Customers apparently aren’t discounting Starbucks
Starbucks sales increased in the third quarter thanks to loyal customers and cold drinks
Starbucks’ most loyal customers continued to flock to the chain’s mobile order pick-up stations and drive-thru for their personalized cold beverages last quarter, driving strong U.S. sales despite rising inflation and what company executives have called their own “self-induced” problems.
The Seattle-based coffee giant’s same-store sales rose 9% in the United States in the quarter ended July 3. This included a 1% increase in transactions, while the price increase accounted for 5%. The rest came from customers ordering more expensive items or adding things like food or more personalized options.
Customers are returning more in the morning and sales in urban markets are improving, although they are not completely back to pre-pandemic habits. Either way, the executives said, the economy has no impact on the company’s customers.
“We are not currently seeing any measurable reduction in customer spending or any evidence that customers are shrinking,” Starbucks interim CEO Howard Schultz said Tuesday during the company’s fiscal third quarter earnings call.
That’s not stopping the company from forcing potentially major changes to its operations to address the issues that led Schultz to replace former CEO Kevin Johnson in March on a temporary basis, the company insists.
Since returning to the company earlier this year, “we’ve been able to identify the source of each of the issues and challenges the company is facing upon my return,” Schultz said. “Some are definitely related to COVID. Some were a function of not focusing on the long term and unfortunately many were self-induced.
Schultz, who says he has been “immersed” in all aspects of the business since returning, has been organizing workers across the country to develop strategies that could lead to major changes in the way the chain operates its cafes.
On Tuesday, Starbucks Chief Strategy Officer Frank Britt offered some advice on strategies, including new amenities and potentially new store designs to improve efficiency. The company is also planning changes to its relationships with employees, which it calls “partners,” including better training, security, and better visibility into potential career paths.
These changes come as Starbucks continues to push back on an offer to unionize at a growing number of its locations. More than 200 Starbucks coffee shops have voted to form a union, the most notable advance organized labor has ever made at a major restaurant chain.
Schultz argued that strong demand for Starbucks products has led to many challenges and he continued that argument on Tuesday, saying the company’s performance “masked significant underlying issues” including “designs of stores poorly adapted to changing customer behavior”. and post-COVID” traffic patterns.
Executives said Tuesday that last quarter’s performance helped bolster their argument that there is strong demand for the company’s products.
Schultz noted that three-quarters of Starbucks’ beverage sales now come from cold drinks in the United States, which customers change frequently, often increasing their spending in the process.
These customers are younger Gen Z consumers who take photos or videos of their drinks and post them on social media. “It’s a Gen Z product,” he said. “We have never, in our history, been more relevant to Gen Z than we are today.”
The company’s Starbucks Rewards loyalty program certainly played a major role. There are now 27.4 million Starbucks Rewards members, up 13% from the same period a year ago. They accounted for a record 53% of sales at company-operated establishments.
Loyal members, said chief financial officer Rachel Ruggeri, pay higher prices, buy more premium drinks and personalize their orders more. And they order more food. “We are seeing increasing engagement from our Rewards customers,” she said. “And we think that’s a benefit for us in the long run, especially as we continue to personalize the experience so we can have a deeper relationship with the customer.”
The company is currently working on a new “Web3” initiative to increase these members’ engagement with the company, including a broader set of rewards and experiences. So loyal Starbucks customers can even earn points in the metaverse.
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