Can Dunkin’ Duplicate Starbucks' Incredible Mobile Payment Success?

Starbucks' mobile payment system has proven to be one of the company’s greatest achievements in the past decade. Now Dunkin’ is looking to duplicate such success with its own system, but will it work?

Jul 17, 2014 at 5:29PM

In 2011 Starbucks (NASDAQ:SBUX) launched an integrated gift card, loyalty, social, and mobile platform that has since become, as CEO Howard Schultz puts it, "bar none the largest and most successful in the world." The platform had a very simple concept: allow customers to pay for their Starbucks orders on their mobile phones and reward them for each of their purchases with points that they can later use to obtain rewards. Today, over 10 million customers actively use the Starbucks mobile app, while mobile payments account for 25% of all transactions in Starbucks' US company-operated stores.

Such an incredible feat has attracted the attention of many, including competitor Dunkin' Brands (NASDAQ:DNKN). Looking to match this incredible success, in 2012 Dunkin' launched its own mobile payment app. However, it only integrated aspects of a loyalty program into its app this year. In a desperate game of catch-up, Dunkin' is now trying to duplicate Starbucks' incredible mobile payment success, but can it pull it off?

Dunkin' wakes up and integrates a rewards system into its app
From an early point it was clear that Starbucks had hit the nail on the head. By 2012 (the same year when Dunkin' finally got into the game) Starbucks had already processed 42 million mobile payments.

Yet it still took Dunkin' until early this year to integrate arguably the most important aspect into its new system: a loyalty rewards program. With that, DD perks was born. A side-by-side comparison of the two apps today shows just how similar the platforms of Dunkin and Starbucks are.

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Source: iTunes

The Dunkin' CEO expects 2.5 million users by the end of the year
In Dunkin's most recent quarter, the first, investors got a glimpse of how the system is maturing. In a little under three months, Dunkin' signed up 750,000 DD perks members. That is pretty incredible when you also consider the terrible weather conditions that riddled Dunkin's core Northeast market during that time.

By the end of the year, CEO Nigel Travis expects the member base to reach 2.5 million. While that would still pale in comparison with the 10 million-plus members of Starbucks' network, it would certainly be a great start.

A few more years down the road it is certainly conceivable that Dunkin's mobile member base could rival that of Starbucks. Will Dunkin' ever best Starbucks in this fight? Probably not. Starbucks has a massive lead on Dunkin' right now, and is showing no signs of easing up anytime soon.

Even though Dunkin' is unlikely to surpass Starbucks in this race, the company still stands to dramatically benefit from the growth of its system. Part, but not all, of the reason why Dunkin' has lagged behind Starbucks in sales growth during recent years is because it lacked a mobile payment system and it is now finally bringing one online. Last year alone Starbucks' Americas segment (the US, Canada, & Latin America) posted comparable-store sales of double the Dunkin' Donuts US segment's 3.4% growth (Dunkin' Brands also owns Baskin-Robbins).

Now that Dunkin' is providing more convenience for its customers and fostering a blooming of intense customer loyalty via its new system, its customers will likely come in more often and spend more money on each occasion, both of which are great things for Dunkin'.

The foolish takeaway
While Dunkin' is unlikely to ever match Starbucks' degree of success in mobile payments, there is no doubt that it will increasingly benefit as its member base grows. Even if Dunkin' doesn't reach 2.5 million members by the end of the year, the company is still in the earliest stages of the roll-out.

While Dunkin' may be a little late on the jump, over the long run, implementing its new loyalty-centric mobile payment system will prove to be a key step in nurturing customer loyalty and overall growth.

We'll get a key checkup on the progression of Dunkin's mobile payment system on July 24 when the company reports its second-quarter earnings.

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Ryan Guenette has no position in any stocks mentioned. The Motley Fool recommends Starbucks. The Motley Fool owns shares of 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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