Is Starbucks COO's 'Coffee Break' a Good Sign for Its Mobile-Pay Plans?

The extended leave of Starbucks' chief operating officer, Troy Alstead, could indicate that last year's creation of the COO post has succeeded in furthering the coffee chain's mobile payments initiatives.

Alstead was promoted to the COO position in January 2014 to free up Starbucks CEO Howard Schultz' time to expand the company's work in mobile payments. While some observers could see Alstead's 12-month leave as a warning sign, Starbucks has consistently reported growth in its mobile and gift card offerings. During the 2014 holiday season, Starbucks sold about 16% more gift cards in the U.S. than it did last year. These gift cards can be linked to the Starbucks app, which is used for 16% of its in-store sales in the U.S.

Alstead, 51, told Bloomberg News that the sabbatical, called the Starbucks Coffee Break, is an employee benefit that the company offers to long-term partners. "The next year is for my wife and children, to give them dedicated time and attention," he said. Before becoming COO, Alstead was Starbucks' chief financial officer. He has been with the company for 23 years.

"We all will miss Troy day to day during his time off; that said, he leaves the company at a time when we have the strongest management team and leadership in the history of the company," said Schultz in an email sent to company leaders on Jan. 8. Starbucks provided a copy of this email to PaymentsSource.

Starbucks' first-quarter 2015 earnings call will be held on Jan. 22. During earnings calls, Starbucks typically provides updates on the use of its payment technology in its stores. During its fourth-quarter earnings call in October, the company previewed a major push in gift cards for the holiday season. During that time, the company held a promotion that would award 13 North American gift card users "Starbucks for Life," a prize that the company has never before offered and that cannot be purchased.

Alstead's sabbatical may not be particularly disruptive to the company's strategy, particularly if Schultz reclaims the responsibilities Alstead adopted when taking the COO role. Schultz has indicated that he and Alstead have nearly identical philosophies for running the company. "Troy and I have worked together for 22 years … we probably can finish each other's sentences," Schultz said last year when announcing the creation of the COO post.

"I constantly go back to the original statement they put out a long time ago that they make more money from the prepaid program than from Frappuccino sales," said Paul Martaus, a merchant acquirer consultant & industry researcher at Martaus & Associates. "There's a tremendous amount of money to be made in this stuff."

Martaus, who lives far from a Starbucks chain in Mountain Home, Ark., said he nevertheless has $20 in a Starbucks Card account linked to his Starbucks mobile app.

But even though Starbucks has become the poster child for mobile payments success, Martaus said, focusing on payments technology "tends to make [companies] shift from their core competency to the financial business…which may or may not be a good thing."

Coinciding with Alstead's departure, Starbucks has introduced several new drinks and food options to draw customers in to stores.

However even though the Starbucks payments business looks strong, Martaus said, the Starbucks app is just a tad more complicated than Apple's newly introduced Near Field Communication-based Apple Pay mobile payment system. 

"Starbucks' payment app is seamless…but in order to make the application work there's the additional step of loading money onto the account," he said. Whereas Starbucks uses a reloadable prepaid model, Apple Pay allows users to link their debit or credit cards directly to the app.

Martaus also said NFC is a more seamless payment method than the Starbucks method of scanning a barcode or QR code. With Apple's weight behind it, NFC technology will likely see increased adoption. And when it does, he said, Starbucks will likely integrate Apple Pay.