Starbucks plans $450 million in store upgrades and plans to accelerate US growth

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Starbucks US revitalization plan calls for more stores and new breweries to improve efficiency. / Photo: Shutterstock

Starbucks on Tuesday unveiled a lengthy, broad-based strategy aimed at improving the efficiency and operations of its domestic stores and accelerating its growth in the U.S. and internationally.

At the heart of the effort is a $450 million investment in equipment, such as new coffee makers and cold-beverage equipment, which executives believe will improve operational efficiencies.

At the same time, the company is planning more branches, period. Starbucks plans to add an additional 2,000 U.S. locations by 2025, unit growth that will add 13% to the number of domestic coffeeshops.

That comes with strong international growth that executives say could take the company to nearly 45,000 coffee shops worldwide by 2025 and 55,000 by 2030.

Starbucks also raised its expectations for same-store sales and revenue growth and said it is promising to resume its share buyback program by next fiscal year. Interim CEO Howard Schultz ended share buybacks earlier this year after returning to the company for a third time, saying the funds would be better spent on investments.

The presentation to Wall Street investors comes after five months of massive changes at the Seattle-based coffee giant, including numerous listening sessions with employees and the work of multiple teams at corporate headquarters. There have also been numerous changes in the leadership team, including the hiring of Laxman Narasimhan as the next CEO, but only after a six-month learning curve that includes 40 hours of barista training.

“These last five months have been very special,” Schultz told investors on Tuesday. He noted that the company “has a complete view of how to recapture the sizeable market for Starbucks.”

Here’s a look at the changes the company announced on Tuesday.

New brewers

Starbucks plans to add new equipment to its stores in the coming fiscal year, along with additional investments over the next two years to improve throughput.

Most notably, it’s adding two devices to its coffeeshops: Clover Vertica, which can brew a cup of hot coffee in 30 seconds, rather than requiring staff to brew coffee every few minutes to meet expected demand. Demand for hot-brew coffee has waned, but it’s still there, and the device is expected to reduce employee work hours.

The company also developed the “siren system,” new equipment designed to eliminate some of the steps employees have to take to prepare cold drinks.

During the summer months, nearly 80% of the drinks Starbucks sells are cold, but customers often customize them, and each drink requires specific steps, like getting ice and adding milk. Starbucks redesigned its cold beverage station as part of the system to improve operations.

A barista has to go through 16 steps to prepare a Grande Mocha Frappuccino, the company said. That takes 87 seconds. With the new machine, it’s just 13 steps that take 36 seconds.

Company executives said the machine will not harm quality. “It doesn’t change the brewing method,” Chief Marketing Officer Brady Brewer told investors. “It changes the production system and the tools that we use, how you get ice cream, how you distribute milk. The coffee is not affected by the siren system.”

The company also plans to test a new cold-pressed cold brew system designed to brew cold-pressed coffee in under four seconds. The current cold brew is steeped for 20 hours and requires 20 steps to make, the company said. Cold Brew is now a $1.2 billion Starbucks business.

“Whether it’s hot brew, espresso or cold brew, Starbucks is rewriting the science of coffee extraction,” Brewer said. He said each new system goes through a “rigorous stage-gate process” to ensure “everything we make is loved by the partners.”

“We never go backwards,” he said. “It’s just upstairs.”

New business

Starbucks also said it plans to open new locations. The company will open 2,000 new US locations by 2025 and accelerate the company’s store growth by 3% to 4% annually.

The company’s strategies could include drive-thru-only locations, something that many of the chain’s competitors, particularly fast-growing Dutch Bros, are opening up in no time. Starbucks also mentioned pickup-and-delivery-only locations.

The more diversified portfolio of stores, along with increasing use of mobile ordering and payments, could help the company “meet its customers wherever they want.”

But as the company grows in the coming years, most of it will come from outside the US. Two-thirds of Starbucks’ global retail growth over the next three years is expected to come from international business, and China in particular.

The company argues that new stores in the US are worth the investment, noting that the locations generate a 50% return on investment and a 25% cash margin.

change of staff

Many of the efficiency changes are designed to improve employees’ lives. And much of the revival plan appeared to have been sparked by a union organizing effort that spread to well over 200 locations.

On Tuesday, the company announced that it had found several solutions to improve the worker experience, including enhanced digital tipping, helping employees get the hours they want or need, and finding other ways to to increase total compensation.

“We’re not gathering enough information about what [employees’] Preferences and needs are,” said Chief Strategy Officer Frank Britt. “We have to learn more.”

The company has already announced wage increases for workers that were introduced last month, along with new savings and student aid benefits. It launches a new app to offer workers personalized career paths.

It’s also investing in its store managers with improved leadership training, the addition of planning and decision-making tools, and other efforts to improve customer retention.

“There’s a generational shift, an awakening, a new dynamic in the job market,” Britt told investors. “We have to react to that.”

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