Analysts: Starbucks Cannibalizing Its Own Market
Starbucks might well be described as the poster child for mobile payments, but it’s also a cautionary tale. We’ve been saying as much for months out here, but now, several analysts are kicking in, saying that mobile payments actually worked too well for the company, and the difficulties in getting customers through lines as well as high prices are factors working against the popular chain.
While Starbucks has been opening new stores at a frantic pace, word from Reuters says that getting customers to actually come in these stores has proven tougher than expected. There was some growth—a two percent growth in same-store sales—but it wasn’t near what estimates figured. Since holiday traffic was also less than spectacular—a shock given that holiday shoppers almost certainly needed caffeine fixes—this also raised some eyebrows.
Reasons cited for the slowdowns were broad and varied: the rewards program had been recently changed, mobile orders were slowing down the works and costing live counter-orders, less-than-welcome drink specials (the recent Frappucino Happy Hour was described as “a barista’s worst nightmare”) and beyond. Wall Street, however, suggests that the problem is actually “too much,” with too many stores selling too high-priced drinks.
Essentially, analysts note, Starbucks is drawing business away from itself, to itself, in a process sometimes called “cannibalization.” Given that Starbucks opened 700 stores in a year, some, like Quo Vadis Capital president John Zolidis, consider overcapacity in the overall industry perhaps the biggest problem.
Cannibalization might be the best explanation here; not only are there too many Starbucks locations pulling customers away from each other, hitting same-store sales figures as customers cross over to the “most convenient” location at the time, but there are also too many orders hitting the counter all at once thanks to mobile payments. Starbucks has been working to address this for some time now, but based on the current order and same-store figures, it doesn’t seem to be working all that well.
Mobile payments can be a great addition to a business’ lineup, but what we learn here more than anything is that the business needs to be ready for a potential spike in business that follows. If mobile payments do their job too well, that can ultimately scuttle the user’s operations. Starbucks, and the analysts around Starbucks, are starting to see as much.