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Starbucks refocuses on growth after shifting its business

The company plans to open its largest number of global cafes after it closed domestic units to shift its focus to takeout.
Starbucks unit development
Photograph: Shutterstock

Starbucks is refocusing on unit growth again after the company shifted its business toward more takeout-focused locations during the pandemic.

The Seattle-based coffee giant last week said it plans to open about 2,000 net new locations during the current fiscal year, which started in October. That would be the largest number in four years and would represent about 6% unit growth.

To be sure, it isn’t as if Starbucks actually pulled back last year. The company still opened a net 1,173 global locations during the 12-month period, thanks entirely to aggressive international development.

But it’s been pulling back in North America. The company opted to close about 600 locations in the U.S. last year as part of a strategy to refocus its asset base. Starbucks closed cafes in urban areas and shifted away from mall development toward takeout-focused urban locations and drive-thru units.

Yet in the process Starbucks shrunk.

The chain finished its fiscal year with 16,826 locations in North America, down from 16,960 a year ago. While the chain opened more licensed shops during that period, it closed nearly 250 company operated locations. Nearly 60% of the chain’s North America locations are company operated.

Starbucks unit count

Source: SEC filings

By closing those locations, Starbucks executives said that the brand is more profitable. The company’s operating margin in North America improved by 510 basis points to 22.5%, even though the chain’s investments in wages and benefits hurt margins by 270 basis points.

Executives gave credit to growth in average ticket. But they also said the chain’s “trade area transformation” improved margins.

Drive-thru and mobile order and pay now represent 70% of total sales at the company. That’s up 15 percentage points from pre-pandemic levels. “We made the strategic decision to transform the store portfolio in the United States,” CEO Kevin Johnson said. “We basically repositioned nearly 600 stores to better serve our customers and give us better economics.

“That strategic decision today is giving us margin expansion and an elevated customer experience.”

Starbucks’ return to unit growth also demonstrates where its future lies. The company said that 75% of its net new units next year will be outside the U.S., in places like China where much of its growth is expected to take place.

Indeed, the chain managed to grow its international unit count by 8% last year to just over 17,000 locations despite pandemic-related restrictions.

That said, Starbucks’ comments implies the chain will add about 500 domestic locations this year.

The company’s more aggressive unit growth comes as more large restaurant companies have picked up the pace on their global expansions with the easing pandemic. Yum Brands, the owner of KFC, Taco Bell and Pizza Hut, has said it is on pace for a potentially record-breaking number of new units this year.

And McDonald’s executives last week said they have picked up the pace of unit growth in China despite a COVID resurgence in that country. CFO Kevin Ozan said China is “a critically important market for us.” “We plan to get even more aggressive in opening new restaurants in this market,” he said.

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