Starbucks Chairman and CEO Howard Schultz speaks during the annual shareholder meeting in Seattle, Washington on March 22, 2017.
Jason Redmond | AFP | Getty Images
Starbucks on Tuesday introduced 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 adapt to changing customer habits.
The new strategy aims to address how the coffee giant’s business has transformed in recent years. Its menu has expanded and cold coffee drinks now make up 60% of orders year-round and often include add-ons like cold foam or flavored syrups. Rather than ordering at the counter, customers go through the drive-thru or use the Starbucks mobile app.
outgoing CEO Howard Schultz said on Tuesday the company was making “self-induced mistakes” and wandering off course, despite record demand in the United States and abroad.
As it implements its reinvention strategy, Schultz told investors the company expects double-digit growth in revenue and earnings per share. The company also plans to build approximately 2,000 new stores in the United States between fiscal years 2023 and 2025, accelerating its current development strategy.
The U.S. revenue and new store forecast was slightly better than her previous long-term projection, which was given at the end of 2020. Chief Financial Officer Rachel Ruggeri is expected to provide more details later Tuesday in her daytime presentation. of the company’s investors in Seattle.
The company’s previous long-term guidance called for adjusted earnings per share growth of 10% to 12%, revenue growth of 8% to 10% and worldwide same-store sales growth of 4% to 5% for 2023 and 2024. In May, Starbucks suspended its guidance for fiscal year 2022, citing lockdowns in China, investment in its U.S. employees and high inflation.
Shares of the company fell 3% during the morning session in anticipation of expensive investments, but the stock rebounded, falling less than 1% in the afternoon session.
In its 2023 fiscal year beginning in October, Starbucks plans to invest about $450 million to upgrade its cafes with new equipment that will simplify operations and speed up service.
“Our physical stores were built for a different time and we need to modernize to meet this moment,” outgoing chief operating officer John Culver told investors.
With its new cold drink system, for example, baristas will no longer have to scoop ice, pour milk from a gallon pitcher, or bend over for whipped cream when making drinks. . The dispensing system reduces the time to create a Moka Frappuccino from 86 seconds to 35 seconds. It has already been tested in stores, and a second test is planned for January after making improvements based on feedback.
Starbucks is also working on the technology so that making cold brew coffee isn’t as labor intensive and the results are more consistent. The current process requires more than 20 hours of in-store brewing, with more than 20 steps, such as grinding beans from a heavy bag. New technology automatically grinds and presses coffee beans and reduces waste by 15%. Cold brew is now a $1.2 billion business for Starbucks.
A more efficient way to brew hot coffee will also be rolled out next year. Even though cold beverages are taking over, the company still sees 15 million customers each month ordering brewed coffee. New Clover Vertica machine grinds and brews a single cup of coffee in 30 seconds, eliminating the need for baristas to brew coffee every half hour.
Food preparation is also changing. Items like pre-made sandwiches and egg bites from Starbucks will now be cooked in batches and placed in packaging that retains moisture.
Automated ordering will also roll out to U.S. stores over the next few years, according to Culver. The company said the shift to automation aims to give employees more time to interact with customers and relieve them of the more mundane parts of the job.
A major shift in consumer behavior has been the growth of mobile ordering and payment. A quarter of Starbucks transactions now come from mobile app orders.
The change in orders was prompted by Starbucks Rewards, the company’s loyalty program. The US version had 27.4 million active members as of July 3.
To continue to grow its loyal customer base, Starbucks will link its rewards program to external loyalty programs, such as airlines and retailers. Consumers will be able to earn “stars” by shopping elsewhere or turn their rewards points into airline miles.
Chief Marketing Officer Brady Brewer said the company will announce the first US-based partnership in October.
This fall also marks the start date for new CEO Laxman Narasimhan. He will join the company in October, learn more about its operations and complete 40 hours of traditional barista training. In April, he will officially take over the reins of Schultz.
Narasimhan made a surprise brief appearance at Investor Day, talking about his upbringing, his love for writing poetry and what drew him to Starbucks. He told investors he used the name “Laks” when ordering coffee from Starbucks to avoid misspellings.
Changes in customer ordering habits have made cafes less efficient and added stress to employees. Turnover rates peaked in 2021, according to Frank Britt, director of strategy and transformation at Starbucks.
Over the past year, Starbucks baristas have also unionized, voicing dissatisfaction with tenured employee pay, understaffed stores and other working conditions. More than 230 company-owned Starbucks locations in the United States voted to unionize on Monday, according to the National Labor Relations Board.
Starbucks sought to curb union pressure by offering better wages and benefits to non-union workers. These improvements have also contributed to turnover rates over the past five months, Britt said.
As the company met with employees to shape its new strategy, Britt said it was looking to improve the barista experience through the lens of product management.
“You assess consumer needs, you segment consumer needs, you do a test and learn program to figure out which of the things you thought might be a real job,” he told CNBC.
The upcoming changes for American baristas are just the “first phase” of a multi-year plan, according to Britt. The company is also looking to improve the experience of overseas baristas and employees who harvest its coffee beans, work in its supply chain and provide customer support.