Starbucks raised its long-term financial forecast on Tuesday, following the announcement of a series of changes to its cafes as part of its reinvention plan.
The Seattle-based company anticipates annual earnings per share growth of 15 per cent to 20 per cent over the next three years, up from its previous long-term forecast in late 2020. Same-store sales in the United States and around the world are expected to rise 7 per cent to 9 per cent year on year.
Earlier on Tuesday, the company announced plans to expand its loyalty program and speed up operations at its cafes, using new coffee-making equipment and automation, among other things. The modifications are intended to address how Starbucks’ business has evolved in recent years.
Its menu has grown, and cold coffee drinks with add-ons now account for 60 per cent of orders year round. Instead of going to the counter, more customers are using the drive-thru or the mobile app.
Despite record demand in the United States and abroad, outgoing CEO Howard Schultz stated that the company was making “self-induced mistakes” and had lost its way.
Starbucks said it plans to build roughly 2,000 new U.S. stores between fiscal 2023 and 2025 as part of its reinvention strategy, accelerating its development strategy. It intends to have 45,000 locations worldwide by the end of fiscal 2025.
Starbucks will also begin buying back shares in its upcoming fiscal year, which begins in October. Schultz halted the buyback program in April, instead investing the funds back into the company.
For 2023 and 2024, the company previously projected adjusted earnings per share growth of 10 per cent to 12 per cent, revenue growth of 8 per cent to 10 per cent, and global same-store sales growth of 4 per cent to 5 per cent. Starbucks suspended its fiscal 2022 forecast in May, citing Chinese lockdowns, investments in its US employees, and high inflation.
Starbucks plans to invest approximately $450 million in fiscal 2023 to upgrade its cafes with new equipment that will simplify operations and speed up service.
“Our physical stores were built for a different era and we have to modernize to meet this moment,” outgoing Chief Operating Officer John Culver told investors.
Baristas, for example, will no longer have to scoop ice, pour milk from a gallon jug, or bend down for whipped cream when making drinks with its new cold beverage system. The new system employs dispensers and reduces the time required to make a Mocha Frappuccino from 86 seconds to 35 seconds. It has been tested in a store, and a second test is scheduled for January after improvements are made based on feedback.
Starbucks is also streamlining its cold brew coffee production process, which is now a $1.2 billion business for the company. The current method necessitates more than 20 hours of brewing time and more than 20 steps. The new process grinds and presses coffee beans automatically, reducing waste by 15 per cent.
In addition, rather than having baristas batch brew hot coffee every half hour, a machine that grinds and brews a single cup in 30 seconds will be available next year. Despite the fact that cold drinks are taking over, the company sees 15 million customers per month who order brewed coffee.
Food preparation is changing as well. Starbucks’ premade sandwiches and egg bites will now be batch cooked and packaged in humidity-retaining packaging.
According to Culver, automated ordering will be available in US stores within the next few years. According to the company, the shift toward automation is intended to give employees more time to interact with customers while relieving them of the more mundane aspects of the job.
Starbucks mobile app orders now account for a quarter of all transactions, thanks to the company’s loyalty program. As of July 3, the United States version of by Starbucks Rewards had 27.4 million active members, accounting for more than half of the company’s orders.
Starbucks has extended its loyalty program technology to licensed cafes, which include locations in airports and retailers such as Barnes & Noble, in order to continue growing its base of loyal customers. Approximately 20 per cent of its approximately 7,000 U.S. licensed stores are already using the technology.
In addition, Starbucks will connect its rewards program to third-party loyalty programs, such as those for airlines and retailers. Customers will be able to earn “stars” for their purchases elsewhere or convert their reward points into airline miles.
Brady Brewer, Chief Marketing Officer, stated that the company will announce its first U.S.-based partnership in October.
Incoming CEO Laxman Narasimhan will also begin his tenure this autumn. He will join the company in October to learn more about its operations before taking over for Schultz in April.
During the investor day, Narasimhan made a brief, surprise appearance, speaking about his upbringing, his love of writing poetry, and what drew him to Starbucks. He told investors that he orders coffee from Starbucks under the name “Laks” to avoid misspellings.
(Adapted from CNBC.com)