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00:00I'm here right now with Brian Nickel, fresh off his investor day here in New York City and fresh
00:05off an earnings report that actually seemed to please a lot of investors. You're five quarters
00:09right now into your tenure as CEO of Starbucks. And you put together a couple quarters of growth,
00:15something that the company hadn't seen in quite some time. Yeah, it was it was a great quarter
00:20for us. You know, the thing that was really exciting is to see the growth was driven by
00:23transactions and also the fact that the initiatives that we put in place around operating
00:29supporting our partners with the Green Apron service model and then really getting back to
00:34great customer service, I think really showed it showed up in the results this last quarter. So
00:40we're pretty excited. So when you say transactions, are you getting more people in the store?
00:44Yeah, that's exactly right. So what was great to see, too, is the growth in transactions came from
00:49existing customers that are in our rewards program as well as customers that are not in our rewards
00:55program that, frankly, we had been struggling to recreate kind of reclaim momentum with that group.
01:01And in this quarter, we had both groups growing in visits. And as a result, our market share increased
01:07in visitation as well. I'm curious about the actual amount of money that they're spending as far as a
01:12growth in tickets. That was actually a little bit underpacing what you actually saw in transactions
01:17themselves. What explains that? That's right. So, you know, we saw about a little less than a point
01:22of ticket growth. And that's really driven by the fact that we've launched this new program around
01:28protein. So you can get a protein cold foam on any drink and that's a modification. And then
01:34obviously the balance of the growth came from just more people coming to Starbucks either more often
01:39or coming back to the brand that hadn't been here in a while. Since you took over, you've put a big
01:44emphasis on, I guess, reimagining the stores to a certain extent. This may seem like a dumb question,
01:49but why? I mean, when I look at where your revenue comes from, a lot of that is coming from
01:53the drive-thru. It's coming from takeout on the apps. It's coming from delivery. But you've put
01:57a big emphasis on the in-store experience and I don't understand why. Yeah, sure. Well, thanks for
02:02the question because I do believe Starbucks is defined by the cafe and the coffee house experience.
02:09That really is where you get the human to human connection with our baristas. It's where you see the
02:13craft of Starbucks. And then you also get just the soul of Starbucks. So, you know, our in-store
02:18business is still over 20%. The thing that I always like to remind people too is people access
02:24Starbucks in all these channels. So, they may go via the drive-thru or mobile order Monday through
02:29Friday. But Saturday, when they've got a little bit more time to dwell, they want to hang out in a
02:34great space. And so, just this past month, the data I saw is 60% of our customers made at least one
02:40purchase from the counter. And that doesn't include our mobile order pickup people that come into the
02:45store to pick up their coffee or their drink or their food. So, you know, obviously, the entire
02:51business works because we have the right access modes, right? Mobile order pickup, delivery, drive
02:57through, and then obviously the in-cafe. But I just believe the cafe experience and this idea of a
03:02community location, the third place, it's critical to people and it's critical to what makes Starbucks
03:09Starbucks. It's who we are. And you think that's what customers want? Because we've seen some new
03:13entrants into the coffee space, both domestically as well as some folks like Luckin coming to the U.S.,
03:18taking a much different business model, basically grab and go more or less. Yeah, the thing I like
03:22to remind everybody is we actually execute those channels, right? So, we have a mobile order pickup
03:28business, which is one of the competitors. We have the biggest drive-thru business. It's well over a
03:34$10 billion business. It actually would be a Fortune 500 company just on its own. So, we know how to
03:40operate and give great experiences in all access modes. What we've seen over and over again, though,
03:46is when we have all these channels with a great coffee house, we really are unmatched. And so,
03:51that's our point of difference. And that's not to say we can't be great in these other access modes
03:56and compete effectively. I mean, that sounds great on paper, but that sounds also complex. I mean,
04:00how do you maintain the integrity of everything when you're trying to have this experience in store
04:04at the same time somebody wants to grab and go or a delivery driver showing up to grab an order as well?
04:09All right. And that is why it's so important that we get this Green Apron service model dialed in.
04:14And really, at the foundation was making sure we have the right number of people on the roster,
04:19the people are deployed correctly, our partners then know what they're accountable to execute.
04:25And what we've been able to see is between technology and, I think, simplification of the
04:30actual operating model, our partners can do a great job. A cafe experience happens in less than
04:35four minutes from order to drink with a personal handoff. Mobile order, we're more on time and
04:41accurate than we ever have been. And our drive through during peaks are below four minutes as
04:45well. So, it can be done, but we have to be intentional about it. And, you know, we have to
04:50set our partners up to be successful to operate that omni-channel experience. So, you know, I love the
04:58fact that we're seeing the success that we're seeing. And I love that, you know, people are talking
05:02about the Starbucks experience again. Like, that shine, that soul that really is magnetic.
05:08That vibe, as I think one of your executives said yesterday at your Investor Day is back.
05:12Yeah, yeah.
05:13The cultural relevancy for Starbucks, that's back?
05:15That's back as well. Our marketing, our menu innovation, one of the things we set out to do
05:21as part of this turnaround is get back into culture, get back to leading culture. And, you know,
05:26you got to do that with the right drinks, the right food, and then, frankly, the right representation
05:31of the brand. Showing up in the right places at the right time with the right communication. And
05:35Tressie Lieberman, who leads our marketing efforts, she's done a phenomenal job. We are,
05:41in my opinion, Starbucks is back.
05:43Well, speaking of her, I had your Investor Day yesterday. She talked a lot about your rewards
05:47program. It's relaunching, being reimagined, I believe, in early March. Talk about the need to
05:53retain your existing customer base, but how that rewards program helps, if at all, in bringing in new
05:59customers, those who aren't exposed to Starbucks on a daily basis.
06:02Yeah, so, look, we got a lot of feedback on the rewards program. It's been a great program,
06:06but the feedback we got was it's not very personalized. And so, really, what the team has
06:11done is made it more personal. And the feedback we get from people that don't participate is like,
06:16look, you know, maybe I don't go to Starbucks with enough frequency to really benefit from the
06:21rewards program. We're changing that because now, when you get into the green tier, and there's
06:25three tiers now. So, you're going to have the reserve tier, the gold tier, and the green tier.
06:30And reserve is the top.
06:30Reserve would be the top. You know, you'll actually get a black reserve Starbucks card,
06:35which, you know, will be pretty cool because everything seems to be so virtual anymore.
06:40I think people like every once in a while to get something tangible. But the green tier then allows
06:44you to redeem stars, and you can get, you know, a reward with not that much engagement. And so,
06:51it just gets people to be more connected to the brand. And then, ideally, over time,
06:56you know, they'll migrate into gold. Or, you know, for some of those folks that migrate into
07:00reserve, I think they'll find it's a really special experience.
07:03You've managed to sort of get sales back up. There are still some analysts that look at some
07:07of the growth rate that you have. 4%, I think, was it in the most recent quarter. I think your
07:11guidance is, what, 3% to 5%, a little bit longer term. But there are some analysts that are looking
07:15back to the heyday from a decade or two ago when Starbucks was more mid-single digits and even up into
07:21the teens. Is that even realistic to get back to those levels?
07:24Look, I've looked at this as I've come in. And a company at our scale, you know, we have 40,000
07:30coffee houses around the world, over 400,000 Green Apron partners. I think if we can consistently
07:37deliver a comp that is 3% or better, you know, revenue growth that is, you know, 5% or better,
07:44and then earnings growth that outpaces that, that would be world-class. And we're a world-class
07:50company. And we will deliver, I think, world-class results as we get going on this turnaround. So
07:55make no mistake, we are a growth company at scale, which is really exciting, I think.
08:01On the top line, when does the bottom line catch up?
08:03So the bottom line, you'll start to see us make improvements, I think, as we get into the back
08:09half of this year and then every year from here on out. And that's really what we guided people
08:13towards is we'll get into the 13% to 15% range on margins here by 2028. And then actually,
08:21that's just, I think, a mile marker. There's opportunity for us to grow even beyond that.
08:25What's holding back that margin expansion, that profitability right now?
08:29You know, look, initially, we had to do some reinvesting in the business to get, again,
08:34the right people. We invested over, I think it's $500 million, close to $600 million into
08:39the labor experience. And, you know, the best way for you to then start driving earnings is we've
08:47got to get the top line going. We've done that. And then, obviously, we'll work on the middle of
08:52the P&L as well on the cost side of things, which we've got clear line of sight on how over the next
08:57two years, we'll probably be able to save close to $2 billion while we're growing the top line.
09:02So it's a combination of growth and smart cost management.
09:07I am curious, at least here in the U.S., with regards to those growth plans,
09:11how much have you taken into account the economic environment? I mean,
09:14a lot of your products are still, if not premium, certainly proceed as premium-priced products here.
09:20Does that work against you if we do end up in an economic downturn?
09:23You know, look, I think at the end of the day, the thing that I'm excited about is people are saying
09:27the experience they're getting at Starbucks, the whole package, they're saying it's worth it.
09:32And we're seeing some of our highest scores through consumer-claimed statements.
09:39And that's why I think it's so important that we have this great cafe experience.
09:43We have this great customer experience where it's a connection between our barista.
09:46And then, look, we've always been unwavering in the quality of our coffee, our drinks,
09:51and the ingredients that we use.
09:53So, yeah, you know, we're going to be an affordable luxury item.
09:57But if you look at it, we're priced pretty darn competitively.
10:01And then I think for what you get, for the premium that we provide,
10:07I think customers are saying, yeah, you know, I'm all in on that.
10:10Do you think you have that pricing power right now?
10:12Should you feel like you need to pull that lever?
10:14You know, look, pricing is one of those things that will always be the last lever that we'll pull.
10:18There are times where you do have to put some pricing into the business.
10:23You know, but fortunately, we've been able to hold off for the last little more than a year.
10:28So we'll see how things evolve.
10:32But, you know, if we need to do it, we'll do it very strategically.
10:36And we'll try to do it as minimal as possible.
10:38You're spending a lot to revamp your stores.
10:40I know that's a temporary cost in theory.
10:43But there are other additional costs you're having to deal with, including labor costs
10:46and things that are going to be more longer term and permanent.
10:49How is that factored into the forecast?
10:51Yeah, you know, look, obviously, you always have to think through what does it cost
10:56in order to make sure we maintain the integrity of the experience.
10:59And right now, we're having to come back in.
11:01We call it our coffeehouse uplift program, where we are just basically re-touching all of our cafes.
11:08So we want to have great seats, great atmosphere, a place that feels warm, a place you want to be.
11:14And then, obviously, we have been and will always be some of the best benefits, best wages you can find as a partner.
11:23And so when you look at it in retail, there's no doubt we have one of the best jobs in retail.
11:28You know, and that's the reason we can also see it is we have the lowest turnover in our industry by a lot.
11:35Our turnover is below 50 percent at the hourly level.
11:38In this industry, turnover is usually over 125 percent.
11:41So we're definitely doing something right.
11:44And the feedback I'm getting from our partners is they definitely feel supported, they're engaged,
11:49and they love doing the work that they're doing.
11:50I am curious, though, about some of the unionization drives that kind of predated you,
11:55but obviously still there as well.
11:57Have you spoken with those unions in any sort of meaningful way recently?
12:01Are they still demanding more than what you've already offered?
12:03You know, look, I think we've talked about this.
12:07I'd love to be able to find a deal so that we could, you know, get a contract and move on.
12:13But it's going to have to be reasonable, and it's going to have to reflect the fact that we are the leader in benefits,
12:19wages for people that work 20 hours or more in our company.
12:22Because it has to be sustainable so that all 400,000 partners and all 250,000 partners in the United States can continue to have a great experience,
12:32a great career, and, you know, frankly, get great development and growth personally and professionally.
12:38So, you know, we're always going to continue to have the conversation.
12:42And, you know, I'm a believer in that you can find a solution,
12:46but it's going to have to be reasonable so that everybody can be successful long term.
12:50The U.S. is obviously your primary market,
12:52but Starbucks for quite some time had made a real big push into China.
12:55At one point, you were the largest coffee chain in China.
12:58You've retrenched from that just a little bit,
12:59and you've recently entered into a partnership to effectively sell off the majority of that business to the private equity firm, Boyu.
13:06What is Starbucks going to look like, particularly in China and the rest of the countries?
13:11Yeah, look, I think the one thing I want to be clear on is we do believe China is a tremendous growth market.
13:18You know, today we have over 8,000 coffee houses.
13:21We believe with our partner, Boyu, that could be 15,000, 20,000 coffee houses.
13:27And they are the great, they are a great partner for growth.
13:31And part of the reason why we decided to do this is for our next chapter of growth,
13:35we just believe we needed a local partner to help us kind of figure out how we can grow faster.
13:40Because one of the things that has really, I think, been exciting to see,
13:44and on the other hand, kind of like, whoa, is the coffee category is really growing.
13:48And, you know, some of these competitors that have emerged in China have just, I think, really ramped up their new unit growth.
13:55And so we're going to have to get more competitive in our new unit growth story.
13:59And I still believe at the end of the day, we have the best product and the best experience.
14:04So I believe that will set us up for success.
14:06And I think that's why Boyu is so excited to partner with us, because they see the opportunity as well.
14:11You talked at your investor day about this being sort of an asset life model that you're taking there.
14:16Does that also mean that investors should expect maybe slimmer margins because of the fact that you have to share a lot of that money with Boyu?
14:24No, you know, and look, the way we've structured it is, obviously, the partnerships are in the cases where we have full license scenario.
14:33We don't end up deploying our capital into the markets.
14:36We support the licensee in a different fashion through, you know, marketing and menu and technology and, you know, design.
14:45So it just becomes less of a requirement on our capital.
14:49But it's still, you know, in most cases, you see the margin actually rise and becomes margin accretive.
14:54To the total business.
14:55And the thing that's really exciting is there's so much opportunity for growth.
14:58And when you have these local partners in these international markets, we just end up, I think, getting access to the premier real estate and at a speed that we couldn't do from, you know, our Seattle offices.
15:10I am curious about the scale of this business, particularly in light of some of the businesses that you ran before relatively successfully.
15:17For those who don't know, a former brand manager at P&G, you went on, turned around Taco Bell, you turned around Chipotle.
15:22Now you're at your Starbucks.
15:23Is Starbucks too big to handle right now?
15:26Oh, no.
15:26The thing that's great about Starbucks is the brand is beloved.
15:30It's iconic.
15:31And when you go around the world, there's no doubt that people want to engage with the Starbucks brand.
15:36And as I was looking at the U.S., I think we just moved too far away from what made Starbucks Starbucks.
15:42And I think you were at our investor day yesterday.
15:44And I think Mike said it really well, which is we don't need to change who we are.
15:48We just need to be great at who we are and what we do.
15:50And that's what we're getting back to doing intentionally, right?
15:54So it's like we're going to be intentional about that barista to customer interaction, the customer experience you get.
15:59We're going to be intentional about making sure you have a great seat.
16:02We're going to be intentional with the menu, the marketing, the digital experiences that we provide.
16:07And what I've seen just most recently from this quarter is when we do that with excellence, you know, we get rewarded with customers' business and loyalty.
16:15And you're going to be intentional about the locations.
16:16I mean, under your predecessors, there was a big expansion plan where, at least here in New York City, I mean, you can walk down a single block and have like five Starbucks, you know, all competing against each other.
16:25That's retrenched a lot.
16:27Do you go back to that?
16:28Well, look, I think there are opportunities for us to continue to grow in New York City and, frankly, in a lot of communities around the United States.
16:37We talked about this yesterday.
16:38We believe we can have 5,000 stores.
16:41We've got line of sight on that.
16:42And as we grow our afternoon day part and grow the economics of the business, we'll probably go well beyond those 5,000 that we've identified.
16:50So you'll see Starbucks continuing to bring new stores.
16:53We want to be smart about where we locate them so that it's the right place for the customer, most importantly, and then also so that we can, you know, attract and retain partners to have a great experience working in the stores.
17:05Most of your revenue is still weighted to the morning.
17:07You mentioned the p.m., if you will, afternoon, what actually gets people not only in the stores in the afternoon hours, but also spending more?
17:15Yeah.
17:16Well, so we have an afternoon business today, but I think there is a multibillion-dollar opportunity to grow our afternoon day part.
17:23You know, as we get the cafe set up to be a great place for you to, you know, kind of reset, recharge, whatever you want to do,
17:30and we pair that up with the right beverage and ultimately the right food, I think there's no reason why we can't have as strong of an afternoon day part as we have in the morning.
17:41And speaking of food, you are making some major menu changes.
17:44One thing I noticed at the investor day, there were a lot of non-caffeinated beverages now that are coming down the menu.
17:51Why?
17:51Well, I think we were sampling a lot of the things that we think are going to be right for the afternoon.
17:57And, you know, we talked about our new energy refresher platform where you'll be able to do, you know, completely decaffeinated to what is our standard caffeination
18:06and then add a little bit more and you'll be able to customize this.
18:10So, you know, we want to have the right drinks for you, whether it's morning or afternoon.
18:16And what we're seeing is in the afternoon, some people in certain cases aren't looking for caffeine.
18:21In other cases, they're actually looking for more caffeine.
18:23So we need to be able to provide it all.
18:25And the thing that I love about Starbucks is personalization slash customization is at the core of who we are and what we do.
18:32So I'm really optimistic about what we can do with food and what we can do with beverages to be on trend, right, protein, fiber forward on the food side of things.
18:41And then on the beverage side of things, giving you that personalization so that you can get the flavor experience that you want with the energy experience that you want.
18:49No olive oil?
18:50Not right now.
18:52All right.
18:53You know, Brian, you've done a good job so far and, you know, investors are going to demand a lot more.
18:57You've done a great job turning around other companies.
18:59I just have to end this by asking you a really hard question here.
19:03Miami University.
19:04You guys are 21 and 0.
19:07First time you guys have really kind of been contenders since the Wally Serbiak area.
19:10Is this going to be that year where you guys get back to the NCAA tournament?
19:15You know, look, it is, as an alum of Miami of Ohio, it is great to see the success the team is having and Coach Steele is having.
19:23You know, I was at Miami.
19:25I graduated in 96.
19:27So after I graduated, we had that great run with Wally Serbiak, and it was fun to see.
19:32They got to the Sweet 16.
19:33It's fun to see the students having a great time, and it's fun to see the school on the national stage.
19:38It's a great school.
19:39I've got great friends, great memories, so it's fun to see them having success.
19:44And I'll tell you what, I'm watching every game and rooting really hard.
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