Starbucks to spend $450 million next year to revamp stores, speed up service

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Starbucks — growing record sales but struggling with low employee morale — plans to spend $450 million next year to make its North American stores more efficient and less complicated.

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The company also said it plans to open 2,000 net new stores in the US by 2025, with an emphasis on meeting growing demand for new types of service, including drive-thru, mobile ordering and delivery. For example, drive-thru now makes up 50% of US sales, while delivery demand has increased by 24% so far this year.

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“It’s clear that our physical stores have to change. Our physical stores were built for a different era,” Starbucks chief operating officer John Culver said Tuesday at a one-day event for investors in Seattle.

Culver said that customizable soft drinks — which now make up 75% of Starbucks’ US beverage orders — are taxing employees in kitchens designed for simple hot drinks. Starbucks debuted a new workstation that requires less speed and can cut the process of making mixed iced mochas by 50 seconds. It also announced a new patented technology that will reduce the time it takes to make cold brew coffee from 20 hours to a few seconds.

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The introduction of a growing number of hot foods is also slowing down Starbucks kitchens. Culver said Starbucks expects to serve 300 million breakfast sandwiches in the US this year, each of which takes up to 85 seconds to heat in its oven. Starbucks plans to start baking them in batches and store them in warmers next to the drive-thru window.

Starbucks shares SBUX,
The comments led to a gain of about 2.5% in after-trade Tuesday.

The company touted other upcoming benefits for workers, including more flexible scheduling, more generous sick time accumulation and expanded ability to tip mobile customers.

Starbucks executives made little mention of it a growing unionization effort At its US store during Tuesday morning’s presentations. But it has clearly been an inspiration for the company to think more deeply about ways to improve the work lives of employees. Since late last year, 236 of Starbucks’ 9,000 company-owned US stores have voted to unionize, an effort the company opposes.

“The reality is that we lack trust with our partners,” said Frank Britt, Starbucks’ executive vice president and chief strategy officer. “The work we do in our stores today is very hard physically.”

It was not immediately clear whether the new investment and technology would be offered to non-union stores; Starbucks said the company has not yet decided how the investment will be made. But in May, Starbucks announced $200 million in additional pay and training, but said benefits would only go to non-federal stores.

Starbucks says the new benefits need to be negotiated with union stores. But in August, the Seattle Office of the National Labor Relations Board filed complaint against the company, saying it was violating US labor law by withholding pay increases and other benefits from workers at union stores. A hearing in that case before an NLRB administrative judge is scheduled for October.

Starbucks Workers United, the union that organizes the workers, said about 300 protesters staged a sit-in outside a Starbucks meeting on Tuesday.

Culver said the company will respect the unionization process and negotiate with stores that vote to unionize. But he also reiterated the company’s position.

“There are two paths. We can work side-by-side as partners, or we can have a third party between us,” he said.

The company’s reforms will be led by former PepsiCo executive Laxman Narasimhan, who was Named Starbucks CEO Last week. Narasimhan will spend the next six months under the shadow of interim CEO Howard Schultz, who helped shape the company after it was bought in 1987 and has been leading it on a temporary basis since April. Schultz will remain on the Starbucks board when Narasimhan takes over as CEO in April.

“It’s an incredible opportunity for me to learn at the feet of one of the best entrepreneurs in the world,” said Narasimhan, who described himself as a “right-brained” operational expert who specializes in art, music and poetry. Likes to write too.

Narasimhan, 55, who until recently was CEO of UK-based consumer health and hygiene company Reckitt, also said he agrees that Starbucks needs to focus on exceeding its employees’ expectations to serve its customers well. Attention has to be renewed.

Schultz said Starbucks recorded the best sales week in its 51-year history in August when it introduced its fall beverage lineup. But Schultz said Starbucks lost its way during the pandemic, when employee retention also declined, as customers demanded a new service like curbside pickup.

Starbucks shares fell 1.4% on Tuesday a massive market downturn As investors were stubbornly concerned about high inflation.

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