Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News here right now with
Speaker 1: Brian Nicol, fresh off his investor day here in New
Speaker 1: York City and fresh off an earnings report that actually
Speaker 1: seemed to please a lot of investors. Your five quarters
Speaker 1: right now into your tenure as CEO of Starbucks, and
Speaker 1: you put together a couple of quarters of growth, something
Speaker 1: that the company hadn't seen in 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: rewards 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, Yeah.
Speaker 3: Sure, well thanks for the question, because I do believe
Speaker 3: Starbucks is defined by the cafe and the coffee house experience.
Speaker 3: That really is where you get the human too human
Speaker 3: connection with our baristas.
Speaker 2: It's where you see the craft.
Speaker 3: Of Starbucks, and then you also get just the soul
Speaker 3: of Starbucks. So you know, our in store business is
Speaker 3: still over twenty percent. The thing that I always like
Speaker 3: to remind people too, is people access Starbucks in all
Speaker 3: these channels. So they may go via the drive through
Speaker 3: or mobile order Monday through Friday, but Saturday, when they've
Speaker 3: got a little bit more time to dwell, they want
Speaker 3: to hang out in a great space. And so just
Speaker 3: this past month the data, I saw a sixty percent
Speaker 3: of our customers made at least one purchase from the counter.
Speaker 3: And that doesn't include our mobile order pickup people that
Speaker 3: come into the store to pick up their coffee or
Speaker 3: their drink or their food. So you know, obviously the
Speaker 3: entire business work because we have the right access modes,
Speaker 3: right mobile order, pickup, delivery, drive through, and then obviously
Speaker 3: the inc cafe. But I just believe the cafe experience
Speaker 3: and this idea of a community location the third place,
Speaker 3: it's critical to people, and it's critical to what makes
Speaker 3: Starbucks Starbucks.
Speaker 1: It's who we are and you think that's what customers want.
Speaker 1: We've seen some new entrance into the coffee space, both
Speaker 1: domestically as well as some folks like Luck in coming
Speaker 1: to the US taking a much different business model basically
Speaker 1: grab and.
Speaker 2: 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 difference. And that's not to say we
Speaker 3: can't be great in these other access modes and 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 successful 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: But I think one of your executives said yesterday, your
Speaker 1: investor 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 re launching, being reimagined,
Speaker 1: I believe in early March, talk about the need to
Speaker 1: retain 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 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, and the Green tier Reserve Top Reserve
Speaker 3: would be the top. You know, you'll actually get a
Speaker 3: Black Reserve Starbucks card, which you know will be pretty
Speaker 3: cool because everything seems to be so virtual anymore. I
Speaker 3: think people like every once in a while to get
Speaker 3: something tangible. But the Green Tier then allows you to
Speaker 3: redeem stars and you can get you know, a reward
Speaker 3: with not that much engagement, and so it just gets
Speaker 3: people to be more connected to the brand. And then
Speaker 3: ideally over time, you know, they'll migrate into Gold or
Speaker 3: you know, for some of those folks that migrate into Reserve,
Speaker 3: I think they'll find it's a really special experience.
Speaker 1: You've managed to sort of get sales back up. There
Speaker 1: are still 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.
Speaker 2: And we're a world.
Speaker 3: Class company and we will deliver I think world class
Speaker 3: results as we get going on this turnaround. So make
Speaker 3: no mistake, we are a growth company at scale, which
Speaker 3: 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
Speaker 3: towards is we'll get into the thirteen to fifteen percent
Speaker 3: range on margins here by twenty twenty eight. And then
Speaker 3: actually that's just I think a mile marker. There's an
Speaker 3: opportunity 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 obviously.
Speaker 3: We'll work on the middle of the l as well
Speaker 3: on the cost side of things, which we've got clear
Speaker 3: line of sight on how over the next two years
Speaker 3: we'll probably be able to stay close to two billion
Speaker 3: dollars while we're growing the top line. So it's a
Speaker 3: 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 priced 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.
Speaker 2: They're saying, it's worth it.
Speaker 3: And we're we're seeing some of our highest scores through
Speaker 3: consumer claimed statements. And that's why I think it's so
Speaker 3: important that we have this great cafe experience, we have
Speaker 3: this great customer experience where it's a connection between our
Speaker 3: barista and then look, we've always been unwavering in the
Speaker 3: quality of our coffee, our drinks, and the ingredients that
Speaker 3: we use. So yeah, you know, we're going to be
Speaker 3: an affordable luxury item, but if you look at it,
Speaker 3: we're priced pretty darn competitively. And then I think for
Speaker 3: what you get for the premium that we provide, I
Speaker 3: think customers are saying, yeah, you know, I'm all in
Speaker 3: 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, place you want
Speaker 3: to be. And then obviously we have been and will
Speaker 3: always be some of the best benefits, best wages you.
Speaker 2: Can find as a.
Speaker 3: Partner, and so when you look at it in retail,
Speaker 3: there's no doubt we have one.
Speaker 2: Of the best jobs in retail.
Speaker 3: And that's the reason we can also see it is
Speaker 3: we have the lowest turnover in our industry by a lot.
Speaker 3: 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 somebody union as draw that
Speaker 1: 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 for quite some time,
Speaker 1: and made a real big push into China. At one
Speaker 1: point you were the largest coffee chain in China. You've
Speaker 1: chunched from that just a little bit, and you've recently
Speaker 1: entered into a partnership to effectively sell off the majority
Speaker 1: of that business to the private equity firm. Boyu, what
Speaker 1: is Starbucks going to look like, particularly in China and
Speaker 1: 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.
Speaker 2: We believe with our.
Speaker 3: Partner BOU that could be fifteen twenty thousand coffee houses,
Speaker 3: and they are the great They are a great partner
Speaker 3: for growth, and part of the reason why we decided
Speaker 3: to do this is for our next chapter of growth.
Speaker 3: We just believe we needed a local partner to help
Speaker 3: us kind of figure out how we can grow faster
Speaker 3: because one of the things that has really I think
Speaker 3: been exciting to see and on the other hand, kind
Speaker 3: of like whoa is the coffee category is really growing
Speaker 3: and you know, some of these competitors that have emerged
Speaker 3: in China have just I think, really ramped up their
Speaker 3: new unit growth and so we're gonna have to get
Speaker 3: more competitive in our new unit growth story. And I
Speaker 3: still believe at the end of the day, we have
Speaker 3: the best product and the best experience, So I believe
Speaker 3: that'll set us up for success. And I think that's
Speaker 3: why BOU is so excited to partner with us because
Speaker 3: they see the 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 slimmer 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 right 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? 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 doing intentionally, right.
Speaker 3: So it's like, we're going to be intentional about that
Speaker 3: barista to customer interaction, the customer experience you get. We're
Speaker 3: going to be intentional about making sure you have a
Speaker 3: great seat. We're going to be intentional with the menu,
Speaker 3: the marketing, the digital experiences that we provide. And what
Speaker 3: I've seen just most recently from this quarter is when
Speaker 3: we do that with excellence, you know, we get rewarded
Speaker 3: with 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. We talked about the Essially, we
Speaker 3: believe we can add five thousand stores. We've got line
Speaker 3: of sight on that, and as we grow our afternoon
Speaker 3: day part and grow the economics of the business, we'll
Speaker 3: probably go well beyond those five thousand that we've identified.
Speaker 3: So you'll see Starbucks continuing to to bring new stores.
Speaker 3: We want to be smart about where we locate them
Speaker 3: so that it's the right place for the customer most importantly,
Speaker 3: and then also so that we can attract and retain
Speaker 3: partners to have a 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. Y.
Speaker 3: I think we were sampling a lot of the things
Speaker 3: that we think are going to be right for the afternoon.
Speaker 3: And you know, we talked about our new energy refresher platform,
Speaker 3: or you'll be able to do, you know, completely decaffeinated
Speaker 3: to what is our standard caffeination and then add a
Speaker 3: little bit more and you'll be able to customize this. So,
Speaker 3: you know, we want to have the right drinks for
Speaker 3: you whether it's morning or afternoon. And what we're seeing
Speaker 3: is in the afternoon, some people in certain cases aren't
Speaker 3: looking for caffeine. In other cases, they're actually looking for
Speaker 3: more caffeine. So we need to be able to provide
Speaker 3: it all. And the thing that I love about Starbucks
Speaker 3: is personalization slash customization is at the core of who
Speaker 3: we are and what we do. So I'm really optimistic
Speaker 3: about what we can do with food and what we
Speaker 3: can do with beverages to be on trend right protein
Speaker 3: five or forward on the food side of things, and
Speaker 3: then on the beverage side of things, giving you that
Speaker 3: personalization so that you can get the flavor experience that
Speaker 3: you want with the energy experience that you want.
Speaker 1: No olive oil, not right now. All right. You know, Brian,
Speaker 1: you've done a good job so far, and you know
Speaker 1: investors are going to demand a lot more. Done a
Speaker 1: great job turning around other companies. I just have to
Speaker 1: end this by asking you a really hard question hereverse
Speaker 1: Miami University. Yeah, you guys are twenty one to zero.
Speaker 1: First time you guys have really kind of been contender
Speaker 1: since the Wally Serbiak area. It's going to be that
Speaker 1: year where you guys get back to the NCAA.
Speaker 3: You know, Look, it is as an alum of Miami Obio.
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 3: It's a great school. I've got great friends, great memories,
Speaker 3: so it's fun to see them having success. And I'll
Speaker 3: tell you what, I'm watching every game and rooting really hard.
Speaker 1: All right, Brian, we'll really appreciate you being with us here.
Speaker 1: Turnaround going on right now at the Miami Universe. See
Speaker 1: Enter Turnaround at Starbucks