Starbucks is closing an additional 100 locations in the U.S. in the next year as the company accelerates its shift away from poorer performing urban markets.
The additional closures bring to 500 the number of cafes that Starbucks expects to close in the U.S., up from the 400 the company announced in June.
The locations are part of 800 closures in the Americas over the next year, including 300 in Canada, that were announced as part of the company’s fiscal fourth quarter earnings call on Thursday. Starbucks announced a quicker improvement in U.S. sales than executives expected.
The closures will be more than offset by 850 openings in the Americas, the company said. Yet the 50 net openings represent a dramatic slowdown from the Seattle-based coffee giant’s typical pace.
Consider that in the U.S., the chain added nearly 300 locations in the fiscal year ended Sept. 27, even though half of that time was filled with a pandemic. Starbucks now operates 15,337 locations in the U.S. and more than 32,000 globally.
Executives on Thursday said they opted to close more locations after realizing they could do so more efficiently than they thought. “We’ve learned we’ve been able to manage the closures much more efficiently than we had originally anticipated,” CFO Patrick Grismer said. “That’s largely about average lease exit costs.”
Starbucks, much like its cross-country rival Dunkin’, is contending with some dramatic consumer shifts during the pandemic. Consumers are ordering less often but making bigger orders when they do. They are working from home, which has made ghost towns out of the bustling business districts in urban areas.
The number of Subway riders in New York City, for instance, has plunged by about 70% on average, a clear sign people are still very slow to return to offices.
But consumers are flocking to locations with drive-thrus, especially in late mornings when they want a break or on weekends.
“We’ve seen U.S. transactions migrate from dense metro centers to the suburbs, from cafes to drive-thrus, from early mornings to midmornings with outpaced recoveries on weekends,” CEO Kevin Johnson said. He said drive-thru and suburban locations were “solidly positive” last quarter.
The company in June said that it planned to close locations in the U.S. in part to handle this shift. It plans to close some of its less profitable locations, with plans to shift business to other nearby cafes.
It also plans to open more takeout-only Starbucks Pickup locations. And it is aggressively moving into more suburban areas where its restaurants can have drive-thrus.
Executives said that the closures of the underperforming locations will improve margins—Grismer said that operating margins in Starbucks’ Americas unit could improve by 40 basis points in the next fiscal year by closing the locations.
“We’re really pleased with how our team has been able to respond to their learnings over the summer and put together even more aggressive plans that are going to put us in a more profitable position and also structure the business for stronger growth going forward,” Grismer said.