Starbucks on Tuesday reported earnings from its fiscal first quarter that were both good, with record sales from massive numbers of customers ordering its beverages, and bad, with soaring costs for supplies and people.
But the company also made several other points that illustrate the chain’s evolution. The company is changing how it serves its customers and its customers are demanding different products from the Seattle-based coffee giant.
Here’s a look at five items of note from the company’s earnings report.
Fewer people come into its shops. More than 70% of Starbucks’ U.S. business is coming either through the drive-thru, mobile order and pay or delivery.
That’s a notable number for a coffee chain that had built its reputation on its urban coffee shops that required you to come in, one that pioneered the idea of the “third place” outside of home and work where you’d just hang out.
Starbucks has in recent years pushed its mobile ordering capabilities, which are among the industry’s best. And during the pandemic it closed underperforming urban locations and shifted more intently to the development of its drive-thrus, whose same-store sales have been up well into the double digits for the past year.
The result is a company that looks a lot more like most other fast-food chains that have long relied most heavily on their convenience ordering channels.
Its loyalty program is thriving. The centerpiece of mobile order and pay, or MOP as Starbucks calls it, is the company’s Starbucks Rewards loyalty program, one of the industry’s most popular. It became even more popular last quarter.
The program now has 26.4 million active members. That’s up 21% over the prior year. Starbucks added 1.6 million new loyalty members in the fourth quarter alone. Those customers account for 53% of spending at corporate stores. Loyalty members visit Starbucks locations at three times the rate of non-loyalty members.
Cold drinks are king. Customers just don’t order hot beverages as much as they used to. Cold drinks now represent more than 70% of Starbucks’ beverage transactions, meaning people are opting for Nitro Cold Brew, Frappuccinos and Refreshers over an espresso or a latte.
That’s a broader trend that goes well beyond Starbucks. The bulk of the beverages that upstart rival Dutch Bros sells are served cold and CEO Joth Ricci told us at the time that coffee simply tastes better served cold.
Here come the energy drinks. We wrote recently that Dutch Bros could well be the country’s first “energy drink chain,” given that it relies more on the sales of its “Blue Rebel” energy drinks.
Maybe unsurprisingly, the giant Starbucks is getting into the game. The company last month introduced its Baya energy drinks in grocery stores nationwide. And it seems only a matter of time before you start seeing them in the chain’s cafes. “Energy drinks represent a rapidly growing category,” CEO Kevin Johnson said Tuesday. “We believe this new beverage differentiates us, opening up another category in our portfolio for growth.”
It will soon have more locations than Subway. Starbucks finished 2021 with 34,317 global locations after opening about 1,400 cafes during the course of the year.
Those of you keeping track may realize that this gets the chain closer to Subway, which last year was overtaken by McDonald’s as the world’s largest restaurant chain by unit count. We do not yet know how many global locations Subway currently has, but the system had more than 37,000 locations worldwide at the end of 2019.
Likely that number is lower, meaning Starbucks is at most a year or two from overtaking the sandwich giant. And then its next target is the Golden Arches.
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