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Howard Schultz's Crowning Achievement as Starbucks CEO

It’s not pumpkin flavored, and it doesn’t come in a cup

December 6, 2016 | Retail & Ecommerce

Starbucks CEO Howard Schultz, who announced Thursday he’s stepping down from his post to become the company’s executive chairman and devote his energy to such things as high-end Starbucks retail concepts, has racked up a host of impressive accomplishments.

US Total Retail Sales* and Proximity Mobile Payment Transaction Value**, 2016 & 2017 (billions)

But Starbucks’—and Schultz’s—most notable business achievement doesn’t involve anything in a cup, or the coffee giant’s goal of being “the third place”—a place that offers conversation and community.

What has made Starbucks the envy of perhaps all US brick-and-mortar retailers is the company’s mobile payment system. Built as part of Starbucks’ loyalty program, it’s managed to hook Starbucks customers and allow the coffee giant to know who they are and lure them with incentives as a result. That’s contributed to Starbucks’ same-store sales gains and traffic. eMarketer estimates that Starbucks’ sales per square foot have risen to a record $781 in fiscal 2016, topping fast-food chains such as McDonald’s and Dunkin’ Donuts.

“It’s a crowning achievement of Howard Schultz,” said Richard Crone, CEO of Crone Consulting LLC, an independent advisory on mobile payment, in an interview. “He’s engaged his customers before, during, and after the Starbucks experience. Every one of those customers is known and contactable through that mobile app. No other retailer has accomplished what they’ve done in the shortest period of time.”

Mobile payments, introduced nationwide in 2011, now represent 25% of the company’s US transactions, up from 20% a year earlier, Starbucks said in November. In comparison, Apple Pay and Android Pay, both unveiled later than Starbucks’ mobile payment app, is each used by less than 4% of any available devices, Crone said. Major retailers are only just catching up. Walmart, for instance, introduced its Walmart Pay in December 2015. CVS Pharmacy rolled out CVS Pay in August.

eMarketer estimates total US proximity mobile payment transactions will almost triple to $27.67 billion this year. That’s less than 1% of the $4.84 trillion in US retail sales eMarketer projected.

Last year, Starbucks rolled out Mobile Order & Pay nationwide. Customers ordering ahead on their mobile devices has risen to 6% of all Starbucks U.S. transactions. About 3,300 of its stores now handle 10% of their orders at peak through Mobile Order & Pay. In some 600 stores, that percentage is over 20% of orders at peak, triple the number from last year, the company said.

“The order ahead is a game changer,” Crone said, estimating that it could help increase same-store sales by as much as 40%.

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