Shake Shack (NYSE:SHAK), the high-flying better-burger chain, borrowed a page from Starbucks' (NASDAQ:SBUX) playbook last week. The burger flipper unveiled a new mobile app, making it possible for the first time to order via a smartphone. The service is only available at its Midtown East location in Manhattan for now as the company said it's testing the app with no timeline for expanding it to additional restaurants.
CEO Randy Garutti said, "In creating our first-ever app, we took great care to develop a mobile ordering platform that maintains the high quality our guests have come to know and love, but now just a tap away." Elevating the "in-Shack guest experience" was the driving force behind the new app. It's only available on iOS currently, but an Android version is in the works.
The power of mobile
No restaurant chain has done a better job of harnessing the power of mobile payments than Starbucks. The coffee giant has been training customers to pay within its ecosystem for years, first with the Starbucks Rewards Card introduced in 2001, and now through the mobile app. Twenty-one percent of Starbucks' U.S.transactions now take place through the app. That's more than 1 billion transactions a year.
About a year ago, it rolled out "Mobile Order & Pay" across the country, allowing customers to order remotely and pick up their beverage at a time of their choosing, a service that benefits the company in a number of ways. In addition to reducing friction in the payment process, it provides added convenience, and helps shorten the line in the store, a boon for all its customers. As one happy customer called it, "no line, no waiting, pure efficiency."
Less than a year after the national launch, 5% of transactions are now with Mobile Order & Pay, and the company has since expanded the service internationally.
Coffee and burgers
Coffee is better suited than fast food to loyalty programs or mobile ordering and payments. Hordes of Starbucks loyalists file into its cafes every morning to get their caffeine fix. That daily ritual just doesn't happen with burgers or sandwiches, which explains why Starbucks is leaps and bounds ahead of the industry in digital.
But while Shake Shack isn't selling coffee, it does share something else important with Starbucks -- its customer base. Both businesses are targeting a higher-end consumer, one willing to spend a little extra for quality and a better experience. Higher-income consumers also tend to be more tech savvy and sensitive to time, making them the perfect target for a service like mobile order and pay.
Shake Shack has executed nearly flawlessly since going public last year, and the company has average unit volumes nearly double any of its rivals. Its brand strength is readily apparent, but that success has made long lines a notorious part of the experience. The original location in Madison Square Park even has a Shack Cam so would-be customers can keep an eye on the line snaking outside the burger stand.
Long lines are a good problem for a business to have and are one reason why Shake Shack has accumulated so much buzz. But for regular customers, a 10- or 15-minute wait might just be too long during a lunch break. Mobile order and pay is one savvy way to add sales and cut the line down for its customers.
The company was careful to signal that it's only testing the mobile app, but if it's last innovation is any sign, it may not be long before mobile order and pay goes national. Last summer, it started testing the ChickenShack chicken sandwich at its three Brooklyn locations. After rave reviews, it launched the sandwich nationally in January, just six months later. Assuming the tech is ready for the new app, it may not be long before you can skip the line at your nearest Shake Shack, as well.
Jeremy Bowman owns shares of Shake Shack and Starbucks. The Motley Fool owns shares of and recommends 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.