New Mobile Payment System Could Increase Starbucks' Customer Traffic

Starbucks ( SBUX ) is the world's leading roaster and retailer of specialty coffee. Through its global network of owned and franchised coffee retail outlets, Starbucks offers a wide range of products from coffees and teas to sandwiches and brewing equipment. It competes with McDonald's ( MCD ), Caribou Coffee ( CBOU ) and Peet's Coffee ( PEET ) in the broader market for specialty coffee.

We estimate that Starbucks' company-owned stores constitute around 46% of our estimated $26.41 value for the company's stock, while franchised stores generate an incremental 29%. Our price estimate stands below the current market price.

Realizing that more than one third of its customers use smartphones, typically while waiting in line, Starbucks has decided to test a technology to allow customers to pay using their mobile phones via a smartphone app. Test results from various cities indicate that the smartphone app allows customers to pay faster than using alternative methods.

The app works with the Starbucks Card system and is available on iPhone and BlackBerry devices, with a version for Google's Android platform in the works. After a user makes a Starbucks purchase, the cashier scans a bar code on the phone and the sale is tied to the customer's Starbucks Card account, which can be replenished by card or PayPal.

See our full analysis and $26.41 price estimate for Starbucks

The daily total number of customers per Starbucks store increased from an estimated 408 in 2007 to 434 in 2010. We anticipate that this trend will continue in the years ahead, breaching 550 average daily customers by the end of our forecast period. The introduction of innovative technologies, such as enabling customers to pay using their phones, should increase convenience and enhance the customer experience at stores.

Accordingly, these initiatives could spark potential upside to our base forecasts. If Starbucks sees 50 additional daily customers on average beyond our projections (that is, if the daily total number of customers per Starbucks store increases by 50 each year from our base estimates) it would imply 7% upside to our price estimate for Starbucks stock.

However, one notable caveat for customers is the potential security threat that comes along with any new payment system. This could make customers wary of immediately adopting the new technology. Apart from this, the spending needs to cover cost of initial implementation of the technology as well as ongoing security fixes could weigh on Starbucks. As a result, Starbucks may have to wait to fully realize the benefit of this initiative.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Other Topics

Investing Stocks US Markets

Latest Markets Videos


Trefis is an interactive financial community structured around trends, forecasts and insights related to some of the most popular stocks in the US. Whereas most finance sites simply give you the facts about where a stock has been and what a company has done in the past, Trefis focuses entirely on the future.

Learn More