WEBVTT - Starbucks Chairman & CEO Brian Niccol Talks Turnaround Plan

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News. All Right, Brian, congratulations

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<v Speaker 1>on the recent quarter. Obviously, investors I had been looking

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<v Speaker 1>for some sort of sense that there would be a

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<v Speaker 1>return to growth under your leadership in the thirteen months

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<v Speaker 1>that you've been on the job one percent on the

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<v Speaker 1>same store sales basis. Do you have confidence that the

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<v Speaker 1>performance that you saw in your physical fourth quarter is

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<v Speaker 1>not only going to be repeatable, but more importantly something

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<v Speaker 1>that you can build on for the current quarter and beyond.

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<v Speaker 2>Yeah, Rollian, great to be here, and absolutely we believe

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<v Speaker 2>this was a critical moment in our turnaround plan of

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<v Speaker 2>the back to Starbucks strategy.

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<v Speaker 3>You know, it was great to see.

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<v Speaker 2>Once we got the green Apron service standard into the business,

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<v Speaker 2>we saw a lot of really good things happen, you know,

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<v Speaker 2>most specifically, our partners were set up with bigger rosters,

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<v Speaker 2>more hours, and they were able to give customers better connection,

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<v Speaker 2>great craft products, which then translated into transaction increases.

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<v Speaker 3>As you saw in September.

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<v Speaker 2>We have positive comps driven by those transaction gains that

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<v Speaker 2>continued into October, and we believe we can build from

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<v Speaker 2>here because we've got a strong operational footing and really

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<v Speaker 2>excited about what we've got coming for holiday.

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<v Speaker 3>So we think it was a.

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<v Speaker 2>Critical moment in the fourth quarter for the turnaround of

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<v Speaker 2>the US business. And when you think about North America,

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<v Speaker 2>the thing that's great is Canada had a great quarter

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<v Speaker 2>as well.

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<v Speaker 3>They were low mid single digit.

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<v Speaker 2>COMP growth driven by transactions as well, and they've done

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<v Speaker 2>a really great job there. And then when you look

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<v Speaker 2>around the world, we had terrific successes in many markets,

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<v Speaker 2>and most notably China had its second consecutive quarter of

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<v Speaker 2>comp growth. So it was a critical moment for us,

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<v Speaker 2>and we're optimistic about where we go from here.

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<v Speaker 1>You've put a lot of emphasis on service. Obviously with

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<v Speaker 1>the Green Apron project. What does that look like in

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<v Speaker 1>terms of US staffing though, I mean, you obviously have

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<v Speaker 1>to hire more people, but more importantly, you have to

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<v Speaker 1>retrain a lot of your existing staff as well. I

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<v Speaker 1>guess receptive have they been to that and have you

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<v Speaker 1>faced any challenges?

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<v Speaker 3>You know, I got to give our partners a lot

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<v Speaker 3>of credit.

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<v Speaker 2>They really have embraced both the back to Starbucks strategy

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<v Speaker 2>and the Green Apron service standard. And when I'm in stores,

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<v Speaker 2>you know, what I hear from folks is.

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<v Speaker 3>Like thank you.

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<v Speaker 2>We're getting back to being a great coffeehouse again. Our

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<v Speaker 2>baristas and partners, they love doing the craft. They love

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<v Speaker 2>having the moments of connection with our customers, and our

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<v Speaker 2>customers love it as well. And so the fact that

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<v Speaker 2>we've staffed the stores up and we've added more people,

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<v Speaker 2>we've added more hours, it actually has set them up

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<v Speaker 2>to be able to do their job I think with excellence.

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<v Speaker 2>And you know, it's always terrific to be able to

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<v Speaker 2>hire more people. And when you've got great leaders in

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<v Speaker 2>the stores, they're able to train the new people, I think,

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<v Speaker 2>really quickly. And we've tried to keep this very focused

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<v Speaker 2>on what we're looking for, right. We want a great

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<v Speaker 2>greeting when people walk in. We want a great experience

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<v Speaker 2>at the handoff. We're working on doing these uplifts so

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<v Speaker 2>then our customers have great seats if they just I

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<v Speaker 2>had to stay. And we've put some technology in behind

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<v Speaker 2>the scenes to help put order to all those orders

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<v Speaker 2>coming in, whether it's through the drive through, mobile order

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<v Speaker 2>or in the cafe. So you know, we're seeing great

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<v Speaker 2>responses from our partners, and I couldn't be prouder of

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<v Speaker 2>the progress they've made.

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<v Speaker 3>In really short order. You know, we've only been doing

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<v Speaker 3>this since the middle of August.

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<v Speaker 1>Yeah, And with regards to the actual physical Starbucks locations,

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<v Speaker 1>I mean, there are a lot of layers to what

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<v Speaker 1>you're doing here. Of one, obviously trying to make the

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<v Speaker 1>interior is a little bit more accommodating and comfortable, but

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<v Speaker 1>at the same time also efficient. You're also looking to

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<v Speaker 1>sort of create more I guess lower cost models for

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<v Speaker 1>building and operating some of these locations. Are those two

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<v Speaker 1>in conflict with each other those strategies.

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<v Speaker 3>No, Actually, they can work really well together.

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<v Speaker 2>You can have great design, you can have a great seat,

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<v Speaker 2>you can have a great atmosphere, and then also be

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<v Speaker 2>very cost conscious. And that's what we're doing here, is

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<v Speaker 2>we want to make sure all our base costs go

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<v Speaker 2>into giving the partner the back of house they need

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<v Speaker 2>to be successful, and then the customer the front of

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<v Speaker 2>house experience where they love being in our coffee houses.

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<v Speaker 2>And so that's what we're doing these coffee house uplifts.

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<v Speaker 2>We're able to turn these around in a night or two.

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<v Speaker 2>We don't have to close the store, and the transformation

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<v Speaker 2>is meaningful. You know, the feedback we're getting from customers

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<v Speaker 2>is really, really positive, both on the design as well

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<v Speaker 2>as just the whole atmosphere, the vibe that they're getting.

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<v Speaker 2>And I think the combination of the green Apron service

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<v Speaker 2>with this coffee house uplift just really gets people to

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<v Speaker 2>a different place and they believe now they're getting that

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<v Speaker 2>Starbucks experience that frankly, you don't get anywhere else.

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<v Speaker 1>How much will the pace of those uplifts pick up?

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<v Speaker 1>I mean you've only done a few dozen stores at

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<v Speaker 1>least in the most recent quarter here. I mean you've

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<v Speaker 1>got more than ten thousand company operated locations right here

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<v Speaker 1>in North America. So when do we start to see

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<v Speaker 1>the other thousands of locations, I'll get that uplift.

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<v Speaker 3>Yeah.

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<v Speaker 2>So we've done about seventy so far, and we are

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<v Speaker 2>focused on this fiscal year getting over a thousand done.

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<v Speaker 2>And the good news is, once we get that scale

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<v Speaker 2>operation going, we build know how, we will be able

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<v Speaker 2>to then hopefully accelerate the build schedule accordingly into the

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<v Speaker 2>out years because we would love to touch all the

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<v Speaker 2>stores that need it. And then the good news is too,

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<v Speaker 2>as we build new stores going forward, we're building the

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<v Speaker 2>new stores.

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<v Speaker 3>With the right design package, the right experience.

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<v Speaker 2>So we have some work to do with our existing

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<v Speaker 2>coffee houses, but I'm optimistic we will demonstrate that we're

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<v Speaker 2>able to do this at scale, and then we'll build

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<v Speaker 2>on our ability to do thousands of stores going forward.

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<v Speaker 1>There is still cost involved in this. You had a

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<v Speaker 1>restructuring charge in the most recent quarter. The sales growth

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<v Speaker 1>is coming back, there are still some concerns about where

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<v Speaker 1>the margins could be under pressure as you go through

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<v Speaker 1>this transition. What do you tell investors who asked that question.

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<v Speaker 2>Yeah, Look, I think the margins will follow the top

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<v Speaker 2>line success, and I see no reason why we can't

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<v Speaker 2>get back to earning what we used to earn.

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<v Speaker 3>Even pre COVID.

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<v Speaker 2>So I'm very optimistic for where we can get to

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<v Speaker 2>on the bottom line. You know, kind of the way

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<v Speaker 2>we've talked about it is our future is we're going

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<v Speaker 2>to have more transactions, a bigger business, and every transaction

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<v Speaker 2>is going to be more profitable than it currently is today.

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<v Speaker 2>I love the fact that our culture has really adopted

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<v Speaker 2>this mantra of we're going to be better tomorrow than

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<v Speaker 2>we were today, and the same thing is true on

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<v Speaker 2>the bottom line. So that's where we're headed, and I'm

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<v Speaker 2>confident as we continue to put transactions into the business.

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<v Speaker 2>Customers continue to experience the Starbucks experience, they see the

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<v Speaker 2>tremendous value, it will flow to.

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<v Speaker 3>The bottom line, and it'll reward everybody.

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<v Speaker 1>Accordingly, you seem confident, you seem optimistic. I am curious

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<v Speaker 1>as to why you didn't feel it was appropriate yesterday

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<v Speaker 1>with regards to the earnings releasing the call to reinstate

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<v Speaker 1>some sort of guidance. I know your CFO Kathy Smith

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<v Speaker 1>said you would probably do that in January at an

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<v Speaker 1>investor day, but why not now?

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<v Speaker 2>You know, we basically believe we want to do it

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<v Speaker 2>at the investor day so that we can give people

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<v Speaker 2>a comprehensive look of where we're going, not just for

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<v Speaker 2>the fiscal year twenty SI, but rather a long term

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<v Speaker 2>look on how we're resetting this business up for success.

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<v Speaker 2>I believe the reason why I'm here, why our leadership

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<v Speaker 2>team is here, is not about what happens next week

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<v Speaker 2>or frankly next month. It is about where we are

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<v Speaker 2>three years from now. So I'm optimistical about what's going

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<v Speaker 2>to happen in the short term, but we want to

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<v Speaker 2>use this investor day to really give people guidance on

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<v Speaker 2>where we see this business growing in the future. So

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<v Speaker 2>we'll see everybody in late January, and I think we've

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<v Speaker 2>got a great story to share with people, and I

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<v Speaker 2>look forward to seeing people there.

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<v Speaker 1>I want to talk about the coffee and the food. Obviously,

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<v Speaker 1>one of the biggest buzz right now around Starbucks is

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<v Speaker 1>to add on foam protein.

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<v Speaker 3>I am curious.

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<v Speaker 1>I mean, obviously it's in the zeitdece but is there

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<v Speaker 1>any way you can articulate whether it's actually been a

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<v Speaker 1>cretive with regards to sales and the bottom line. I mean,

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<v Speaker 1>what do transactions look like for those protein drinks.

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<v Speaker 2>Yeah, so we're early days in the protein platform, but

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<v Speaker 2>it's proving to be very incremental, which is terrific to see.

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<v Speaker 2>One of the best early indicators is our rewards. Customers

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<v Speaker 2>that had some low frequency, we're seeing their frequency pick up.

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<v Speaker 2>We're also seeing our awareness build. And as the awareness

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<v Speaker 2>builds and we see people try whether it's a protein

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<v Speaker 2>cold foam or the protein latte execution, we see them

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<v Speaker 2>actually loving it and coming back and doing it more often,

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<v Speaker 2>and in some cases even doing it in the afternoon,

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<v Speaker 2>so they may get a different experience in the morning

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<v Speaker 2>and then they come in the afternoon and get the

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<v Speaker 2>protein latte solutions. So we're looking really promising on this

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<v Speaker 2>protein platform. Obviously we'll learn a lot, we'll listen to

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<v Speaker 2>what customers say. But I love the fact that over

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<v Speaker 2>ninety percent of the drinks now you can get protein added,

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<v Speaker 2>and it's very much on trend with how people want

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<v Speaker 2>to eat and drink, and so look, I think this

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<v Speaker 2>is a piece of Starbucks getting into the right health

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<v Speaker 2>and wellness frame of reference and then also giving customers

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<v Speaker 2>the personalization that they want around protein.

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<v Speaker 1>I am curious about price, particularly in light of some

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<v Speaker 1>upstart competitors that have come into this space like Dutch Bros.

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<v Speaker 1>As well as Seven Brew, Lucking Coffee, and a few

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<v Speaker 1>others here. Do you feel like you need to compete

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<v Speaker 1>with those names on price or can you sort of

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<v Speaker 1>maintain this sort of a relative premium or luxury model

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<v Speaker 1>that I think Starbucks has had a perception of being.

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<v Speaker 2>Yeah, Look, we're always going to compete, okay, And one

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<v Speaker 2>of the things that I love is we're competing from

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<v Speaker 2>a position of strength, and that strength comes from the

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<v Speaker 2>fact that one thing I like to remind people is

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<v Speaker 2>we are the biggest coffee drive through business. We are

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<v Speaker 2>the biggest mobile order or digital coffee business. Now I

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<v Speaker 2>think we're also the biggest delivery coffee business, and then

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<v Speaker 2>obviously we are the biggest cafe coffee business. And when

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<v Speaker 2>we provide people the experience, meaning the connection, the community aspect,

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<v Speaker 2>the humanity of Starbucks combined with the craft of our

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<v Speaker 2>coffee and the personalization, we see customers saying this is

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<v Speaker 2>tremendous value and it is well worth it. And so

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<v Speaker 2>I always say to our team, we have to be

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<v Speaker 2>on the offense. We have to recognize the scale that

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<v Speaker 2>we have, and then we have to do the customer

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<v Speaker 2>experience better than anybody else. And we are, after being

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<v Speaker 2>the world's greatest customer service company, and I think that's

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<v Speaker 2>a place of strength when you compare a lot of

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<v Speaker 2>the other competitors that you mentioned before I let you.

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<v Speaker 1>Go, Brian, I do want to ask you a little

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<v Speaker 1>bit more about international strategy, particularly with regards to China.

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<v Speaker 1>Starbucks is at a footprint there since at least the

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<v Speaker 1>late nineteen nineties. Bloomberg reported this week that you are

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<v Speaker 1>close to finalizing the deal for a partnership with a

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<v Speaker 1>private equity firm that would allow you to expand your

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<v Speaker 1>footprint in China even further. How much further do you

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<v Speaker 1>want to go with that and how far along are

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<v Speaker 1>you in sealing that partnership.

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<v Speaker 3>Yeah.

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<v Speaker 2>Look, I'm really excited for our China business. You know,

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<v Speaker 2>they've had two consecutive quarters of comp growth. The team,

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<v Speaker 2>I think is really doing a great job of listening

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<v Speaker 2>to customers, reacting and building on the strength of the

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<v Speaker 2>Starbucks brand as it relates to finding a partner for

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<v Speaker 2>our China business. This process I think is really I

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<v Speaker 2>think validated what I knew, which is China is a

0:11:08.760 --> 0:11:13.679
<v Speaker 2>tremendous growth opportunity. And the process is also demonstrated to

0:11:13.760 --> 0:11:17.560
<v Speaker 2>us that the partners that we were fortunate that came

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<v Speaker 2>to the table are excited about getting this brand to

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<v Speaker 2>go from eight thousand stores to fifteen twenty thousand stores,

0:11:25.160 --> 0:11:26.480
<v Speaker 2>and their expertise is.

0:11:26.600 --> 0:11:27.800
<v Speaker 3>In the local China market.

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<v Speaker 2>I think it's going to help our team get into

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<v Speaker 2>those Tier three, four or five cities faster and with

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<v Speaker 2>the right execution so that we are able to build

0:11:35.200 --> 0:11:39.040
<v Speaker 2>on this positive momentum that we have. So I'm looking

0:11:39.080 --> 0:11:41.839
<v Speaker 2>forward to wrapping up the process and I'm looking forward

0:11:41.840 --> 0:11:44.720
<v Speaker 2>to our China team being one hundred percent focused on

0:11:44.800 --> 0:11:47.560
<v Speaker 2>just growing that business into the future in a big way.

0:11:47.720 --> 0:11:50.080
<v Speaker 1>You think wrapping up that process will happen before the

0:11:50.120 --> 0:11:52.319
<v Speaker 1>investor day in January.

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<v Speaker 2>You know, you never know on the timing on these things,

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<v Speaker 2>but you know, I love the partners that we're working with,

0:11:59.040 --> 0:12:01.040
<v Speaker 2>and I'm optimistic that we're going to get this deal

0:12:01.120 --> 0:12:02.920
<v Speaker 2>done in the not too distant future.