Starbucks Reaps Rewards of Reinvention Plan
Members of Starbucks’ loyalty program, Starbucks Rewards, continue to drive sales, accounting for 57% of U.S. transactions in the second quarter.
Brady Brewer, Executive Vice President, Chief Marketing Officer, identified the winning combination: Starbucks Rewards plus unique menu items.
“Now 57% of U.S. transactions are from our Rewards members. And what they're telling us is … they are finding a beverage they can't get anywhere else,” Brewer said during a May 2 earnings call with analysts where Starbucks Corp. executives discussed its Q2 2023 financial results.
- U.S. comparable store sales increased 12%, driven by a 6% increase in comparable transactions and a 6% increase in average ticket.
- North America comparable store sales increased 12%, driven by a 6% increase in comparable transactions and a 5% increase in average ticket.
- Global comparable store sales increased 11%, primarily driven by a 6% increase in comparable transactions and 4% increase in average ticket.
Focusing on the Fundamentals
“Our performance is strong, but our health could be stronger,” CEO Laxman Narasimhan said. Narasimhan took over the helm of Starbucks on March 20, succeeding interim CEO Howard Schultz. “Our stores and our operations are still evolving to meet the demands of our customers. There is more work to do to tailor our stores on the demand that we see, advance our technology, enhance how we innovate our equipment, and also more fundamentally, how we get back to focusing on fundamental operations and executing better.”
During its Investor Day presentation earlier this year, the coffee company previewed its new equipment, the Siren System, that is designed to reduce friction in the employee experience – eliminating steps and increasing speed of service. Testing is underway, and these stations have already shown measurable impact on both productivity, as well as throughput, said Sara Trilling, Executive Vice President and President, North America.
Starbucks Scorecard
- Mobile Order and Pay, drive-thru and delivery accounts for 74% of Q2 U.S. company-owned revenue.
- Starbucks Rewards loyalty program 90-day active members in the U.S. increased to 30.8 million, up 15% year-over-year
- Rewards and members account for 57% of U.S. company-operated revenue in Q2, which marks the highest contribution on record and represents growth of 3% on a year-over-year basis.
- “We are excited about our growth in active Rewards members as it's a contributing factor in consistent demand,” said Narasimhan .
- Another initiative announced earlier this year, Starbucks Connect, which allows licensed stores to link up with the rewards program and mobile ordering, is now in one-third of its U.S. licensed locations.
Its new beverage, Oleato, pictured, has reached more than 5 million people since its February launch. It is currently available in 650 stores across three markets: Italy, Japan and the U.S. “Given the success we are seeing, we look forward to bringing this exciting new offering to more stores and more markets around the world this year.” Narasimhan said.
Narasimhan credited the coffee retailers success on three things, successful innovative product launches including Pistachio Cream Cold Brew and Oleato, its food menu, which reported record sales of select breakfast items, and its “attractive convenience capabilities” mobile order and pay, drive-thru and delivery, which account for 74% of Q2 U.S. company-owned revenue.
Sustained Demand for Delivery
Starbucks Delivers posted 21% year-on-year growth, accounting for 23% of the sales mix, while overall mobile ordering reached 47% of sales, 4% over the prior year.
“Delivery demand remained robust even after consumer mobility has recovered, demonstrating that it is highly incremental and interwoven into our customers' lifestyles,” Narasimhan said. “Our attractive portfolio supports the increasing demand, putting us in a position of strength to capture opportunity as China transitions due to the next phase of recovery. While we don't expect a straight-line recovery, we are confident in our long-term opportunity.”
Positive Results
Starbucks operates more than 6,200 stores across 244 cities. During Q2 2023, Starbucks delivered double-digit comp in all company-operated markets, excluding China, as well as positive comp in China driven by better-than-expected recovery, and saw continued strength in its licensed markets, said Rachel Ruggeri, EVP CFO. “This momentum was made possible by the investments we are making in our stores and partners and allowed us to continue unlocking capital to reinvest in our business.”
Time To Connect
Between April 24 and May 8, 250,000 Starbucks partners at 10,000 stores in North America carved out two hours to focus on the art of connection and reflecting on Starbucks’ new mission: “With every cup, with every conversation, with every community – we nurture the limitless possibilities of human connection.”
All stores are adapting a three-part agenda to fit their individual store’s needs.
- Part 1: Connecting with Starbucks
- (25 minutes) – Partners will begin with a coffee tasting of the Starbucks Green Apron Blend and watch a video introduction with new CEO Laxman Narasimhan.
- Part 2: Connecting with “our team” (35 minutes) – Partners will connect with their teams through a mix of self-reflection, speed connecting, share-outs and team recognition.
- Part 3: Connecting with customers (60 mins) – Partners will identify their connection superpowers, discuss creating connection moments and learnings and share intentions moving forward.
The goal: Starbucks partners will leave every session with three takeaways: 1) Ready to feel a sense of ownership to improve and influence the environment around them at Starbucks. 2) Inspiration to show up to each shift energized and ready to create connections with their team, and 3) Expand their craft and create connections with customers.
“I feel like before this [session], I wouldn't have thought of Starbucks as limitless opportunities. Maybe I wouldn't have put those two words together before this meetup, but afterwards, I can definitely see the opportunities that we have here,” read one of the comments Starbucks posted on Starbucks stories.
Improved Employee Experience
Narasimhan said the company is making strides towards its goal to improve the employee experience. “The investments we made in our partners, stores, and technology are already producing a return whether through productivity gains or partner satisfaction,” he said. For example, barista turnover reduced by over 9% from a high in March Q2 fiscal year 2022.
At the store level, Starbucks has been able to increase the average hours per barista per week by 4% YoY, “a metric we know is one of the many meaningful inputs in achieving the desired compensation of our partners. Clearly, partners’ scheduling is a real opportunity for us, and we are laser-focused on it,” Narasimhan added. Mobile tipping was also added.
The items-per-labor hour KPI, a metric that reached a record-high in December 2022, continued its strong pace into and throughout Q2 despite seasonal trends, Laxman explained. “This demonstrates increased productivity in the midst of strong volumes, all by partner engagement and customer connection scores stabilized.”
U.S. Staffing Challenges
Currently it is an “acute labor market environment, and we are mindful of that,” said Frank Britt, Executive Vice President, Chief Reinvention Officer, during the earnings call with analysts. Starbucks continues to position itself as a preferred employer of choice for frontline employees. “And we view that through the lens of how we create value for the partner as we continue to partner in building the company together,” Britt explained, adding there is “a significant opportunity” to continue to help team members with their career development.