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Starbucks reverses course on planned expansion of upscale Reserve and Roastery brands

The concepts, championed by former Chairman Howard Schultz to boost traffic, will no longer be the targets of massive growth.
Photograph: Shutterstock

With quick-service competitors such as Dunkin’ and McDonald’s nipping at its coffee-drinking traffic, Starbucks is scrapping ambitious growth plans for its ultra-upscale line of Reserve and Roastery units, according to a media report.

Starbucks founder and former Chairman Howard Schultz, who left the company in June, made the goal of opening 1,000 high-end Reserve cafes and up to 30 large-footprint Roastery stores central to the brand’s recent growth strategy.

Starbucks President and CEO Kevin Johnson, in an interview with the Wall Street Journal published Monday, referred to Schultz’s plan as an “aspiration.” The story also quoted someone familiar with the company as saying that when he was first hired as CEO, Johnson would begin meetings by stating, “I’m not Howard, I’m Kevin.”

Instead of building 1,000 Reserve units, Starbucks will pilot the concept in six to 10 locations before building more, Johnson told the WSJ.

The announcement follows several recent belt-tightening moves from the Seattle-based coffee Goliath. In November, Starbucks laid off 5% of its global corporate workforce, some 350 employees, in an effort to become more nimble to increase the pace of innovation. In June, executives announced plans to shutter 150 underperforming stores over the fiscal year, about three times the number it normally closes each year.

Starbucks reported same-store sales growth of 4% in its most recent financial filing, its strongest showing in more than a year, with revenue up 10.6% year over year. But the number is well below the 9% and 10% comps explosions seen earlier this decade.

Traffic, however, remains the chain’s biggest hurdle, with a 1% drop in Q4.

Starbucks is slated to report its Q1 2019 earnings on Jan. 24.

"We've been very much in favor of Starbucks taking on a more-focused approach, or a leaner approach," Jeremy Scott, a research analyst with Mizuho Securities, said. "There's just so much work to do on the core model."

That work includes a laser focus on growing loyal members of its membership rewards program to compete with the value-priced coffee chains, Scott added.

In pushing to grow the Reserve and Roastery concepts, Schultz had said the experience-based units—featuring Italian aperitivo bars, high-end food, luxe decor, on-site coffee roasting and more—would give consumers more of a reason to visit the chain and would compensate for falling cafe traffic. There are currently four Roasteries open around the globe, with new stores planned for Tokyo and Chicago. Just one Reserve cafe currently exists, at Starbucks headquarters in Seattle.

This is not the first time Johnson has rewritten some of his predecessor’s plans for the company.

Shortly into his tenure, Johnson opted to close all of its mall-based Teavana units, a chain acquired under Schultz’s leadership in 2012. Schultz also invested in the Princi Italian Bakery company, with plans to expand it along with the high-end Reserve and Roastery stores. So far, Starbucks has opened only three of the bakeries in the U.S.

“The company is in great hands with Kevin,” Schultz said in an email to the WSJ. “Kevin and I speak often, and he knows he has my complete support.”

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