As a chain that primarily sells beverages to caffeine-addicted consumers in a wide range of formats and numerous countries, Starbucks understandably supplies a healthy dose of cups and lids.
But the number the chain’s new CEO, Laxman Narasimhan, mentioned on the company’s earnings call Tuesday seemed too big to be true. “Currently, we have over 1,500 cup-and-lid combinations across our network,” he told investors.
That number, he said, can be reduced. “As we streamline, we will create a portfolio of fewer, more sustainable and less costly cups while further simplifying operations in our stores,” Narasimhan said.
The example was just one of the potential productivity improvements Narasimhan mentioned on the call, his first since taking over for Howard Schultz in March. Narasimhan spent nearly six months immersed in the company, getting his barista certification and touring facilities around the world.
At the same time, he takes over as Starbucks has started to implement a major series of operational changes designed to improve the efficiency of its cafes, including operational changes in stores and the addition of new equipment.
Those efforts have begun to yield some fruit, as turnover is down, baristas are getting more hours to work per week, on average, and the company’s sales are strong. In the U.S., same-store sales rose 12% in the first three months of 2023, including 6% growth in transactions.
Narasimhan described the company’s coffee shops, totaling nearly 37,000 globally, as “theater in front, factory in back.” He described many potential strategies to fix that factory, improving overall productivity, increasing profit margins and overall corporate performance.
For instance, he said, deliveries to the company’s shops are a “one-size-fits-all model” that sometimes leads to supply shortages.
“We are out of stock in more items than we would like,” he said, noting that through “segmentation and a format-specific approach” the company could “lower costs while creating a better experience” for employees and customers.
While Starbucks has taken steps to fix its in-store performance, Narasimhan believes it can do more. “There is more work to do to tailor our stores to the demand we see, advance our technology, enhance how we innovate our equipment and also, more fundamentally, how we get back to focusing on fundamental operations,” he said.
For instance, he said the company could use more equipment such as the Siren System, equipment designed to automate the creation of cold beverages. Cold beverages now represent more than two-thirds of Starbucks’ beverage sales but tend to be complicated and customized, which has made the business more difficult for workers in recent years and, many believe, led to the company’s recent workforce challenges.
Narasimhan opened by noting that Starbucks “is uniquely in the business of human connection,” saying that nearly two-thirds of U.S. consumers are alone when they order one of the chain’s beverages or food items. “As a world in a crisis of disconnection, where loneliness, division and polarization have become far too common, the everyday ritual of coffee is a powerful way to make connection happen with others and with yourself,” he said.
But he also said that Starbucks must adapt to an evolving world. “We fully acknowledge the need to evolve and modernize our brand, our business, our capabilities and our culture,” he said. He added that the company is “getting back to basics,” and changed its mission to focus on the human connection. “Our performance is strong,” he said, “but our health can be stronger.”
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