The light at the end of the COVID-19 tunnel is fast approaching for Starbucks. At least to some degree.
In an open letter to employees Thursday, U.S. corporate president Rossann Williams said the company would begin reopening “as many stores as we can,” starting May 4. But will do so with modified operations and “best-in-class safety measures.” It’s goal being to enable healthy employees to come back to work.
When Starbucks provided a business update earlier in the month, it noted that 76 percent of its drive-thru locations were open—58 percent of the company’s total units have drive thrus. Additionally, roughly 55 percent of licensed stores were operating, the vast majority of which were in grocery stores. Starbucks’ footprint consists of about 9,000 domestic corporate restaurants and 6,000 licensed locations.
CEO Kevin Johnson said in a separate letter the brand is “ready for this new, dynamic period.” He added about 80 percent of orders were placed “on-the-go” even before COVID-19.
In recent weeks, Starbucks has tested a variety of service options in more than 300 domestic units, including contactless service, entryway pickup, curbside delivery, and at-home delivery.
THE STARBUCKS RESPONSE SO FAR
“As states begin to relax their stay-at-home orders and more communities prepare to reopen, we will need to get our stores back up and running, wherever it is safe and responsible to do so, so we can keep every partner employed and be a light for our communities through this next phase of rebuilding and recovery,” Williams wrote.
Starbucks said reopening isn’t a “one-size-fits-all solution.” Decisions will be made locally with field leaders, store managers, and health experts. Johnson called it a “monitor and adapt” period.
Essentially, Starbucks will need to adjust operations to drive thru, delivery, mobile order and pay, or entry handoff only, store by store. “We will use the strongest data available to help us assess a store’s readiness, considering things like the trajectory of the virus, local mandates, operational capabilities and customer and partner sentiment,” Williams said. “And even if we can re-open a store, we will always pause to consider should we re-open, so we can support our field leaders in making the best decisions possible.”
As has been the narrative throughout COVID-19, Starbucks said it will lean on its China experience, where more than 95 percent of its restaurants have reopened. The chain had, at one point, closed more than half of its 4,300 restaurants there.
Williams added half of Starbucks’ U.S. restaurants are currently operating with modified formats.
She said Starbucks plans to make time the first week of May to reconnect as a team and welcome back employees. “And we’ll do this in a way that only Starbucks can—celebrating each other, making time for training across our new formats and safety protocols and re-immersing in our mission and purpose as a team,” Williams said.
The company is extending “Service Pay,” through the end of May, with an additional $3 per hour for any employee who is healthy and choosing to work. It’s also extending “Catastrophe Pay” for people diagnosed or exposed to COVID-19 so they can stay home and self-isolate.
Additionally, Starbucks will continue expanded food and beverage benefits for workers and its Care@Work program with 20 backup days. Catastrophe Pay is also available for employees in closed stores and is being provided until the end of May for employees navigating childcare challenges. “And in order to ensure partners are paid for their average baseline hours, we will make Catastrophe Pay available to help close the gap between hours worked on Service Pay and average baseline hours through May 31,” Williams said.
For employees with high-risk conditions from COVID-19, or people who live with a healthcare worker who interacts with patients, Starbucks said it could place them in lower-risk environments, liked delivery-only stores.
Once stores reopen, Starbucks said, it will no longer be able to offer Catastrophe Pay to employees who are unwilling to work after May 3. These workers will have the option to use their remaining vacation or sick leave, apply for unpaid leave, or evaluate eligibility for assistance based on the CARES Act, or any state mandates.
The company expects to phase out Catastrophe Pay and Service Pay in June as it returns to normal operations, pay, and benefits. This is at the heart of why Starbucks is reopening stores.
“I know these decisions will be welcomed by partners who are ready and excited to get back to work. Others may be open to the idea but need a little more support which is why we will invest time the first week of May for retraining and re-immersing,” Williams said. “And there will be some partners who just aren’t ready to return to a service role. So, we must show our genuine empathy for those who need to make the personal decision to leave Starbucks.”
As it did in China, Starbucks expects its U.S. reopening to gradually expand. For example, some stores will continue as drive-thru only, while others might use the mobile ordering experience for contactless pickup and delivery, and others could reopen for just “to-go” ordering.
Johnson said Starbucks developed a “data-rich dashboard,” to help field leaders decide which model to adopt. This includes government data on confirmed cases and trends about COVID-19.
He said it comes down to four factors: the local status of the public health crisis, guidance from health and government officials, community sentiment, and store operational readiness.
The sales impact of COVID-19 to data has been severe for Starbucks. Quarter-to-date as of March 11, U.S. same-store sales growth was 8 percent, with traffic up 4 percent. That represented the strongest top-line results Starbucks had delivered in four years.
But once March 12 arrived, sales began to steadily worsen as “shelter-in-place” mandates and social distancing requirements crippled retail trends. During the last week of March, Starbucks’ comps stabilized in the range of negative 60–70 percent, with 44 percent of U.S. corporate locations still operating.
Notwithstanding the strong start to the first 10 weeks of Q2, comparable domestic sales declined about 3 percent versus the prior year, which reflects the rapid onset of COVID-19. A three-week downturn in a 13-week window dragged comps from plus 8 percent to negative 3 percent.
President Donald Trump provided new guidelines Thursday for reopening parts of the country, which recommended states and localities confirm a two-week downward trend in coronavirus symptoms and documented cases before starting to ease lockdowns. They also need to ensure hospitals have adequate capacity and robust testing in place.
It didn’t provide target dates for meeting those phases.
Here’s the “Gating Criteria.”
Downward trajectory of influenza-like illnesses (ILI) reported within a 14-day period and downward trajectory of COVID-like syndromic cases reported within a 14-day period.
Downward trajectory of documented cases within a 14-day period and downward trajectory of positive tests as a percent of total tests within a 14-day period (flat or increasing volume of tests).
Treat all patients without crisis care and robust testing program in place for at-risk healthcare workers, including emerging antibody testing.
Included in “Phase One” of the reopening process, applicable for states and regions that satisfy the gating criteria, is the reopening of sit-down dining “under strict physical distancing protocols.”
“Phase Two,” which is for states and regions with no evidence of a rebound and that satisfy the criteria a second time, restaurants can operate “under moderate physical distancing protocols.”
And “Phase Three,” when there is no evidence of a rebound and criteria is satisfied a third time, restaurants can operate “under limited physical distancing protocols.”
“… we must act urgently—together,” Williams said. “As states begin to relax their stay-at-home orders and more communities prepare to reopen, we will need to get our stores back up and running, wherever it is safe and responsible to do so, so we can keep every partner employed and be a light for our communities through this next phase of rebuilding and recovery.”