Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. I'm here right now
Speaker 1: with Brian Nicol, fresh off his investor day here in
Speaker 1: New York City and fresh off an earnings report that
Speaker 1: actually seemed to please a lot of investors. Your five
Speaker 1: quarters right now into your tenure as CEO of Starbucks,
Speaker 1: and you put together a couple of quarters of growth,
Speaker 1: something that the company hadn't seen quite some time.
Speaker 2: Yeah, it was a great quarter for us.
Speaker 3: You know, the thing that was really exciting is to
Speaker 3: see the growth was driven by transactions and also the
Speaker 3: fact that the initiatives that we put in place around operating,
Speaker 3: supporting our partners with the green Apron service model, and
Speaker 3: then really getting back to great customer service, I think
Speaker 3: really showed it. It showed up in the results this
Speaker 3: last quarter. So we're pretty excited.
Speaker 1: So when you say transactions, are you getting more people
Speaker 1: in the store.
Speaker 2: Yeah, that's exactly right.
Speaker 1: Yeah.
Speaker 3: So what was great to see too, is the growth
Speaker 3: in transactions came from existing customers that are in our
Speaker 3: wards program as well as customers that are not in
Speaker 3: a rewards program that frankly, we had been struggling to
Speaker 3: kind of reclaim momentum with that group. In this quarter,
Speaker 3: we had both groups growing in visits, and as a result,
Speaker 3: our market share increased in visitation as well.
Speaker 1: I'm curious about the actual amount of money that they're
Speaker 1: spending as far as a growth in tickets that was
Speaker 1: actually a little bit underpacing what you actually saw in
Speaker 1: transactions themselves. What explains that that's right?
Speaker 3: So, you know, we saw about a little less than
Speaker 3: a point of ticket growth, and that's really driven by
Speaker 3: the fact that we've launched this new program around protein,
Speaker 3: so you get a protein cold foam on any drink,
Speaker 3: and that's a modification. And then obviously the balance of
Speaker 3: the growth came from just more people coming to Starbucks,
Speaker 3: either more often or coming back to the brand that
Speaker 3: hadn't been here in a while.
Speaker 1: Since you took over, you've put a big emphasis on,
Speaker 1: I guess, reimagining the stores to a certain extent. This
Speaker 1: may seem like a dumb question, but why. I mean,
Speaker 1: when I look at where your revenue comes from, a
Speaker 1: lot of that is coming from the drive through, it's
Speaker 1: coming from takeout, on the apps, it's coming from delivery.
Speaker 1: But you've put a big emphasis on the instore experience,
Speaker 1: and I don't understand why.
Speaker 3: Yeah, sure, well thanks for the question, because I do
Speaker 3: believe Starbucks is defined by the cafe and the coffee
Speaker 3: house experience. That really is where you get the humanto
Speaker 3: human connection with our baristas. It's where you see the
Speaker 3: craft of Starbucks, and then you also get just.
Speaker 2: The soul of Starbucks.
Speaker 3: So you know, our in store business is still over
Speaker 3: twenty percent. The thing that I always like to remind
Speaker 3: people too is people access Starbucks in all these channels.
Speaker 3: So they may go via the drive through or mobile
Speaker 3: order Monday through Friday, but Saturday, when they've got a
Speaker 3: little bit more time to dwell, they want to hang
Speaker 3: out in a great space. And so just this past
Speaker 3: month the data, I saw a sixty percent of our
Speaker 3: customers made at least one purchase from the counter. And
Speaker 3: that doesn't include our mobile order pickup people that come
Speaker 3: into the store to pick up their coffee or their
Speaker 3: drink or their food. So you know, obviously the entire
Speaker 3: business works because we have the right access modes, right
Speaker 3: mobile order, pickup, delivery, drive through, and then obviously the
Speaker 3: in cafe. But I just believe the cafe experience and
Speaker 3: this idea of a community location the third place, it's
Speaker 3: critical to people, and it's critical to what makes Starbucks Starbucks.
Speaker 2: It's who we.
Speaker 1: Are and you think that's what customers want. Because we've
Speaker 1: seen some new entrance into the coffee space, both domestically
Speaker 1: as well as some folks like Luck in coming to
Speaker 1: the US taking a much different business model basically grab
Speaker 1: and go more or less.
Speaker 3: The thing I like to remind everybody is we actually
Speaker 3: execute those channels right. So we have a mobile order
Speaker 3: pickup business, which is one of the competitors. We have
Speaker 3: the biggest drive through business. It's a well over a
Speaker 3: ten billion dollar business. It actually would be a fortune
Speaker 3: five hundred company just.
Speaker 2: On its own.
Speaker 3: So we know how to operate and give great experiences
Speaker 3: in all access modes. What we've seen over and over
Speaker 3: again though, is when we have all these channels with
Speaker 3: a great coffee house, we really are unmatched. And so
Speaker 3: that's our point of difference. And that's not to say
Speaker 3: we can't be great in these other access modes and
Speaker 3: compete effectively.
Speaker 1: I mean that sounds great on paper, but that sounds
Speaker 1: also complex. I mean, how do you maintain the integrity
Speaker 1: of everything when you're trying to have this experience in
Speaker 1: store at the same time somebody who wants to grab
Speaker 1: and go or a delivery driver showing up to grab
Speaker 1: in order as well.
Speaker 3: And that is why it's so important that we get
Speaker 3: this green Apron service model dialed in and really at
Speaker 3: the foundation was making sure we have the right number
Speaker 3: of people on the roster, the people are deployed correctly,
Speaker 3: our partners then know what they're accountable to execute, and
Speaker 3: what we've been able to see is between technology and
Speaker 3: I think simplification of the actual operating model, our partners
Speaker 3: can do a great job.
Speaker 2: A cafe experience happens.
Speaker 3: In less than four minutes from order to drink with
Speaker 3: a personal handoff mobile order. We're more on time and
Speaker 3: accurate than we ever have been, and our drive through
Speaker 3: during peaks are below four.
Speaker 2: Minutes as well.
Speaker 3: So it can be done, but we have to be
Speaker 3: intentional about it, and we have to set our partners
Speaker 3: up to be six scessful to operate that omni channel experience. So,
Speaker 3: you know, I love the fact that we're seeing the
Speaker 3: success that we're seeing, and I love that, you know,
Speaker 3: people are talking about the Starbucks experience again, like that shine,
Speaker 3: that soul that really is magnetic, that vibe.
Speaker 1: I think one of your executives said yesterday, your investor
Speaker 1: Day is back.
Speaker 2: Yeah.
Speaker 1: Yeah, the cultural relevancy for Starbucks, that's back.
Speaker 3: That's back as well our marketing, our menu innovation. One
Speaker 3: of the things we set out to do is part
Speaker 3: of this turnaround is get back into culture, get back
Speaker 3: to leading culture. And you know you got to do
Speaker 3: that with the right drinks, the right food, and then frankly,
Speaker 3: the right representation of the brand showing up in the
Speaker 3: right place is at the right time, with the right communication.
Speaker 3: And Tresie Lieberman, who leads our marketing efforts, she's done
Speaker 3: a phenomenal job. We are, in my opinion, Starbucks is
Speaker 3: back well.
Speaker 1: Speaking of her your Investor Day yesterday, she talked a
Speaker 1: lot about your rewards program it's pre launching, being reimagined,
Speaker 1: I believe in early March, about the need to retain
Speaker 1: your existing customer base, but how that rewards program helps,
Speaker 1: if at all, and bringing in new customers, those who
Speaker 1: aren't exposed to Starbucks on a daily base.
Speaker 2: Yeah.
Speaker 3: So, look, we got a lot of feedback on the
Speaker 3: rewards program. It's been a great program, but the feedback
Speaker 3: we got was it's not very personalized and so really
Speaker 3: what the team has.
Speaker 2: Done is made it more personal.
Speaker 3: And the feedback we get from people that don't participate,
Speaker 3: it's like, look, you know, maybe I don't go to
Speaker 3: Starbucks with enough frequency to really benefit from the rewards program.
Speaker 2: We're changing that.
Speaker 3: Because now when you get into the Green Tier, and
Speaker 3: there's three tiers now, so you're gonna have the Reserve tier,
Speaker 3: the Gold tier.
Speaker 2: And the Green tier Reserve Top Reserve would be the top.
Speaker 3: You know, you'll actually get a Black Reserve Starbucks card,
Speaker 3: which you know will be pretty cool because everything seems
Speaker 3: to be so virtual anymore. I think people like every
Speaker 3: once in a while to get something tangible. But the
Speaker 3: Green Tier then allows you to redeem Stars and you
Speaker 3: can get you know, a reward with not that much engagement,
Speaker 3: and so it just gets people to be more connected
Speaker 3: to the brand. And then ideally, over time, you know,
Speaker 3: they'll migrate into Gold or you know, for some of
Speaker 3: those folks that migrate into Reserve, I think they'll find
Speaker 3: it's a really special experience.
Speaker 1: You've managed to sort of get sales back up. There
Speaker 1: are stales some analysts that look at some of the
Speaker 1: growth rate that you have four percent. I think we'll
Speaker 1: say in the most recent quarter, I think your guidance
Speaker 1: is what three to five percent a little bit longer term,
Speaker 1: but there are some analysts there looking back to the
Speaker 1: heyday from a decade or two ago, when Starbucks is
Speaker 1: more a mid single digits and even up into the teams.
Speaker 1: Is that even realistic to get back to those levels.
Speaker 3: Look, I've looked at I've looked at this as I've
Speaker 3: come in and a company at our scale, you know,
Speaker 3: we have forty thousand coffee houses around the world, over
Speaker 3: four hundred thousand Green Apron partners. I think if we
Speaker 3: can consistently deliver a comp that is three percent or better,
Speaker 3: you know, revenue growth that is, you know, five percent
Speaker 3: or better, and then earnings growth that outpaces that, that
Speaker 3: would be world class. And we're a world class company
Speaker 3: and we will deliver I think world class results as
Speaker 3: we get going on this turnaround. So make no mistake,
Speaker 3: we are a growth company at scale, which is really exciting.
Speaker 1: I think on the top line, when does the bottom
Speaker 1: line catch up?
Speaker 3: So the bottom line will start You'll start to see
Speaker 3: us make improvements. I think as we get into the
Speaker 3: back half of this year and then every year from
Speaker 3: here on, out and that's really what we guided people towards,
Speaker 3: is we'll get into the thirteen to fifteen percent range
Speaker 3: on margins here by twenty twenty eight. And then actually
Speaker 3: that's just I think a mile marker. There's an opportunity
Speaker 3: for us to grow even beyond that.
Speaker 1: What's holding back that margin expansion, that profitability right now?
Speaker 3: You know, look, initially we had to do some reinvesting
Speaker 3: in the business to get again the right people. We
Speaker 3: invested over I think it's five hundred million clus to
Speaker 3: six hundred million dollars into the labor experience. And you know,
Speaker 3: the best way for you to then start driving earnings
Speaker 3: is we've got to get the top line going.
Speaker 2: We've done that, and then.
Speaker 3: Obviously we'll work on the middle of the P and
Speaker 3: L as well on the cost side of things, which
Speaker 3: we've got clear line of sight on how over the
Speaker 3: next two years we'll probably be able to stay close
Speaker 3: to two billion dollars while we're growing the top line.
Speaker 3: So it's a combination of growth and smart cost management.
Speaker 1: I am curious, at least here in the US, with
Speaker 1: regards to those growth plans, how much have you taken
Speaker 1: into account the economic environment? I mean, a lot of
Speaker 1: your products are still, if not premium, certainly proceed as
Speaker 1: premium price products. Here does that work against you if
Speaker 1: we do end up in the economic downturn?
Speaker 3: You know, Look, I think at the end of the day,
Speaker 3: the thing that I'm excited about is people are saying
Speaker 3: the experience they're getting at Starbucks, the whole package, They're saying,
Speaker 3: it's worth it. And we're we're seeing some of our
Speaker 3: highest scores through consumer claimed statements, And that's why I
Speaker 3: think it's so important that we have this great cafe experience,
Speaker 3: we have this great customer experience where it's a connection
Speaker 3: between our barista and then look, we've always been unwavering
Speaker 3: in the quality of our coffee, our drinks, and the
Speaker 3: ingredients that we use. So, yeah, you know, we're going
Speaker 3: to be an affordable luxury item, but if you look
Speaker 3: at it, we're priced pretty darn competitively. And then I
Speaker 3: think for what you get for the premium that we provide,
Speaker 3: I think customers are saying, yeah, you know, I'm all
Speaker 3: in on that.
Speaker 1: Do you think you have that pricing power right now?
Speaker 1: Should you feel like you need to pull that lever?
Speaker 3: You know, Look, pricing is one of those things that
Speaker 3: will always be the last lever that will pull. There
Speaker 3: are times where you do have to put some pricing
Speaker 3: into the business, you know, but fortunately we've been able
Speaker 3: to hold off for the last little more than a year.
Speaker 3: So we'll see how things evolve. But you know, if
Speaker 3: we need to do it, we'll do it very strategically,
Speaker 3: and we'll try to do it as minimal as possible.
Speaker 1: You're spending a lot to revamp your stores. I know
Speaker 1: that's a temporary costs in theory, but there are other
Speaker 1: additional costs you're having to deal with, including labor costs
Speaker 1: and things that are going to be a long more,
Speaker 1: longer term and permanent. How has that factored into the forecast?
Speaker 3: Yeah, you know, look, obviously you always have to think
Speaker 3: through what does it cost in order to make sure
Speaker 3: we maintain the integrity of the experience. And right now
Speaker 3: we're having to come back in we call it our
Speaker 3: Coffee House Uplift program, where we are just basically retouching
Speaker 3: all of our cafes. So we want to have great seats,
Speaker 3: great atmosphere, a place that feels warm.
Speaker 2: Place you want to be.
Speaker 3: And then obviously we have been and will always be
Speaker 3: some of the best benefits, best wages you can find
Speaker 3: as a partner, and so when you look at it
Speaker 3: in retail, there's no doubt we have one of the
Speaker 3: best jobs in retail. And that's the reason we can
Speaker 3: also see it is we have the lowest turnover in
Speaker 3: our industry by a lot.
Speaker 2: Our turnover is below fifty percent at the hourly level.
Speaker 3: In this industry, turnover is usually over one hundred and
Speaker 3: twenty five percent.
Speaker 2: So we're definitely doing something right.
Speaker 3: And the feedback I'm getting from our partners is they
Speaker 3: definitely feel supported, they're engaged, and they love doing the
Speaker 3: work that they're doing.
Speaker 1: I am curious though about some of the unionization draw
Speaker 1: that kind of predated you, but obviously still there as well.
Speaker 1: Have you spoken with those unions in any sort of
Speaker 1: meaningful way recently. Are they still demanding more than what
Speaker 1: you've already offered?
Speaker 2: You know, Look, I think we've talked about this.
Speaker 3: I'd love to be able to find a deal so
Speaker 3: that we could get a contract and move on, but
Speaker 3: it's going to have to be reasonable, and it's going
Speaker 3: to have to reflect the fact that we are the
Speaker 3: leader in benefits wages for people that work twenty hours
Speaker 3: or more in our company because it has to be
Speaker 3: sustainable so that all four hundred thousand partners and all
Speaker 3: two hundred and fifty thousand partners in the United States
Speaker 3: can continue to have a great experience, a great career,
Speaker 3: and frankly get great development and growth personally and professionally.
Speaker 3: So you know, we're always going to continue to have
Speaker 3: the conversation, and you know, I'm a believer in that
Speaker 3: you can find a solution, but it's going to have
Speaker 3: to be reasonable so that everybody can be successful long term.
Speaker 1: The US is obviously your primary market at Starbucks for
Speaker 1: quite some time, and made a real big push into China.
Speaker 1: At one point you were the largest coffee chain in China.
Speaker 1: You've changed from that just a little bit, and you've
Speaker 1: recently entered into a partnership to effectively sell off the
Speaker 1: majority of that business to the private equity firm. Boyu,
Speaker 1: what is Starbucks going to look like, particularly in China
Speaker 1: and the rest of the rest of the countries.
Speaker 3: Yeah, Look, I think the one thing I want to
Speaker 3: be clear on is we do believe China is a
Speaker 3: tremendous growth market. You know, today we have over eight
Speaker 3: thousand coffee houses we believe with our partner BOU, that
Speaker 3: could be fifteen twenty thousand coffee houses and they are
Speaker 3: the great They are a great partner for growth and
Speaker 3: part of the reason why we decided to do this
Speaker 3: is for our next chapter of growth. We just believe
Speaker 3: we needed a local partner to help us kind of
Speaker 3: figure out how we can grow faster because one of
Speaker 3: the things that has really I think been exciting to
Speaker 3: see and on the other hand, kind of like whoa
Speaker 3: is the coffee category is really growing and you know,
Speaker 3: some of these competitors that have emerged in k have
Speaker 3: just I think, really ramped up their new unit growth
Speaker 3: and so we're gonna have to get more competitive in
Speaker 3: our new unit growth story. And I still believe at
Speaker 3: the end of the day, we have the best product
Speaker 3: and the best experience. So I believe that'll set us
Speaker 3: up for success. And I think that's why BOU is
Speaker 3: so excited to partner with us because they see the
Speaker 3: opportunity as well.
Speaker 1: You talked at your investor day about this being sort
Speaker 1: of an asset light model that you're taking there. Does
Speaker 1: that also mean that investors should expect maybe slummer margins
Speaker 1: because of the fact that you have to share a
Speaker 1: lot of that money with Boyo.
Speaker 3: No, you know, and look the way we've structured it
Speaker 3: is obviously the partnerships are in the cases where we
Speaker 3: have full license scenario, we don't end up deploying our
Speaker 3: capital into the markets. We support the licensee in a
Speaker 3: different fashion through you know, marketing and menu and technology
Speaker 3: and you know design. So it just becomes less of
Speaker 3: a requirement on our capital. But it's still you know,
Speaker 3: in most cases you see the margin actually rise and
Speaker 3: becomes margin and creative.
Speaker 2: To the total business. And the thing that's really.
Speaker 3: Exciting is there's so much opportunity for growth and when
Speaker 3: you have these local partners in these international markets, we
Speaker 3: just end up, i think, getting access to the premieer
Speaker 3: real estate and at a speed that we couldn't do
Speaker 3: from our Seattle offices.
Speaker 1: I am curious about the scale of this business, particularly
Speaker 1: in light of some of the businesses that you ran before,
Speaker 1: relatively successfully. For those who don't know a former brand
Speaker 1: manager at P ANDNG. You went on, turned around Taco Bell,
Speaker 1: you turned around Chipotle. Now you're Starbucks. Is Starbucks too
Speaker 1: big to handle right now?
Speaker 2: Oh?
Speaker 1: No.
Speaker 3: The thing that's great about Starbucks is the brand is beloved,
Speaker 3: it's iconic, and when you go around the world, there's
Speaker 3: no doubt that people want to engage with the Starbucks brand.
Speaker 3: As I was looking at the US, I think we
Speaker 3: just moved too far away from what made Starbucks Starbucks.
Speaker 3: And I think you were at our investor day yesterday
Speaker 3: and I think Mike said it really well, which is,
Speaker 3: we don't need to change who we are. We just
Speaker 3: need to be great at who we are and what
Speaker 3: we do. And that's what we're getting back to do intentionally, right,
Speaker 3: So it's like, we're going to be intentional about that barista,
Speaker 3: the customer interaction, the customer experience you get. We're going
Speaker 3: to be intentional about making sure you have a great seat.
Speaker 3: We're going to be intentional with the menu, the marketing,
Speaker 3: the digital experiences that we provide. And what I've seen
Speaker 3: just most recently from this quarter is when we do
Speaker 3: that with excellence, yeah, you know, we get rewarded with
Speaker 3: customer's business and loyalty.
Speaker 1: Are you're going to be intentional about the locations. I mean,
Speaker 1: under your predecessors, there was a big expansion plan where
Speaker 1: at least here in New York City. I mean, you
Speaker 1: can walk down a single block and have like five Starbucks,
Speaker 1: you know, all competing against each other. That's we're trenched
Speaker 1: a lot.
Speaker 3: Do you go back to that, Well, look, I think
Speaker 3: there are opportunities for us to continue to grow in
Speaker 3: New York City and frankly in a lot of communities
Speaker 3: around the United States.
Speaker 2: We talked about the essally, we believe we can.
Speaker 3: Have five thousand stores. We've got line of sight on that,
Speaker 3: and as we grow our afternoon day part and grow
Speaker 3: the economics of the business, we'll probably go well beyond
Speaker 3: those five thousand that we've identified. So you'll see Starbucks
Speaker 3: continuing to bring new stores. We want to be smart
Speaker 3: about where we locate them so that it's the right
Speaker 3: place for the customer, most importantly, and then also so
Speaker 3: that we can attract and retain partners to have a
Speaker 3: great experience working in the stores.
Speaker 1: Most of your revenue is still waited to the morning.
Speaker 1: You mentioned the PM, if you will, afternoon what actually
Speaker 1: gets people not only in the stores in the afternoon hours,
Speaker 1: but also spending more.
Speaker 3: Yeah, well, so we have an afternoon business today, but
Speaker 3: I think there is a multi billion dollar opportunity to
Speaker 3: grow our afternoon day part. You know, as we get
Speaker 3: the cafe set up to be a great place for
Speaker 3: you to you know, kind of reset, recharge, whatever you
Speaker 3: want to do, and we pair that up with the
Speaker 3: right beverage and ultimately the right food. I think there's
Speaker 3: no reason why we can't have as strong of an
Speaker 3: afternoon day part as we have in the morning.
Speaker 1: And speaking of food, you are making some major menu changes.
Speaker 1: One thing I noticed at the investor day there were
Speaker 1: a lot of non caffeinated beverages now that are coming
Speaker 1: down the menu.
Speaker 3: Y well, I think we were sampling a lot of
Speaker 3: the things that we think are going to be right
Speaker 3: for the afternoon.
Speaker 2: And you know, we talked about our new.
Speaker 3: Energy refresher platform, or you'll be able to do, you know,
Speaker 3: completely decaffeinated to what is our standard caffeination and then
Speaker 3: add a little bit more and you'll be able.
Speaker 2: To customize this. So, you know, we want to have
Speaker 2: the right drinks for you whether it's morning or afternoon.
Speaker 3: And what we're seeing is in the afternoon, some people
Speaker 3: in certain cases aren't looking for caffeine. In other cases,
Speaker 3: they're actually looking for more caffeine. So we need to
Speaker 3: be able to provide it all and The thing that
Speaker 3: I love about Starbucks is personalization slash customization is at
Speaker 3: the core of who we are and what we do.
Speaker 3: So I'm really optimistic about what we can do with
Speaker 3: food and what we can do with beverages to be
Speaker 3: on trend right protein five or forward on the food
Speaker 3: side of things, and then on the beverage side of things,
Speaker 3: giving you that personalization so that you can get the
Speaker 3: flavor experience that you want with the energy experience.
Speaker 1: That you want. No olive oil, not right now? All right?
Speaker 1: You know, Brian, you've done a good job so far,
Speaker 1: and you know investors are going to demand a lot more.
Speaker 1: Done a great job turning around other companies. I just
Speaker 1: have to end this by asking you a really hard
Speaker 1: question here. Niverse Miami University. Yeah, you guys are twenty
Speaker 1: one to zero. First time you guys have really kind
Speaker 1: of been contender since the Wally Serbiak area. It's going
Speaker 1: to be that year where you guys get back to
Speaker 1: the NCAA.
Speaker 3: You know, look, it is as an alum of Miami, Ohio.
Speaker 3: It is great to see the success team is having
Speaker 3: and Coach Steele is having. Yeah, you know, I was
Speaker 3: at Miami. I graduated in ninety six, so after I graduated,
Speaker 3: we had that great run with Wally Zerbiak, and it
Speaker 3: was fun to see they got to the Sweet sixteen.
Speaker 3: It's fun to see the students having a great time,
Speaker 3: and it's fun to see the school on the national stage.
Speaker 2: It's a great school.
Speaker 3: I've got great friends, great memories, so it's fun to
Speaker 3: see them having success. And I'll tell you what, I'm
Speaker 3: watching every game and rooting really hard.