Starbucks' Investment in Equipment Pays Off

Continued investments in its workforce, equipment, supply chain, and technology are paying off, evidenced by a margin expansion across North America to 23.2% this past quarter, explained CEO Laxman Narasimhan during a November 2 earnings call with analysts.

Starbucks’ roadmap for reinvention, introduced in September 2022,  is credited with fueling the brand’s growth. To deliver long-term sustainable growth,  Starbucks has refreshed  this strategy named “Triple Shot Reinvention With Two Pumps.” 

Starbucks will focus on running better stores through a stronger operating foundation while partnering with key tech players to “reset its tech architecture,” introduce new capabilities, and upgrade existing offerings. 

Starbucks has partnered with Microsoft to leverage generative AI capabilities within product development and personalization. It is working with Apple to launch a Green Apron Innovation store, where Starbucks can continue to experiment and refine its tech applications. It is also working with Amazon to reimagine its in-store customer experience by introducing Amazon One’s Just Walk Out technology.  

More 'Purpose-Defined' Stores

“We see an opportunity to better leverage our footprint to serve the evolving needs of our customers. Innovation in our store formats, to purpose defined stores like pick-up, drive-thru only, double-sided drive-thru, and delivery-only allows us to better meet our customers where they are at through differentiated experiences,” said Sara Trilling, executive vice president and president of Starbucks North America, in a prepared statement touting the refreshed strategy. “To capture that demand we will build more new stores – with new formats, in new cities and cities we’re already in.”

For its fiscal Q4 2023 ended Sept. 30, 2023, total company revenue reached $9.4 billion, an 11% increase year-over-year (YoY).

• Full year revenue reached a record of $36 billion, representing 12% growth YoY for fiscal 2023 
• Global comparable store sales increased 8% year over year, both for the quarter and the fiscal year 2023
• Global store count tops 38,000

Investments in Equipment Boost Operations

To all U.S. company-operated stores,  the coffee roaster and retailer added new portable cold foamers,  which led to enhanced productivity in Q4 “and lessened the strain on our partners while continuing to meet the high cold beverage demand,” Narasimhan explained to analysts.

Other equipment adds include 550 nugget ice machines, and 600+ locations now have the Clover Vertica, an on-demand, single-cup brewer. The U.S. rollout of the Siren System cold and food stations, introduced in September 2022, continues.

“Our portfolio and pipeline management of new equipment design and rollout plans are robust and enabled us to deliver our results. We have created a more stable environment in our stores. Hours per partner increased in the quarter by 5% as we continue finding schedules that fit our partners' and customers' needs,” said Narasimhan.

Workforce KPIs

For Q4, turnover was down by 10%, while barista tenure increased by 16%. “Customer connection scores also improved in the quarter relative to this time last year. We did all of this by investing over 20% of this year's profits back into our partners in stores through wages, training, equipment, and new store growth. All this is further evidence that our strategy is working,” Narasimhan said. 

Current Consumer Mindset

When asked as to whether there's been any change in the U.S. consumer behavior in recent months, Narasimhan responded, “Customer demand for us remains strong. We're not really seeing any change in the sentiment in our customer base at this time… And unlike 2008, which is a number that people have been touting around, we have a widely more diversified set of channels that we participate in. We have digital relationships worldwide with over 75 million customers in terms of their last 90-day activity. ...We have the ability to reach our customers, and we have multiple levers in terms of how we deal with any uncertainty that we might see, and that's true as well in the U.S."  

In the U.S. market,  traffic continues to be strong, and it's growing among both rewards and non-Starbucks Rewards customers, said CFO Rachel Ruggeri. “…And importantly, we're seeing units per transaction significantly higher. And that's driven by the growth we're seeing in drive-thru, as well as delivery, which has a higher attach rate or more group orders.”

Narasimhan added, “I think what has happened over the last several years is how much this business has evolved in order to meet the customer where it's at. And I think you're seeing that as well  in traffic, in transactions, but also in what we're doing with purpose-designed stores.” 

Improved Speed of Service in the Drive-Thru 

Narasimhan gave a nod to the work that has been underway for more than a year to improve store operations and processes in the drive-thru. “You're seeing real improvement in terms of out-of-the-window time in the drive-thru… So, a combination of operating practices, the equipment that we are putting in place, all of that adds to much stronger operational foundation in our store, and we expect that to continue.”