Financing

Starbucks plans more stores and more technology

The Seattle-based coffee giant believes it has plenty of room to add more stores in the U.S., but it also believes that efficiencies can cut $3 billion in costs over the next three years.
Starbucks
Starbucks plans to build different prototypes, but it will still focus on the drive-thru. | Photo: Shutterstock.

Starbucks plans to add more stores in the U.S. that operate more efficiently, with more technology and more food that could hit more dayparts.

That, at least, is according to an update on the company’s “Reinvention” plan on Thursday, which it now calls its “Triple Shot Reinvention.” Company executives detailed a strategy that largely expands and improves on much of what they’ve already done, including additional technology, improving food options and generating more sales from a wide range of coffee shops.

“We will reimagine the Third Place for more people in more places at more times of the day,” CEO Laxman Narasimhan said, referring to what Starbucks calls the experience inside its stores. “We are in the business of human connection. Our previous mission was beautiful. But it had been written before the iPhone was launched.”

But the company also believes it can reduce a substantial amount of costs over the next three years. Starbucks projected that it could cut $3 billion in costs over the next three years, mostly through how the company buys products but also through efficiencies in the store, such as staffing and scheduling.

“We use our scale to capture more value, creating greater efficiencies, leading to simplification and a better flow of products,” CFO Rachel Ruggeri said. She also said the company can “meaningfully drive waste out of our stores” through automated ordering of inventory, which can reduce complexity for employees.

Starbucks has been aggressively adding locations in the U.S. coming out of the pandemic. It has added about 2,000 locations over the past five years. It added more locations than any single brand in the U.S. in 2022. And that growth appears to be accelerating—it added nearly 500 restaurants over the past 12 months and now has 16,352 U.S. locations, more than any other chain outside Subway.

But Starbucks might not be No. 2 for long if the company meets its goals. The company believes it has the white space in the U.S. to get to more than 20,000 domestic locations.

“Starbucks has not saturated the U.S. market,” said Sara Trilling, president of Starbucks North America.

Those stores will likely be in numerous formats. Starbucks plans to build more pickup stores, drive-thru-only locations and delivery-only locations. Pickup stores will “play an important role” in serving a rapidly growing customer who orders through mobile phones.

Trilling said 31% of Starbucks sales last quarter came through mobile order and pay, up 30% over the past year.

Delivery, meanwhile, is 4% of sales but is growing quickly, yet less than 1% of those sales come through delivery-only locations. The company wants to quickly grow that with delivery-only locations. But Starbucks also continues to focus on drive-thru stores that remain “the perfect format to maximize throughput along with service,” Trilling said.

But Starbucks also believes it can get more sales from existing units, a big goal for a chain that generates about $1.8 million in sales per unit, according to data from Restaurant Business sister company Technomic.

Starbucks believes that many of its investments will improve efficiency in stores and drive sales. The company is remodeling about 1,000 stores, after which it is adding its Siren System, a system featuring equipment designed to simplify the beverage-making process.

But the company is also improving operating standards for mobile orders to improve the experience for customers who pick up their orders.

Much of Starbucks’ effort, however, will come through its loyalty program, Starbucks Rewards. Starbucks has some 75 million members of the program globally and executives want to double that number over the next five years. They believe that is attainable given recent growth rates in the program. Loyalty members come in more often and spend more when they do.

It plans to link accounts with the loyalty programs of two other companies over the next six months, one a financial company and the other a hotel business. Yet executives also want to improve the operation of its mobile app, improving the search function while using the company’s AI program to suggest food items where appropriate, such as when stores are out of a customer’s favorite product.

Starbucks is also using analytics on the beverage front, suggesting items based on what is trending at the moment.

A lot of what the company is doing on the marketing front is about food. Starbucks had “record” food attachment rates last quarter and some $6 billion in food was sold at the chain’s locations in the U.S. last quarter.

The company wants more. Its food sales are growing faster in the afternoon, as customers get breakfast items for lunch. Starbucks plans to add more snack items to its offerings in the coming year. “While we have grown our afternoon daypart, we have opportunities to significantly accelerate it,” CMO Brady Brewer said.

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