Current challenges and the path forward were big themes in Starbucks Corp.'s Q2 fiscal year '22 earnings call with analysts on May 3.
"Love and responsibility brought me back to Starbucks,” said Howard Schultz, who is serving as interim CEO, during the call. “ … I've traveled the country and met with thousands of Starbucks retail store partners and visited all five of our roasting plants, and I've learned firsthand about the unique challenges confronting the company today."
It is hard to overestimate COVID-19 impact on consumer brands and consumer behavior, Schultz explained. “Even as restrictions have lifted, brands are being smacked with unprecedented operating challenges,” he added.
"COVID also drove dramatic changes in customer behavior that Starbucks stores and systems were not designed or built for. The challenges have been amplified by record demand for Starbucks coffee in our U.S. stores that has accelerated with the lifting of COVID restrictions."
In Q2, Starbucks' sales comp in North America increased 12% YoY, 23% compared to Q2 2020. Consumers continue to embrace drive-thru and order ahead.
"Both drive-thru and Mobile Order & Pay (MOP) activity have surged, together now generating over 70% of our U.S. store volume," Schultz said. "Delivery, a nearly $500 million business, was up 30% in the first half of fiscal year. And in our stores, customers are increasingly further customizing already complex handcrafted cold beverages.”
All of these factors, and then some, are stressing operations. Starbucks is struggling to keep up with demand. "...The combination of shifts and customer patterns, accelerating demand and algorithms built for different customer behaviors has placed tremendous strain on our U.S. store partners," he said.
But every challenge presents an opportunity, and Starbucks has a glass-half-full attitude.
"Over the last month, we've realigned Starbucks’ U.S. organization to focus entirely on transforming and reimagining our core U.S. business," said Schultz.
The coffee roaster and retailer is planning $1 billion in investments -- including $200+ million for U.S. company-operated stores this fiscal year. These include further investments in training, wage and equipment and a new partner app that will communicate directly with all store partners.