Financing

Customers keep visiting Starbucks and spending more money

The Seattle-based coffee chain’s average weekly sales hit a record last quarter as people came in more often and spent more money when they did.
Starbucks earnings
Starbucks is generating more sales through mobile orders, drive-thrus and delivery. / Photograph: Shutterstock.

If the economy is really heading for a recession, Starbucks customers sure aren’t acting like it.

The Seattle-based coffee chain on Thursday said its same-store sales rose 10% in the U.S. Customers came in more often, as transactions rose 1%. But average check increased 9%, thanks to a combination of higher prices and customers ordering more food and customized beverages.

The company had eight of its 10 highest sales days in its history in the U.S. last quarter.

“At a time when people are generally trading down, and there’s a lot of discounting going on, we had the highest average ticket in our history in the month of December,” Interim CEO Howard Schultz told investors on Thursday. “We don’t see ourselves in a situation where we need to discount heavily, and we don’t see a situation where our customers are trading down.”

Starbucks’ sales came from a variety of sources. Higher prices certainly helped. But customers also ordered more food along with their beverages. The chain generated record sales of breakfast sandwiches and its Sous Vide Egg Bites.

But beverage sales increased 13% during the quarter as customers continued to order more customized beverages, which generate incremental sales through add-ons. Customized beverage sales rose 28% in the period.

Much of this is being driven by repeat customers who join the company’s loyalty program. The number of Starbucks Rewards members topped 30 million in the quarter, up by 4 million over the past year. And those members accounted for 56% of spending at the chain’s corporate locations.

Mobile order and pay, meanwhile, now account for 27% of transactions at corporate locations. Overall, 72% of Starbucks’ revenue came from mobile orders, drive-thrus and delivery.

Gift cards likewise continued to push sales. Customers loaded $3.3 billion onto Starbucks cards in the U.S. last quarter, a record for the company. “Our gifting business was so strong that unit sales of Starbucks cards were greater than the next four brands of gift cards combined,” CMO Brady Brewer said.

It’s not just corporate locations. Revenue from licensed locations in places like hospitals, retail shops and airports increased more than 30% in the quarter, due in part to increased travel. Those stores are now generating 140% of their pre-pandemic sales. The coffee chain recently introduced Starbucks Connect, enabling mobile orders at licensed locations. That’s generating “highly incremental” sales at the company. “We see great upside for it,” Schultz said.

Starbucks’ performance in the U.S. helped drive revenue at the coffee chain higher. Revenues rose 8% to $8.7 billion in the company’s fiscal first quarter ended Jan. 1. Global comparable store sales rose 5%. The company said it performed well in every market outside of China—where same-store sales plunged 29% in the quarter and 42% in December. The issues in China, which were related to COVID shutdowns, weighed on the company’s stock, which declined more than 2% in after-hours trading.

Starbucks’ success in the U.S., however, helped strained relations with employees, leading to $450 million in store upgrades, particularly with equipment.

Schultz said teams continue to work on the company’s “reinvention,” with turnover improving 5% over the past year and 8% compared with the highest turnover period. “Improved turnover correlates to more stable store environments, elimination of hire-related costs, particularly training, and measurable improvements in productivity, speed of service and [employee] customer experience scores.”

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