“We'll take a partner off a support role that they may be cleaning and restocking and we'll put them at the warming oven at peak because we know that store has a high mix of breakfast sandwiches at peak. Or where we might have had one partner on the espresso machine, then turning around and making cold beverages, we now have two partners working back to back servicing a high cold mix store,” he said.
The new system is only three weeks in, but Maw said there has been positive employee feedback.
“We've seen a tremendous amount of enthusiasm because it just makes sense. It frees them up to do what they should be doing and it makes them a lot more efficient. So, again, we used LEAN principles, we used training, we used a lot of the things we used—learned at peak to sort of optimize that and it's off to a good start,” he said.
The tech side of Starbucks’ business remains a moving—and lucrative—target. Starbucks added 1.4 million Rewards members in the U.S. in Q1, up 11 percent year-over-year, bringing the total to 14.2 million active members. It’s about 15 million now, Maw said. Mobile payment in the U.S. has grown to more than 30 percent of total tender.
This still leaves about 60 million customers, per month, who don’t have a digital relationship with Starbucks.
“This isn't about Starbucks Rewards growth slowing. It's about an opportunity that is at zero today from a revenue standpoint on customers outside of rewards getting digital relationship,” Maw said.
Starbucks has a three-pronged plan to capitalize on this opportunity—two that the company shared as being active and one it’s still investigating behind the corporate curtain.
The first is opening up Mobile Order and Pay to all customers. Anyone who downloads the app will be able to order to ahead. Maw said this is coming by year’s end.
“Everyone will have access to it. But today, a select customer base that downloads can order ahead. And when they do that, we obviously have the ability to capture their contact information and give them either in-app or e-mail marketing and start to track their spend behavior, so that we can then get them into the personalization engine and serve up offers,” Maw said.
No. 2 is reactivating. That 15 million-customer pool is 90-day active, and there are millions of customers who are 91-plus-day active. “Those customers. We've been marketing to them for a while now and having some success in converting them, but we're going to go far deeper. The offers will be richer, because we know they pay off, and we're going to try to get that previously active base reactivated,” he said.
Maw highlighted the third, which again, is in the experiment phase. This is what Starbucks calls WiFi signup.
It looks like this: Guests who want to use Starbucks’ WiFi in stores enter an email once, and then every time they walk into the store it automatically connects to WiFi and you don’t have to accept the terms and conditions again.
“It allows us to have the ability to have those e-mail addresses. And so, across those ideas and others that we're considering, we've said we'll have several million non-Starbucks Rewards digital relationships by the end of this year. And if you think about that 60 million, I would expect that number to continue to grow at a relatively rapid clip over the next handful of years,” Maw said.
Maw said Starbucks is increasingly opening drive-thru locations “because that gets at an opportunity and an occasion for customers to have the faster experience, and our investment in throughput at peak, which has had a big pay-off for us over the last nine months or so, all goes to that kind of convenient side and the digital side of that spectrum.”
It’s part of Starbucks’ plan to solve America’s retail puzzle. Another is the chain’s unique experiential nature. “If not more frequent and not as big a piece of the total timeframe, it becomes more important, that sense of connection, that sense of a place to engage with others and engage with our partners,” Maw said.
Starbucks’ answer: Siren Retail. The term is an easier way to explain the Reserve Roastery and Princi development. Starbucks debuted its first Reserve store February 27 in Seattle, and plans to open 1,000 of these. Designed in an open, marketplace style, customers can engage with and order from employees at the Princi counter or Reserve coffee bar, then gather with family and friends at community tables or lounge areas around two fireplaces. Siren Retail also encompasses Starbucks Reserve bar locations, like the Shanghai and Seattle stores, and Princi bakeries.
“What we believe is, if you look at—look in the retail world out there and certainly if you look in the restaurant retail world, there's not another brand out there with this many stores at scale that can win on both sides of this spectrum,” he said. “… We haven't fully executed on everything that we can. We haven't always grown as fast as perhaps we'd like to on the digital side. But that doesn't take away from the size of the opportunity, and I think that's important not to get lost in the monthly and quarterly view of U.S. comp.”
On the innovation side, Maw said Starbucks’ “Sparks,” or short-term promotions (think crazy Frappuccino flavors) “just haven’t worked well” lately. “They haven’t paid off,” he added. “They haven’t paid back. Frappuccino Happy Hour is probably the biggest extreme of that, not really paying back. So, we're going to do very different things around Happy Hour this year. Basically, the Frappuccino Happy Hour that you know is going away and something new is coming in.”
Starbucks is going to invest marketing dollars and time around core platforms. Nitro Cold Brew is an example. This was an extension of Starbucks’ popular cold brew platform. The company is currently testing items like Nitro tea lattés and Nitro milk lattes in some stores, which Maw said might or might not make it nationwide. Earlier in the year, Starbucks said it’s accelerating the rollout of Nitro cold brew from 1,300 stores currently to 2,300 restaurants in the U.S. by the end of 2018. CEO Kevin Johnson said the brand has seen about 1 point of additional comp growth in stores offering Nitro cold brew this past year.
“But it's an extension of that core capability that we have, an extension of what customers already sort of know and love, and importantly in our stores, it allows us to market behind those platforms for longer,” he said.
In January, the company launched its first new espresso in over 40 years with the Blonde offering. Maw said Starbucks has emphasized the product far longer than most of its launches—a sign of things to come with these core changes and more platform-based marketing. “Look for more things in Cold Brew, look for more things around Teavana iced teas, and we think that's a way for us to be able to extend core innovation of those platforms,” he said.
In regards to food, Maw said Starbucks’ protein-forward Bistro Boxes and Sous Vide Egg Bits were successful launches. Recently, the company introduced a chicken sausage biscuit sandwich.
On the growth side, Starbucks is targeting 750 openings. Average-unit volume in company-owned stores is $1.5 million, Maw said. Maw wanted to clear up what this growth plan really looks like.
“I think a lot of the folks say that—look at that number and say, well, their comps are slowing, they must be moving sales from one store to another. But the reality is our licensed stores—and this is so important, our licensed stores and our company stores are different. They are not the same. It's not like we go into a downtown area and we open five licensed stores and five company-owned stores and they kind all look the same. They're totally different,” he said.
Starbucks is opening 350 company-owned stores. Those licensed locations includes grocery stores, airports, Target, hotels, and other units that typically don’t feature outward facing doors. “Now, there's some sales transfer from licensed stores. I don't pretend that isn't the case, but it is just so much different and so much lower. I worry that sometimes we're not getting that message across. So, those licensed stores do not look like our company-owned stores,” he said.
Sales transfer is what happens when Starbucks opens a company-owned store and sales and transactions move from one store to the other.
Maw compared a store in Fort Collins, Colorado, without a drive thru doing 700 transactions, and one 2–3 miles away with a drive thru.
“That existing store, before we opened it, had 700 transactions. A year afterwards, it had 600 transactions. The new store captured about 1,000 transactions. Again, that's the convenience of drive-thru, and about $2.5 million of revenue. So, this is just one year after. You can see the total transactions in the trade area went from 700 to 1,600 and revenue more than doubled. That's a highly profitable trade for us and it's all dependent on our ability to target real estate, have a minimal amount of sales transfer … What happens with this new store is it's going to comp at 2 times to 3 times the rate of the rest of the Starbucks stores. So, you're going to have three or four years built-up of stores that drive outsized comps. If I was to take the weighted average impact of those comps, it's meaningful compared to an average store. On the flip side, you obviously have negative comps in that existing stores, right. And if I take the weighted amount of that, it's a meaningful number. When I add those two numbers together, the lift from the new store and the comp impact from existing, it nets to basically zero.”
This leaves virtually no impact on comps, Maw explained, since there’s an outsized comp in the new store offsetting the negative comps in existing stores.
“It's all new on a relatively low ROI store, high profit beverage store, high AUV. It just works.
We're not falling asleep on this. We're not closing our eyes and saying everything is good. We still look at it store by store. We learn from every store we open and we make adjustments,” he said.