Starbucks on Tuesday presented a lengthy, broad-based strategy designed to improve the efficiency and operations of its domestic stores and speed its growth in the U.S. and internationally.
The centerpiece of the effort includes $450 million in investments in equipment such as new coffee brewers and devices to make cold beverages that executives believe will improve efficiency of operations.
At the same time, the company is also planning more stores, period. Starbucks is planning to build another 2,000 U.S. locations by 2025, unit growth that will increase the number of domestic coffee shops by 13%.
That comes along with strong international growth that executives say could get the company to nearly 45,000 global cafes by 2025 and 55,000 by 2030.
Starbucks also increased its expectations for same-store sales and revenue growth and said it promises to reinstitute its share buyback program by next fiscal year. Interim CEO Howard Schultz ended share buybacks earlier this year after returning to the company for a third time, saying that the funds would be better spent on investments.
The presentation to Wall Street investors came after five months of massive changes at the Seattle-based coffee giant, including numerous listening sessions with employees and work from multiple teams at company headquarters. It also featured numerous changes in the executive team, including the hiring of Laxman Narasimhan to be the next CEO, but only after a six-month learning process that includes 40 hours of training as a barista.
“These last five months have been quite something,” Schultz told investors on Tuesday. He noted that the company has a “complete line of sight on how to once again capture the sizable market for Starbucks.”
Here’s a look at the changes the company announced on Tuesday.
Starbucks plans to add new equipment to its stores in the coming fiscal year, along with additional investments in the following two years to improve throughput.
Most notably, it is adding two pieces of equipment to its coffee shops: Clover Vertica, which can brew a cup of hot coffee in 30 seconds rather than have employees batch brew coffee every few minutes to meet expected demand. Demand for hot brewed coffee has been waning but is still there, and the device is expected to cut back on employee time.
The company has also developed the “Siren System,” new equipment designed to remove some of the steps employees have to take to prepare cold beverages.
During the summer months, nearly 80% of the beverages Starbucks sells are cold, but customers often customize them, and each drink requires certain steps such as getting ice and adding milk. Starbucks redesigned its cold beverage station as part of the system to improve operations.
A barista has to take 16 steps to make a Grande Mocha Frappuccino, the company said. That takes 87 seconds. With the new machine, there are only 13 steps that take 36 seconds.
Company executives said the machine will not hurt quality. “It does not change the brewing method,” Chief Marketing Officer Brady Brewer told investors. “It changes the production system and the tools we use, how to get ice, how to distribute milk. The coffee is unaffected by the Siren System.”
The company is also planning to test a new Cold Pressed Cold Brew System designed to make cold-press coffee in seconds in fewer than four steps. The current cold brew is steeped for 20 hours and takes 20 steps to make, the company said. Cold Brew is now a $1.2 billion business at Starbucks.
“Whether it’s hot-brewed coffee, espresso or cold brew, Starbucks is rewriting the science of coffee extraction,” Brewer said. He said each new system goes through a “rigorous stage-gate process” to ensure that “everything we make is loved by partners.”
“We never go backward,” he said. “It’s only up.”
Starbucks also said that it is planning to open new locations. The company will open 2,000 new U.S. locations by 2025, accelerating the company’s store growth by 3% to 4% annually.
Among the company’s strategies could include drive-thru-only locations, something many of the chain’s competitors, notably fast-growing Dutch Bros, is opening at a rapid clip. Starbucks also mentioned locations for pickup and delivery only.
The more diversified portfolio of stores, in addition to the growing use of mobile order and pay, could help the company “meet its customers wherever they want.”
Yet as the company grows in the coming years, most of it will come outside the U.S. Two-thirds of Starbucks' global retail growth over the next three years is expected to come from its international business, and in particular China.
The company argues that new stores in the U.S. are worth the investment, noting that the locations generate a 50% return on investment and a 25% cash margin.
Much of the changes in efficiency are designed to improve life for employees. And much of the revitalization plan appeared to be triggered by a unionization effort that spread to well over 200 locations.
On Tuesday, the company said it has identified several solutions to improve workers’ experience, including expanded digital tipping, help to give employees the hours they want or need and finding other ways to increase overall pay.
“We don’t capture enough information on what [employees’] preferences and needs are,” Chief Strategy Officer Frank Britt said. “We need to learn more.”
The company has already announced increases in worker pay, implemented last month, along with new savings and tuition assistance benefits. It is introducing a new app to provide workers with personalized career paths.
It is also making investments in its store managers with improved leadership training, the addition of scheduling and decision-making tools and other efforts to improve retention.
“There is a generational shift, an awakening, a new dynamic in the labor market writ large,” Britt told investors. “We have to be responsive to that.”
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