A plant-based movement
Johnson was asked Tuesday where he thought consumer behavior was changing most going forward. His answer: Plant-based, which he called a “dominant shift” for Starbucks.
The brand has addressed this mainly through alternative milks, like oat and soy, and so forth. It’s been 15 years since the first Starbucks soy latte (and soy chai tea latte and soy cappuccino) was served. Starbucks launched its first dairy alternative in 1997 and added coconutmilk in 2015 and almondmilk in 2016. January 2020 marked the regional introduction of oatmilk.
On the food side, there are options like the Impossible Sausage Breakfast Sandwich. But notably, Johnson shared Starbucks actually has a restaurant in Seattle that features a 100 percent plant-based food menu.
In general, however, Starbucks has seen higher beverage and food attachment during COVID. There’s been a shift to cold drinks as well, which were gaining momentum pre-virus. If you think about the decline in transactions Starbucks has taken in central business districts and metro markets, Brewer said, those areas carry single beverages and mixed higher with brew coffee sales, which skew at a lower range in Starbucks’ ticket options.
“So what we’re doing in beverage innovation is replacing that with cold beverages and replacing that with plant-based,” she said. “And so that's why we're seeing this improved food attach and so we feel confident that those kinds of innovations are going to keep that ticket higher than what we've seen in the past.”
To date, plant-based beverages haven’t made much of an impact on Starbucks’ beverage margins. It’s a push since there’s incremental cost associated with alternative milks and yet the brand charges a premium. “I would say much longer-term, it remains to be seen,” said CFO Patrick Grismer, who is returning, effective February 1. “A lot of it will depend on how consumers increasingly migrate to those alternative milks, not just in our business, but broadly in a way that supports increased production, which should over time reduce the cost and then we have the opportunity to reevaluate whether at some stage it makes sense to change our pricing practices.
Recovery on track
Starbucks’ global same-store sales declined 5 percent in Q1—a number driven by a 19 percent decrease in traffic and partially offset by a 17 percent boost in average ticket.
Comps in the Americas fell 6 percent, with transactions down 21 percent and average ticket up 20 percent. U.S. same-store sales slid 5 percent as traffic decreased 21 percent and average ticket hiked 19 percent.
U.S. figures were down 4 percent and 8 percent in November and December, respectively, as pandemic-related operating restrictions picked up. About 40 percent of domestic corporate stores offered limited seating at the end of the period, down from more than 60 percent at the beginning. Same-store sales were negative 3 percent in October.
Starbucks’ Q1 result of negative 5 percent was better than Q4 2020’s negative 9 percent, even with the latter half disruption.
In the quarter, mobile orders represented 25 percent of U.S. company-operated transactions, up from 17 percent pre-COVID.
Grismer said, in line with prior calls, Starbucks expects to achieve full sales recovery in its U.S. business by the end of Q2, with a two-quarter lag before it believes it will see full margin recovery.
Starbucks projects same-store sales will decline 2 percent in January. Then, as it laps COVID impacts in March, it believes growth with track in the 5–10 percent range, year-over, for the second quarter.
The brand’s Rewards loyalty program 90-day active members in the U.S. also increased to 21.8 million, up 15 percent year-over-year, and a 2.5-million-member lift. It’s now surpassed Starbucks’ figures from before the pandemic. Rewards customers contributed 50 percent of corporate sales, up from 43 percent last year and 47 percent in the previous quarter.
Also, quarter-over-quarter, Starbucks’ mobile app downloads grew by 5 percent and our acquisitions 13 percent.
International comps dipped 3 percent on a 10 percent decline in transactions and 8 percent rise in average ticket. In China, they rose 5 percent (3 percent decline in transactions, 9 percent lift in average ticket).
Starbucks opened 278 net new stores in Q1 and exited the period with 32,938 stores, of which 51 and 49 percent were company-run and licensed, respectively. The U.S. had 15,340 locations. China 4,863.
Starbucks posted consolidated net revenues of $6.7 billion, a 5 percent decline versus the year-ago period.
Adjusted earnings per share were 61 cents, which beat Wall Street expectations of 55 cents.