Introduction to Starbucks’ New Strategy
Starbucks said Tuesday it’s confident that improved store operations and new products — including a cold foam protein drink — will soon help turn around the company’s lagging U.S. sales.
In the meantime, slow U.S. demand continues to be a drag on the company’s results.
Financial Performance
Starbucks reported that its revenue rose 4% to $9.5 billion in its fiscal third quarter. That was better than the $9.3 billion Wall Street expected, according to analysts polled by FactSet.
But same-store sales, or sales at locations open at least a year, fell 2% in the April-June period. That was a bigger decline than Wall Street expected, and it was the sixth straight quarter that the Seattle-based company reported lower same-store sales.
International Performance
Same-store sales were up in China, Starbucks’ second-largest market. Starbucks has been looking for a partner that can help it expand in China, particularly in smaller cities. Chairman and CEO Brian Niccol said Starbucks was evaluating around 20 offers.
“We remain committed to our China business and want to retain a meaningful stake,” Niccol told investors during a conference call on Tuesday. “The intense interest in partnering with us is a testament to the great team, strong brand and long-term opportunity for Starbucks in China. It really is a vote of confidence.”
Challenges in the U.S. Market
But even as its sales picked up in China, Starbucks’ same-store sales in the U.S. fell 2% in in the April-June period. U.S. customers spent more per order, but transactions fell 4%, the company reported.
Niccol expressed optimism about a new program setting hospitality standards and staffing levels to better handle peak hours. The “Green Apron Service” model showed so much promise in an eight-week test at 1,500 stores that Starbucks plans to roll it out across the U.S. starting in mid-August, the company said.
Improving Store Operations
New software is also helping stores sequence orders, cutting down on wait times. Niccol said 80% of in-store orders are now made in four minutes or less, a target he set last fall.
“I think we’ll become famous for Green Apron Service and be the defining customer service company that I think Starbucks should be,” Niccol said.
New Products and Services
Niccol said improving store operations and paring back Starbucks’ menu was necessary before layering in new products. In addition to protein drinks, Starbucks plans to introduce new baked goods and a new dark roast coffee next year. It will also test beverages made with coconut water, customizable energy drinks, and gluten-free and high-protein foods.
Niccol said Starbucks has been working closely with employees to develop new food and drink items that can be prepared quickly and consistently. In the past, he said, the company would often develop new menu items at its headquarters and then hope baristas figured out how to make them.
“Those days are over,” Niccol said.
Store Design and Customer Experience
Niccol said Starbucks is also trying to encourage customers to linger in its stores. It’s closing or modifying some of its approximately 90 mobile order-only storefronts and it is developing a store prototype with 32 seats and a drive-thru window that costs 30% less than the company’s current store design.
Financial Investments
Starbucks is spending heavily to turn itself around. One big expense in the third quarter was a two-day meeting in Las Vegas where the company hosted 14,000 store managers and regional leaders.
The company said its net income fell 47% to $558 million in the April-June period. Adjusted for one-time items, its earnings fell 46% to 50 cents per share for the quarter. That was lower than the 65 cents analysts had forecast.
Market Reaction
Starbucks shares rose 3% in after-hours trading.
Starbucks made $212 million in 2022 from unspent gift cards, but not all unused gift card money goes back to the company.
Conclusion
In conclusion, Starbucks is taking significant steps to improve its store operations, introduce new products, and enhance customer experience in order to boost its U.S. sales. The company’s efforts to expand in China and improve its financial performance are also noteworthy. While the company faces challenges, its commitment to innovation and customer service may help it turn around its lagging U.S. sales.
FAQs
Q: What is Starbucks’ new strategy to boost U.S. sales?
A: Starbucks is improving store operations, introducing new products such as protein drinks, and enhancing customer experience to boost U.S. sales.
Q: How did Starbucks’ same-store sales perform in the U.S. and China?
A: Same-store sales fell 2% in the U.S. but rose in China.
Q: What is the "Green Apron Service" model?
A: The "Green Apron Service" model is a new program that sets hospitality standards and staffing levels to better handle peak hours.
Q: What new products is Starbucks introducing?
A: Starbucks is introducing protein drinks, new baked goods, and a new dark roast coffee, as well as testing beverages made with coconut water and customizable energy drinks.
Q: How is Starbucks changing its store design?
A: Starbucks is developing a new store prototype with 32 seats and a drive-thru window that costs 30% less than its current store design.
