There's a revolution under way at fast-service food and beverage restaurants. Customers are tired of standing in line. They're tired of pulling out their wallet and swiping a credit card at the register. American's don't have the attention span for that anymore.
Today's consumers want to order their food in advance, seamlessly pay through their mobile phone, and skip the line to pick up their food as soon as they arrive. Just a few years ago this customer experience was a science-fiction. Today though, it happens every single day.
Leaders in this technology like Starbucks (NASDAQ:SBUX), YUM Brands' (NYSE:YUM) Taco Bell, and Chipotle (NYSE:CMG) are using mobile technology to dramatically improve the customer experience, and that's driving significant results to the bottom line.
The mobile ordering experience at Starbucks today.
My typical morning routine visiting my local Starbucks serves as a perfect example of a streamlined transaction process.
The Starbucks customer experience starts before I even leave my house. When I take my phone off its charger and before I put it into my pocket in the morning, I open the Starbucks app and click the "Order" button. The app remembers my most recent orders, allowing me to select the exact coffee I want with a single click. The app uses GPS to suggest the closest Starbucks to my location, which I confirm with a click. Next, I simply confirm my order. My account is charged, and my order is printed at the counter of the Starbucks down the street. About five minutes later, when I arrive at Starbucks, my coffee is already prepared and sitting at the counter waiting for me. It has my name on the side, and, after several months of using the service, my order has been accurate every single time.
I no longer wait in line. I no longer have to pull my wallet out of my pocket. If it's particularly early, or I'm particularly sleep-deprived, I don't even have to interact with anyone before getting my caffeine fix. It's easy. It's fast. It eliminates all of the pain points of ordering coffee at a busy Starbucks in the morning.
The mobile payment system is also automatically linked to Starbucks' loyalty program, My Starbucks' Rewards. The rewards program is designed to encourage using mobile ordering, and since I began using the option, I've quickly accumulated enough points in the program to receive free refills, generous discounts, and the occasional free drink or sandwich.
Prioritizing the customer experience
Starbucks is a leader in this arena because it has the in-restaurant infrastructure to fill mobile orders quickly and consistently, without sacrificing the conventional experience for non-mobile customers. Other companies are still working to perfect the process, prioritizing the customer experience before scaling the feature to the masses.
Chipotle, for example, is intentionally throttling the growth of its mobile ordering service while it perfects its processes to manage mobile customers. CEO Steve Ells readily admits that the company isn't to the same level of adoption as other restaurants, with Starbucks being the leader. He told investors on the company's third quarter conference call that the company has "deliberately under-marketed mobile ordering, and the reason for that is fairly simple. We just have not quite optimized the experience in the restaurants to the point where we feel comfortable driving a large number of people in there."
That means ensuring that in-restaurant staff have capacity to handle an influx of orders beyond the already high volume hours around lunch and dinner. It also means guaranteeing that the mobile ordering technology can provide the same level of control over each order as in the restaurant, a key part of the Chipotle experience.
Taco Bell's "Live Mas" app goes a step farther than other mobile ordering platforms, integrating a location aware feature that only prompts the restaurant's staff to make a mobile order once the customer is within 500 feet of the restaurant. This ensures the food is hot, tastes its best, and preserves a high quality customer interaction every time. Again, the priority is designing a system to provide an amazing customer experience, every time.
Once the experience is perfected, mobile ordering can drive some serious business results.
Before I began using Starbucks' mobile app to order and pay for my coffee remotely, I would spread my coffee purchases around among the four or five coffee shops in my neighborhood. Now, I only go to Starbucks. The ease of ordering and overall improvement in the customer experience makes the choice easy. I was a customer one or two days a week. Now I'm a customer four or five times a week.
I'm not alone in this change. In December, more than 1 million customers used mobile ordering. The company is processing over 6 million smartphone orders per month, including the scan-to-pay option at the register. At Starbucks' busiest locations, the company says that upwards of 10% of all orders come from mobile payments. In its fiscal year 2016 first quarter, which ended on December 27, the My Starbucks' Rewards program grew 23% year over year. Management attributed mobile adoption with being a large driver of the company's 9% sales growth in the Americas region. There's no debating the numbers; Starbucks' mobile ordering and payment strategy is a runaway success.
Starbucks President and COO Kevin Johnson told analysts on the company's quarterly conference call that the company "has just scratched the surface" of the mobile opportunity and hinted at even greater mobile capabilities coming in the future. Howard Schultz, Chairman and CEO, emphasized that even further, saying that mobile adoption "has stunned us in terms of how quickly the U.S. customer has embraced it."
Mobile ordering has also correlated with higher ticket prices, in addition to increasing customer loyalty and bringing in new customers. Taco Bell, whose app has been downloaded nearly 5 million times since launching in October 2014, reports that its average mobile order is 20% larger than the average in-store order, a result driven by consumer's greater willingness to add extra toppings or order for multiple people simultaneously.
At Chipotle, mobile and online ordering volume has increased for eight consecutive quarters. Those orders represented upwards of 5% of total sales at the restaurant as of the third quarter, increasing 40% year over year. That growth, mind you, is happening with essentially zero marketing. Once Chipotle turns on the marketing spigot, it seems likely that mobile ordering will become a tremendous driver of growth, much like the results seen at Starbucks.
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For Starbucks, YUM Brands, and Chipotle, mobile ordering and payment is a high strategic priority. The technology improves the customer experience, and that in turn drives better business results. The key, therefore, is ensuring that each location has the processes and infrastructure to handle an influx of new orders from mobile customers. So far, these companies and others like them are succeeding at this, and the results show.
For investors in the fast-service restaurant sector, this trend is already a major driver of performance. For investors in other consumer facing industries, the mobile revolution is coming. I recommend you start paying attention now.