To address Starbucks' mobile app issue, incoming CEO Brian Niccol must take action.

• As CEO of Starbucks, Brian Niccol will be responsible for resolving the company's operational problems.
• The mobile app of Starbucks, according to former CEO Howard Schultz, is its biggest weakness.
• Niccol's employer, Chipotle, has not encountered the same challenges as other companies because they invested in their operations prior to their digital sales surge.

At cafes, it's common to see a counter filled with mobile orders, customers feeling frustrated as they wait for their drinks, and baristas struggling to keep up with the rush.

When Brian Niccol becomes CEO of the struggling coffee giant on Sept. 9, fixing the problem will likely be his top priority.

Sales of the chain have decreased in recent quarters due to operational issues, a weakened consumer, boycotts, and the decline of the Starbucks brand.

In a June episode of the "Acquired" podcast, former CEO Howard Schultz stated that the mobile app is the biggest Achilles heel for Starbucks, despite not having an official role with the company.

One-third of Starbucks' sales come from mobile orders, which are typically more complex. Although add-ons like cold foam or syrups are more profitable, they consume more of baristas' time, causing frustration for both them and customers.

"Robert Byrne, senior director of consumer research for Technomic, stated that he concurs with Howard Schultz's viewpoint. According to Byrne, the problem lies in the store, not in the data."

Catching up to mobile growth

In the morning, the company was facing difficulties in meeting demand, which resulted in long wait times and scared away some customers, as stated by the current CEO Laxman Narasimhan in late April.

Schultz stated that he encountered the issue personally while at a Chicago branch at 8 a.m.

On the 'Acquired' episode, Schultz stated that although everyone arrived, unexpectedly we had a mosh pit, which was not Starbucks.

Reducing crowding at Starbucks is one of the key ways Niccol can make mobile orders more efficient.

Schultz positioned Starbucks as a "third place" between work and home while building it into a coffee behemoth. However, the chain has lost this reputation as more customers prefer the convenience of mobile ordering and choose not to linger at its cafes.

Byrne stated that since it's a beverage and he frequently consumes it while on the move, it must be incredibly convenient.

Despite anticipating a shift in consumer behavior, Starbucks did not make significant adjustments to its operations.

In 2017, Schultz relinquished his role as CEO for the second time and handed over the responsibility to Kevin Johnson. Prior to joining Starbucks as its COO, Johnson had served as CEO of Juniper Networks, a tech company. During his tenure, Johnson led Starbucks to invest in technology and increase digital sales. However, the restaurant operations were already struggling when he left the company.

Schultz stepped back in as interim CEO when Johnson retired in 2022.

Schultz stated that the company failed to anticipate the technological advancements required to prevent the issue, despite the stock being at a record high and the company not investing ahead of the curve or paying attention to the mobile app's velocity until it was too late.

Niccol recognizes the frustration of digital orders shared by shareholders and sees it as a crucial area to address.

"Nancy Tengler, CEO and chief investment officer of Laffer Tengler Investments, which owns shares of both Starbucks and Chipotle, stated that the issue in New York City is determining the wait time. She added that mobile orders are taking precedence over in-store orders, which is causing people to spend less time and money in stores. Tengler suggested that Niccol's needs to find a way to reverse this trend and encourage customers to spend more time and money in stores."

The app-fueled burnout among baristas has led to some employees unionizing, starting in 2021.

In November, Starbucks Workers United, representing workers at approximately 450 U.S. stores, urged the company to disable mobile ordering during promotions. At the time, Starbucks stated that it was already working on making the change possible.

Channeling Chipotle's strength

Digital sales aren't the same albatross for Niccol's current employer, .

In the most recent quarter, 35% of the company's revenue was generated through online orders. This increase is due to the pandemic, which caused a shift towards online ordering. Since 2019, the percentage of digital orders has risen from 18%.

In 2018, Chipotle had already installed a second prep line for digital orders and began adding drive-thru lanes for online order pickup, known as "Chipotlanes."

Niccol and his executives at Chipotle increased digital sales by implementing various promotions, including sports stars' favorite orders, limited-time deals, a rewards program, and the exclusive launch of quesadillas as a digital-only option to avoid slowing down operations.

Hyphen has partnered with Chipotle to test automation for burrito bowls ordered through the mobile app.

Mobile makeover

To enhance the work experience of baristas and quicken service, Starbucks has been implementing measures.

In 2022, under Schultz's leadership, Starbucks unveiled a plan to revamp its operations by streamlining service through the use of new equipment and other strategies.

Starbucks implemented the "Siren Craft System" in late July to streamline drink preparation and make baristas' jobs easier, while Narasimhan has maintained his strategy of providing customers with order progress updates through the mobile app since February.

But the problem for Starbucks, could require more drastic measures.

The slow rollout of equipment has resulted in only about 40% of North American locations installing the new machines by the end of fiscal 2026. Accelerating the timeline could cut service times in half, as promised at the investor day in 2022, and ease the strain on baristas.

TD Cowen analyst Andrew Charles stated that lifting that would require time, training, investment, and capital expenditure.

Charles stated that in his opinion, Brian possesses immense credibility, and if he conveys to investors that he has found the solution to their problem and explains his reasoning, he will receive approval.