September 22, 2022
Starbucks outlined a reinvention plan on Tuesday, September 20, that includes expanding its loyalty program and speeding up operations at its cafes, in part with new coffee-making equipment and automation, reports CNBC.
On the call with analysts, outgoing Starbucks CEO Howard Schultz said the coffee giant is projecting double-digit growth for revenue and earnings per share as it implements the new strategy.
The company is planning to build roughly 2,000 new U.S. stores between fiscal 2023 and 2025, accelerating its development strategy. By the end of fiscal 2025, it plans to have 45,000 locations worldwide.
The changes are intended to address how Starbucks’ business has transformed in recent years. Its menu has expanded, and cold coffee drinks that often include add-ons now account for 60% of orders year-round. Rather than going to the counter, more customers are going through the drive-thru or using its mobile app.
As business continues to morph and increase, in its fiscal 2023, Starbucks plans to invest roughly $450 million to upgrade its cafes with new equipment that will simplify operations and speed up service.
With its new cold beverage system, for example, baristas will no longer have to scoop ice, pour milk from a gallon jug, or bend down for whipped cream when making drinks. The new system uses dispensers and cuts down the time to create a Mocha Frappuccino from 86 seconds to 35 seconds. It’s been tested in a store, and a second test is planned for January after making improvements based on feedback.
Starbucks also is streamlining its process for making cold brew coffee, which is now a $1.2 billion business for the company. The current process requires more than 20 hours of brewing, with more than 20 steps. The new process automatically grinds and presses the coffee beans and reduces waste by 15%.
And instead of having baristas batch brew hot coffee every half hour, a machine that grinds and brews a single cup in 30 seconds will roll out next year. Even as cold drinks take over, the company sees 15 million customers every month who order brewed coffee.
Food preparation is also changing. Items like Starbucks’ premade sandwiches and egg bites will now be batch cooked and placed in packaging that retains humidity.
Automated ordering will roll out as well in U.S. stores in the next few years, according to Culver. The company said the shift toward automation is meant to give employees more time to interact with customers and relieve them of the more mundane parts of the job.
A quarter of Starbucks transactions now come from mobile app orders, driven by the company’s loyalty program. The U.S. version of by Starbucks Rewards had 27.4 million active members as of July 3, and they accounted for more than half of the company’s orders.
To keep growing its base of loyal customers, Starbucks has extended its loyalty program technology to licensed cafes, which include locations in airports and retailers like Barnes & Noble. Roughly 20% of its roughly 7,000 U.S. licensed stores are using the technology already.
Additionally, Starbucks will link its rewards program to outside loyalty programs, like those for airlines and retailers. Consumers will be able to earn “stars” by shopping elsewhere or turn their rewards points into airline miles.
Chief Marketing Officer Brady Brewer said the company will announce the first U.S.-based partnership in October.
This autumn also marks the start date for incoming CEO Laxman Narasimhan. He’ll join the company in October and learn more about its operations before officially taking the reins from Schultz in April.
Narasimhan made a brief, surprise appearance during the investor day, speaking about his upbringing, his love for writing poetry and what drew him to Starbucks. He told investors that he uses the name “Laks” when ordering coffee from Starbucks to avoid misspellings.
In addition to store operations, the changes are being calculated to “de-stress” harried baristas. Starbucks Chief Technology Officer Deb Hall Lefevre said the company is working on an app for baristas that will let them manage their schedules and pay, as well as foster two-way communication with the company and help with career growth.
The upcoming changes for U.S. baristas is just “phase one” of a multiyear plan, according to Starbucks management. The company also is looking to improve the experiences of baristas overseas—as well as for the employees who harvest its coffee beans, work in its supply chain, and provide customer support.
Research contact: @CNBC