Starbucks CEO throws down gauntlet on mobile payments, says coffee company will have ‘major role to play’

BY JOHN COOK on October 30, 2014 at 5:25 pm

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Howard Schultz

Starbucks is not messing around when it comes to the tectonic shifts occurring with consumers, especially as it relates to those mobile devices that coffee drinkers are carrying around in their pockets.

And just how important is mobile technology for the Seattle coffee retailer?

Consider this: Starbucks said today that roughly 16 percent of its U.S. sales now occur through a mobile device, with the company now handling about seven million mobile payments each week. It also controlled about 90 percent of all mobile payment transactions last year.

And while Starbucks CEO Howard Schultz said in today’s earnings call that things are just getting started with mobile payments, he confidently boasted that the coffee company is well positioned to lead the way, even outfoxing established technology players with hordes of software engineers.

If there were any doubts before that Starbucks is a technology company, you can now leave those antiquated thoughts at the door.

Here’s what Schultz had to say in remarks today during the earnings call,fascinating stuff given the announcements around Apple Pay last week.

“While we have been investing in the development of our world-class mobile technologies for many years, and there has been a great deal of activity and speculation around the mobile payments space recently, mobile payment and consumer adoption of the technology overall is still in its infancy. Please consider this metric: In 2013, payment for purchases by use of all mobile devices in the U.S. totaled $1.3 billion. That was the entire market. Now, listen to this, over 90 percent of those purchases taking place in a Starbucks store. That means we had 90 percent share of mobile payments in 2013, while bricks-and-mortar commerce in 2013 totaled more than $4.2 trillion.

Now, what you are going to see in the years ahead will be a rapid acceleration in mobile device purchases, and a continued significant migration away from bricks-and-mortar commerce. There’s obviously a huge prize there. And that’s why you are seeing so much activity around the payments space, from all kinds of companies. That is why every tech and financial services company in the world is totally chasing the mobile payment opportunity. Yet, while these companies may have vast hardware and software development capabilities — and this is the key point here — Starbucks is the only local, national or global business of any kind to succeed in crossing the both the most difficult and the most critical chasm standing between success and failure in mobile payments: Transforming consumer behavior. We have accomplished this by integrating the convenience of mobile payment to a compelling and enjoyable program that gives our customers rewards.

Already, close to 7 million transactions per week, 16 percent of all transactions conducted in U.S. Starbucks stores, occurs via a customers’ use of a mobile device. No company and no retail store, domestically or internationally, even comes close. And while that figure has been growing by almost 50 percent per year, the real growth is yet to come. Starbucks Coffee Company has cracked the code at tying mobile payment to loyalty, and we are now receiving great interest in partnerships from mobile payment companies who see the value of our rewards program and the mobile payment behavior we have established. But we will play our hand wisely, with a long-term view, carefully choosing our partners in how we leverage our assets to take advantage of the revenue and profit opportunities in loyalty and mobile payment ahead. But, I can ensure you, that Starbucks will have a major role to play, both inside and outside of our stores, as the nascent mobile payment industry evolves.”

Later in the call, when asked about the mobile payment strategy and the loyalty card programs, Schultz piped up again and noted that the investments are “going to pay off big time.”

“We are playing offense here. We understand that there is a macro issue, and a consumer shift,” he said. “And we began that last year right after holiday, and come this holiday and calendar (2015) we are going to be in a position to win. End of story.”

You can see Starbucks’ full financial results for the quarter here.