Starbucks says ‘congestion’ in stores crimped sales

Starbucks (Pictured) said the popularity of its mobile order-and-pay option has caused bottlenecks at the areas where people pick up their drinks. (Photo: Starbucks/ Facebook)

NEW YORK –Not everyone is willing to wait in a line for a Starbucks fix.

The coffee chain reported disappointing sales growth on Thursday and partly blamed the “congestion” in its stores for prompting some people to leave without buying anything. Starbucks said the popularity of its mobile order-and-pay option has caused bottlenecks at the areas where people pick up their drinks.

CEO Howard Schultz, who is leaving that role in April to become executive chairman, said the issue has “created anxiety” among some customers.

For the three months ended Jan. 1, the Seattle-based company’s U.S. sales rose 3 per cent at established stores. But the increase was the result of higher spending per visit, with more people tacking on items like breakfast sandwiches and other food.

Customer visits, meanwhile, were flat when factoring out the impact of a change in the loyalty program, according to the company. Starbucks cut its sales forecast for the year, and its stock fell.

The results come amid broader challenges in the restaurant industry. Schultz has for years said he expects the retail landscape will undergo a “seismic” change as people do more of their shopping online, leading to less foot traffic in general for stores.

Research firm NPD Group said this month it expects the total restaurant industry’s traffic to remain “stalled” this year, as it was last year. Still, established players including McDonald’s and Taco Bell are hungry to find ways to continue increasing sales. For Starbucks, the efforts have included pushing more food and snacks and offering alcohol in the evenings –though the company recently scrapped its plans to bring beer and wine to thousands of stores.

Still, Schultz has stressed that Starbucks is positioned to adapt. He noted that the congestion created by mobile order-and-pay is a good problem, and the company is working on operational changes in stores to alleviate the issue.

Starbucks said about 1,200 of its stores were getting more than 20 per cent of their transactions from mobile order-and-pay during peak hours. In total, mobile order-and-pay accounted for 7 per cent of all U.S. transactions, up from 3 per cent a year ago.

The company pointed to other positive signs, such as the growth of active rewards program members in the U.S. to nearly 13 million.

For the quarter, Starbucks said sales rose 5 per cent in its Asia unit, and declined 1 per cent in the unit that includes Europe, the Middle East and Africa.

Starbucks earned $751.8 million, or 51 cents per share. Excluding one-time items, it earned 52 cents per share, in line with Wall Street expectations. Total revenue was $5.73 billion, short of the $5.85 billion analysts expected, according to FactSet.

For its fiscal 2017, the company now expects revenue to grow between 8 and 10 per cent, down from its prior forecast for “double-digit” growth.

Starbucks shares were down 3 per cent at $56.60 in after-hours trading.