Starbucks’ Mobile Ordering: Growth And Margins

Starbucks (SBUX), we reported last March, was preparing a major test of mobile ordering so that customers can avoid standing in lines to order – a way to squeeze more sales out of each of its outlet, keep same store sales growth humming along, and fatten profit margins.

SBUX Revenue (TTM) Chart

SBUX Revenue (TTM) data by YCharts

Last week, the company confirmed to Bloomberg it has launched just such a test at 150 stores on Portland, Oregon, and plans a national rollout in 2015.

That’s an aggressive schedule and there are, as we explained in the article linked in the first paragraph above, plenty of logistical issues to work out. But the potential payoff for Starbucks is huge. Its company-owned U.S. average about $1.3 million in revenue and, if you’ve been in one during morning rush hours, you might wonder how its baristas can do much more. But retail writer Laura Heller, a former YCharts contributing editor, points out in a smart post on FierceRetail that the bottleneck is the line to order, not the actual making of beverages.

So far Starbucks is using an Apple (AAPL) iPhone app for mobile orders. In the national rollout it plans to offer an Android app, bringing the Google (GOOGL) platform into the system. App ordering would seem crucial to continuing Starbucks’ enviable record of same store sales growth – 18 quarters in a row at 5% or better.

YCharts early this year, digging into Starbucks’ operating performance, found the company to be a model of incremental improvement. Increasing through-put of the stores by offering mobile ordering would sustain that record.

SBUX Chart

SBUX data by YCharts

The stock, trading at a forward PE ratio of nearly 28, isn’t cheap. But the company is unusual in offering growth potential – its stores haven’t yet saturated the U.S. market – and a business model that can generate wider margins by increasing per-store sales so significantly.

Fiscal fourth quarter results are due October 30 and that will be an earnings season event. Hopefully, Starbucks will make more significant disclosures on the impact in Portland of the mobile ordering app and on its rollout plans.

Jeff Bailey, The Editor of YCharts, is a former reporter, editor and columnist at the Wall Street Journal and New York Times. He can be reached at editor@ycharts.com. Read the RIABiz profile of YCharts. You can also request a demonstration of YCharts Platinum.

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