On that demand topic …
Starbucks’ U.S. momentum in Q2 accelerated to 12 percent same-store sales growth, a number that lapped Omicron-related disruptions last year. Consolidated revenues hit $8.7 billion. Starbucks’ domestic comp split 6 percent transaction and ticket growth, respectively. But notably, CFO Rachel Ruggeri said, store traffic has now surpassed pre-pandemic levels in the brand’s busiest dayparts (morning). “We're able to unlock capacity and better serve our customers,” she said, referencing the reinvention plan, “and we're seeing that come to fruition in terms of our overall strength in [transactions per store day], which is also increasing in the early part of our afternoon.”
Starbucks’ 90-day active rewards membership tacked on 400,000-plus members this past quarter in just the U.S. That brought the total to 30.8 million. Starbucks increased membership by 4 million, year-over-year, or 15 percent growth. Members accounted for 57 percent of company-operated revenue in Q2—a record figure, and 3 percent higher on an annual basis. “We have been a vanguard in this area,” Narasimhan said. “And you can expect us to further invest and lead.”
A major element at work is the continued proliferation of “Starbucks Connect,” which allows licensed stores to offer mobile order and pay and rewards benefits. Before, customers couldn’t use their Starbucks profiles in these spots (of which there were 6,608 at year-end 2022) like they could in corporate stores (there were 9,265 of those headed into 2023).
Narasimhan said Starbucks Connect is now in more than a third of its U.S. licensed venues, so about 2,200, and is “giving our customers even more opportunities to engage with our brand.” Equally vital, it’s enabling Starbucks to grow its digital relationship with guests in thousands of additional stores.
Narasimhan also offered an update on Starbucks’ Oleato platform. Inspired by founder Howard Schultz’s trips through Italy over the years, Oleato infuses coffee drinks with Partanna extra virgin olive oil, creating an “unexpected, velvety, buttery flavor that enhanced the coffee and lingers beautifully on the palate,” he said.
Per Narasimhan, Starbucks has already reached an audience of 5 billion people since the February launch, making it one of the top five product intros in the last five years in terms of brand awareness. It’s currently live in 650 stores across Italy, Japan, and the U.S.
“Scaled profitable innovation,” in general, will be one of Narasimhan’s top focus areas as CEO. He credited Q2’s performance to three cross-sections: beverage launches like Pistachio Cream Cold Brew, which then inspired expanded use of food (record sales of egg bites and breakfast sandwiches last quarter), and three, Starbucks’ continued efforts to tap into convenience.
Mobile order and pay, drive-thru, and delivery accounted for 74 percent of Q2 company-owned revenue. That was 72 percent in Q1.
As all of this unfolds, going back to the Siren umbrella, Starbucks has plenty of tasks on deck in regard to employee development. Barista turnover reduced by more than 9 percent in Q2 from a high in March of last year, Narasimhan said. The brand was able to increase the average hours per barista, per week, by 4 percent year-over-year—“a metric we know is one of the many meaningful inputs in achieved the desired compensation of our partners,” he said.
In addition to the streamlined work flow and higher pay, scheduling presents a “real opportunity” for Starbucks, Narasimhan said.
Frank Britt, EVP and chief reinvention officer, who was brought on in April from workforce development firm Penn Foster, called the current labor market “acute.”
“We have continued, however, to build on Laxman's points to distinguish yourself as a preferred employer of choice for frontline workforces,” he said. “And we view that through the lens of how do we create value for the partner as we continue to partner and building the company together?”
Specifically with scheduling, Starbucks wants to become better at contouring hours by store and daypart and, to Narasimhan’s point, get employees what they need relative to the shifts they’d like to pickup week-to-week. Narasimhan added the brand noticed a strong pickup in the program of tipping that was recently introduced.
Items per labor hour, a metric that clocked a record high in December 2022, appreciated strong pace into and throughout Q2 despite seasonal trends. That, as much as anything, reflects increased productivity amid strong volumes, Narasimhan said (the top-tier issue on Starbucks’ plate last year).
Employee engagement and customer connection scores stabilized in Q2. Starbucks rolled handheld cold foam blends to support demand for customization and expects to cover the system by the end of Q3, “just in time to support our summer demand,” Narasimhan said.