If customers are cutting back right now they certainly aren’t cutting back on their Starbucks beverages.
The Seattle-based coffee giant said its U.S. same-store sales rose 8% last quarter. And price was only one factor. Most of that came from what company executives call “demand,” meaning customers came in more often (transactions rose 2%), product mix, food attach and customization.
“Our traffic continues to be strong and it’s growing,” CFO Rachel Ruggeri told investors. “We saw a record number of customers coming into our stores and spending a record amount. We’re seeing growth in our customer base across our segments and that’s driving strong performance as each customer is spending more.”
In other words, she said, transactions are growing. And when those customers come in, they’re ordering more products. They’re getting more food, for instance, as a record number of customers ordered a food item such as a breakfast sandwich to go with their cold foam beverage. And they’re also ordering more customized drinks.
Many of the drinks they ordered were from the company’s fall menu, especially its popular Pumpkin Cream Cold Foam along with its apple-flavored items, such as its Baked Apple Croissant.
The performance, which bested investor expectations, sent Starbucks shares up nearly 11% on Thursday.
Starbucks has evolved its business into a multi-channel powerhouse, where customers order through a variety of methods, frequently using the company’s loyalty program in the process. The company now has 33 million active loyalty members in the U.S. and the company said they’re spending a record amount, both on a per-member basis and an overall basis.
And licensed stores are doing well, too: Revenue from licensed stores in places like universities and airports rose 18%, which the company said was due to strong post-COVID travel and expanded digital offerings in many of these locations.
Laxman Narasimhan, who became Starbucks CEO in March, said that sentiment among Starbucks consumers has not changed. “Customer demand for us remains strong,” he said. “We’re not really seeing any change in the sentiment in our customer base at this time.”
That’s a stark change from the 2008-2009 recession, when the chain’s sales stumbled and it closed stores.
Executives credit customer loyalty and in particular the digital relationship. Starbucks’ loyalty program, called Starbucks Rewards, is arguably the industry’s most sophisticated, giving the chain more options to engage with its customers.
“Unlike 2008, which is a number that people have been touting around, we have a widely more diversified set of channels that we participate in,” Narasimhan said. “We have digital relationships worldwide with over 75 million customers. But we can reach a multiple of those digitally. We have the ability to reach our customers and we have multiple levers in terms of how we deal with any uncertainty that we might see.”
And with that sales strength has come operating leverage. Operating margins last quarter were 23.2%, up 420 basis points over a year ago. Executives said most of that came from improved efficiencies inside its stores, driven by the company’s reinvention earlier this year.
That reinvention has included new equipment. For instance, it has added portable cold foamers to its U.S. company stores and it delivered nugget ice machines to 550 locations to improve the production of cold beverages that now dominate its drink business.
“The investments we’ve made are fueling growth, investments in our partners, in wages, in training, in our new stores and equipment,” Ruggeri said. “And that’s leading to a more stable environment, which is supporting that leverage. It’s allowing us to be more efficient in how we serve the customer.”
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