Starbucks founder and interim CEO Howard Schultz told employees in July the world and its customers are evolving and the coffee giant is basically playing catchup.
The solution? A comprehensive "Reinvention Plan" to recreate the coffee chain's environment and bring it back to relevance. The exact details of the strategy were revealed at Starbucks' biennial Investor Day on Tuesday.
Headlining the plan is an incremental $450 million investment in new equipment that allows for better efficiency and reduced complexity. The capital injection will start in the chain's fiscal 2023 calendar and extend into 2024 and 2025. In conjunction with this announcement, Starbucks revealed its new Siren System—equipment designed to help with customization of hot and cold drinks and warm food.
The brand reimagined its cold beverage station to cut prep time and is developing a new way to extract cold coffee and espresso with a Cold Pressed Cold Brew system. The innovation creates cold press coffee in seconds and in fewer than four steps, which is a stark improvement from the current cold brew that requires 20 hours and takes more than 20 steps. The Cold Pressed Cold Brew technology will start testing next year. Starbucks is also testing what it calls Clover Vertica, a system that prepares freshly brewed hot coffee in 30 seconds. The rollout for this equipment has already begun and should reach the entire U.S. system within the next three years. With food, breakfast sandwiches usually take 65-85 seconds to warm in ovens, but now, Starbucks will batch cook food by placing them in a heated rack next to the drive-thru window.
The equipment launch directly responds to customer demand. In the summer, almost 80 percent of drinks are cold and customization requests have increased significantly in recent years. In fact, 66 percent of beverages are being customized with more espresso shots, flavors, and plant-based options, the company said.
“As we drive even more demand ahead, we are enabling our stores to handle even more capacity, while significantly reducing the effort required from our partners, so that we can enable partners to focus on what they love doing—crafting the world’s best coffee and connecting with customers," Brady Brewer, executive vice president and chief marketing officer, said in a statement.
Starbucks' focus on relieving employee stress is notable, considering its months-long battle with unionization. After company-owned units voted in favor last December, more than 220 cafes have done the same across the nation. Along the way, both sides have pointed fingers, with the labor union accusing Starbucks of union busting and the coffee chain alleging foul play between the National Labor Relations Board and union representation.
As it relates to the Reinvention Plan, Starbucks said workers are at the core. The brand identified four key near-term solutions to enhance the employee experience—wage and recognition (expanding digital tipping and incorporating other ways to increase pay); well-being benefits (assisting with financial savings and student loan management); career mobility (development of a new employee app); and investment in store managers (new leadership training and reinvention of decisioning tools). The move comes after Starbucks announced $1 billion in employee investments this spring, including workers moving to a $15 per hour floor and average hourly wages bumping up to $17 per hour.
For the customer, Starbucks is boosting convenience even further by forging a new partnership with DoorDash, which will go national alongside Uber Eats next year. Other significant advancements include dedicated mobile order pickup lanes and drive-thrus that recognize Rewards customers. The company is looking to expand digital sales internationally, as well, to improve the roughly 10 percent mix. To accelerate growth, the brand is creating Starbucks Digital Solutions, a platform exclusive to international markets that delivers a consistent experience across all locations.
In terms of development, the chain expects net new growth of 3-4 percent, up from the prior 3 percent forecast. This would put Starbucks on pace to reach 45,000 stores by the end of 2025 and 55,000 by 2030. The upcoming expansion will feature diverse formats across traditional cafes, in addition to pickup-only, delivery-only, and drive-thru-only locations.
These plans have been the works well before the Reinvention Plan. Former COO Roz Brewer hinted at such in early 2021.
“And those are things like drive-thru only stores that have no seating, very small units, the side-by-side drive-thru lanes that we are bringing on to the footprint,” Brewer said during a conference call. “So we've got considerable work in this area to unlock the full potential for drive thru.”
From 2023 to 2025, Starbucks projects same-store sales will grow between 7-9 percent globally and in the U.S., an increase from the previous 4-5 percent. Because of ongoing investments, the company believes global revenue growth will be 10-12 percent from 2023-2025, much better than the previous range of 8-10 percent.
“As we execute on our Reinvention plan, we are building on our 51-year history of market leading innovation to position our business and our brand for the next chapter of growth,” Schultz said in a statement. “Guided directly by our partners, we have already begun to take action on an inspired roadmap to build the future of Starbucks, all while staying true to our mission of uplifting communities through a shared love for coffee and further extending our coffee leadership and innovation. I am confident that our partners and world-class leadership team will capture the significant global growth opportunity ahead, unlocking value for all our stakeholders.”
Since Schultz took the reins in April, the coffee chain has undergone several changes, particularly in leadership. Starbucks recently announced Pepsi veteran Laxman Narasimhan as its new CEO. He will join the company in October and officially fill the role in the spring. That appointment followed Rossann Williams leaving her post as leader of North America business, COO John Culver stepping down, and the departure of the chief human resources officer, executive vice president of public affairs, general counsel, and senior vice president of public policy.