mobile app.

Starbucks is a leader in mobile payments. More than 11% of transactions at its locations are made with mobile devices, and customers can use its app to collect rewards points. Earlier this year, CEO Howard Schultz stepped back from his day-to-day duties so that he could focus on all things mobile. Brotman told Bloomberg that Schultz is "very involved" in "all of the mobile plans" at Starbucks.

With such a strong commitment from one of the most innovative retailers, what could go wrong?

Chipotle's early struggles
Chipotle introduced online ordering in 2007 and immediately ran into problems. Its stores are designed to quickly serve a line of customers standing directly in front of its employees. However, online orders disrupted the flow, causing a decline in efficiency during the busiest part of the day.

Chipotle's director of public relations described the chaos to Nation's Restaurant News in 2009: "You'd have [cooks] getting the online order by fax and trying to assemble those orders as counter orders were coming in. When it was really busy, they were getting in each other's way on the line and slowing things down while others were trying to assemble burritos."

It can be hard to explain to customers waiting in a long line that they have to wait so that an order can be made for someone who skips the line altogether. At the same time, customers who order online expect to be served as soon as they get to the store -- and requiring customers to order 45 minutes to an hour ahead of time is usually inconvenient.

As a result, Chipotle redesigned its busiest restaurants with makelines devoted entirely to online orders at crunch time. This adds to labor costs, but improves efficiency during peak hours. The additional makeline solved Chipotle's problems, so perhaps Starbucks will do the same.

Will Starbucks stumble like Chipotle?
Starbucks will undoubtedly have to change its operating procedures to accommodate mobile ordering. The chain is already having trouble accommodating its La Boulange bakery items, with communication issues between its food staff and beverage staff sometimes leading to unfilled orders. Its stores were set up to serve specialty coffee and other beverages, so it is no surprise that the company is finding it difficult to significantly expand its food offering.

The same could easily happen with mobile orders. If miscommunication between food and beverage employees is already occurring with customers in line, imagine what happens when online orders start coming through.

Mobile orders could be a stumbling block for Starbucks in the short term, but with Schultz leading the mobile team, one has to believe the kinks will be worked out. Starbucks will go through the same trial and error that Chipotle experienced. It could lead to negative headlines in the short run -- and could even be labeled a disaster in the initial stages -- but, like Chipotle, Starbucks will figure out a way to make it work.

Foolish takeaway
Not many investors think of retailers as innovative -- and few retailers are innovative -- but Starbucks is the exception. The company is already the leader in mobile payments, and its lead will only grow as it rolls out mobile orders. Innovations are never introduced as smoothly as one would hope, but, in the long run, mobile orders will be just one more reason to go to Starbucks instead of a McDonald's drive-thru.

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Ted Cooper has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Chipotle Mexican Grill, McDonald's, 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.

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