- Outgoing Starbucks CEO Howard Schultz said the coffee giant is forecasting double-digit growth in revenue and earnings per share as it implements a strategy to reinvent its business.
- The company’s previous long-term guidance had forecast adjusted earnings per share to rise from 10% to 12%, revenue to rise from 8% to 10% and global same-store sales to rise from 4% to 5%.
On Tuesday, Starbucks laid out its plans for automated in-store ordering, new coffee-making equipment and an expanded loyalty program as part of its drive to reinvent itself and better fit changing customer habits.
The new strategy is designed to look at how the coffee giant’s business has changed in recent years. Its menu has expanded, with cold coffee drinks now making up 60% of orders year-round and often include toppings such as cold foam or flavored syrups. Instead of ordering from the counter, customers use a car service or use the Starbucks mobile app.
Outgoing CEO Howard Schultz said on Tuesday that the company is making “self-made mistakes” and has lost its way despite record demand in the US and abroad.
As it rolled out its refresh strategy, Schultz told investors that the company is forecasting double-digit growth in revenue and earnings per share. The company also plans to build about 2,000 new U.S. stores between fiscal 2023 and 2025, accelerating its current growth strategy.
US revenue and new store forecasts were slightly better than the previous long-term forecast, which was made at the end of 2020. CFO Rachel Ruggieri is expected to provide more details later Tuesday in a presentation during the company’s investor day in Seattle.
The company’s previous long-term guidance had forecast adjusted earnings per share to rise from 10% to 12%, revenue to rise from 8% to 10%, and global same-store sales to rise from 4% to 5% for 2023 and 2024. Starbucks paused its fiscal 2022 guidance in May, citing China lockdowns, investment in US employees and high inflation.
The company’s shares fell 3% in morning trading in anticipation of an expensive investment, but shares rebounded, down less than 1% in afternoon trading.
In fiscal year 2023, starting in October, Starbucks plans to invest about $450 million to upgrade its cafes with new equipment that will make things easier and faster.
“Our physical stores were built for a different era, and we need to modernize to fit that moment,” outgoing COO John Culver told investors.
For example, with the new cold drink delivery system, baristas no longer have to scoop up ice, pour milk from a one-litre jug, or bend over for whipped cream when making drinks. The dispenser system reduces the preparation time for mocha frappuccinos from 86 seconds to 35 seconds. It has already been tested in the store, with a second test planned for January after improvements are made based on feedback.
Starbucks is also working on technology so making cold coffee is less labor intensive and the results are more consistent. The current process requires more than 20 hours of brewing in the store and more than 20 steps, such as grinding beans in a heavy bag. The new technology automatically grinds and presses the coffee beans and reduces waste by 15%. Cold beer now brings in $1.2 billion for Starbucks.
A more efficient way to brew hot coffee will also arrive next year. While soft drinks are gaining popularity, the company still serves 15 million customers every month who order brewed coffee. The new Clover Vertica coffee machine grinds and brews one cup of coffee in 30 seconds, eliminating the need for baristas to brew coffee every half hour..
Cooking is also changing. Foods such as Starbucks pre-made sandwiches and egg slices will now be prepared in batches and placed in moisture-preserving packaging.
Automated ordering will be coming to U.S. stores in the next few years, Culver said. The company said the move to automation is meant to give employees more time to interact with customers and free them from more routine work.
One of the major changes in consumer behavior has been the rise of mobile bookings and payments. A quarter of Starbucks transactions now come from mobile app orders.
The shift in the ordering system was caused by Starbucks Rewards, the company’s loyalty program. As of July 3, the US version had 27.4 million active users. More than half of Starbucks orders come from loyalty program members.
To continue expanding its loyal customer base, the company has extended its loyalty program technology to licensed cafes, including those at airports and retail outlets such as Barnes & Noble. Approximately 20% of the approximately 7,000 licensed stores in the US are already using the technology.
In addition, Starbucks will link its rewards program to external loyalty programs such as those for airlines and retailers. Consumers will be able to earn “stars” by shopping elsewhere or convert their reward points into airline miles.
Chief marketing officer Brady Brewer said the company will announce the first US partnership in October.
This fall also marks the date that Laxman Narasimhan will take over as CEO. He will join the company in October, learn more about the company and complete 40 hours of traditional barista training. In April, he will formally take over the reins from Schultz.
Narasimhan made a brief surprise appearance during Investor Day, talking about his upbringing, his love of writing poetry, and what drew him to Starbucks. He told investors that he uses the name “Lax” when ordering coffee from Starbucks to avoid spelling mistakes.
Changes in customer ordering habits have made cafes less efficient and added stress to employees. Turnover figures peaked in 2021, according to Frank Britt, Starbucks chief strategy and transformation officer.
Over the past year, Starbucks baristas have also organized into unions, expressing dissatisfaction with pay for full-time employees, a shortage of staff in stores and other working conditions. As of Monday, more than 230 company-owned Starbucks locations in the US have voted to unionize, according to the National Labor Relations Council.
Starbucks sought to curb union pressure by offering higher wages and benefits to non-union workers. These improvements have also helped boost employee turnover over the past five months, Britt said.
When the company met with employees to develop its new strategy, Britt said they look at improving the barista experience through the lens of product management.
“You evaluate consumer needs, you segment consumer needs, you do a test-and-learn program to find out which of the things you think can really work,” he told CNBC.
Starbucks CTO Deb Hall Lefevre said the company is working on a barista app that will allow them to manage their schedule and pay, as well as facilitate two-way communication with the company and help advance their careers.
For American baristas, the upcoming changes are just the “first stage” of a multi-year plan, Britt said. The company is also looking to improve the overseas barista experience and employees who pick coffee beans, work in the supply chain and provide customer support.
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