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 Market 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.
New Products and Services
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.
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.
Employee Involvement and Store Design
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.
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.
Starbucks shares rose 3% in after-hours trading.
Unused Gift Card Revenue
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 confident that its new strategy, including improved store operations and new products, will help turn around its lagging U.S. sales. The company is investing heavily in its employees and store design to provide better customer service and encourage customers to linger in its stores. While the company faces challenges in the U.S. market, its sales are picking up in China, and it is evaluating offers from potential partners to help it expand in the country.
FAQs
Q: What is Starbucks’ new strategy to boost U.S. sales?
A: Starbucks is improving store operations and introducing new products, including a cold foam protein drink, 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 were up 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 new baked goods, a new dark roast coffee, and testing beverages made with coconut water, customizable energy drinks, and gluten-free and high-protein foods.
Q: How much did Starbucks make from unspent gift cards in 2022?
A: Starbucks made $212 million from unspent gift cards in 2022.
