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CBS News
01-05-2025
- Business
- CBS News
Starbucks' latest strategic pivot involves less automation, more baristas
Starbucks is rethinking the role of "innovation" in running a coffee chain. After rolling out a new system of technical enhancements to streamline cold food and drink orders, the company made an abrupt U-turn this week and said it would halt use of its automated equipment and restore the human touch by bringing more baristas on board. The reboot comes at a delicate time for the restaurant giant, which is under pressure to boost sales and revive a brand that has lost its luster with some customers. Although Starbucks remains profitable, its sales slowed last year. In the company's most recent quarter its revenues rose 2% to $8.7 billion, falling just short of Wall Street analysts' forecasts of $8.8 billion. In a bid to win back customers, starting in May Starbucks will expand its "Green Apron service model" which will involve hiring new baristas at thousands of locations and fine-tuning an algorithm to manage orders, CEO Brian Niccol said on a call with Wall Street analysts earlier this week. "What we've learned over the last couple of months, specifically behind both the algorithm pilot and the labor pilot, is the combination of staffing, deployment and technology gives us the outcomes of a great customer connection experience as well as the right speed and throughput associated with what we want to achieve, both in-cafe, mobile order and drive-thru," Niccol said. What is the Siren system? Named after the twin-tailed mermaid that serves as the face of the company's branding, the Siren system is a series of hot and cold food equipment that Starbucks started rolling out in 2022 to "make crafting beverages and food more straightforward" for workers, according to the coffee chain's website. The Siren System is installed in less than 10% of U.S. company operated stores, according to a Starbucks spokesperson. Building on that platform, Starbucks unveiled the Siren Craft System in July 2024. The technology is aimed at streamlining beverage and food preparation, shortening wait times, and helping baristas deal with the daily flood of orders, including the speciality concoctions the coffee chain has become known for, according to Starbucks. Less than a year later, however, Niccol said the company will halt its deployment of the Siren tech and instead invest more in labor. Focusing on expanding its workforce, the company said, has proven more effective than implementing new tech when it comes to driving growth. "It's not that we're not going to ever use the Siren system," Niccol said in the earnings call. "It's just not something that we need to be rolling out across all 10,000 stores." Starbucks will bring more baristas on board this year at thousands of locations and allow employees to pick up extra shifts, the Starbucks CEO said. The company's hope is that small personal touches — like handwritten notes from baristas on their cups and ceramic to-stay mugs — will keep customers coming in the door and entice them to stay longer. "What we're discovering is the equipment doesn't solve the customer experience that we need to provide, but rather staffing the stores and deploying with this technology behind it does," Niccol said. To be sure, Starbucks isn't turning its back on tech. While Siren is taking a backseat, the CEO also said the company is testing a new sequencing algorithm that has lowered drive-thru and in-store wait times to less than four minutes. Starbucks employs around 361,000 workers worldwide, according to the Associated Press. In February, the coffee chain announced it would lay off 1,100 corporate employees, about 7% of all its white-collar workforce. This did not include baristas who service the stores. How much do baristas earn? Starbucks baristas earn an average of $19 an hour, according to a spokesperson. The company also offers health care, retirement and other benefits, distinguishing it from many retailers. "When you factor in benefits, our comprehensive compensation package averages $30 per hour," the spokesperson said. Starbucks' automation push was part of a larger effort to draw more customers to its stores, known as the "Back to Starbucks" strategy. After enjoying years of rapid growth, the company's progress has stalled, with U.S. same-store sales slipping 2% last year. Looking for a refresh, the company in 2024 brought Niccol — a highly regarded restaurant industry veteran who as CEO of Chipotle had helped the fast-casual chain more than double its business — in as chief executive. In coming aboard in September, Niccol promised to elevate the in-store experience, reduce wait times and boost sales. "It is clear we need to fundamentally change our strategy to win back customers and return to growth," Niccol said during a call with analysts last year. contributed to this report.
Yahoo
30-04-2025
- Business
- Yahoo
Starbucks Corp (SBUX) Q2 2025 Earnings Call Highlights: Navigating Challenges with Strategic ...
Total Revenue: $8.8 billion. Global Net New Store Growth: 213 coffeehouses. Global Comparable Store Sales: Decline of 1%. Global Operating Margin: 8.2%. Earnings Per Share (EPS): $0.41, down 38% from the prior year. US Comparable Store Sales: Decline of 2%. US Transaction Decline: Improved to negative 4%. US Ticket Growth: 3%. Canada Comparable Store Sales: Positive with 12.5% higher food sales. China Comparable Store Sales: Flat with positive transactions and expanding margins. Consolidated Operating Margin Contraction: 450 basis points from the prior year. G&A Decline: 3% versus the prior year. Warning! GuruFocus has detected 2 Warning Sign with JAKK. Release Date: April 29, 2025 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Starbucks Corp (NASDAQ:SBUX) reported a total company revenue of $8.8 billion with a global net new store growth of 213 coffeehouses. The company has launched a new Green Apron service model to improve peak throughput and customer experience, which will be scaled to more than 2,000 US locations by the end of the fiscal year. Starbucks Corp (NASDAQ:SBUX) has seen early indicators of recovery in its North America business, with partner engagement up and turnover dropping to a new recorded low. The Canadian business has returned to positive comps with positive transaction growth, indicating a successful turnaround in that market. The company is focusing on brand and coffee storytelling, with a new US brand campaign that generated record-breaking customer engagement and drove the second highest Monday gross sales day ever. Starbucks Corp (NASDAQ:SBUX) reported a global comparable store sales decline of 1% and a global operating margin of 8.2%, which are below expectations. Earnings per share (EPS) for the quarter were $0.41, down 38% from the prior year, reflecting expense deleverage and heightened investments. The US market experienced a 2% decline in comparable store sales, with transaction declines improving but still at negative 4%. The company's Q2 consolidated operating margin contracted by 450 basis points from the prior year, primarily due to additional labor costs. Starbucks Corp (NASDAQ:SBUX) is facing challenges in China, with comparable store sales flat for the quarter, although there are signs of progress with positive transactions and expanding margins. Q: Can you provide more details on the labor investments and order sequencing over equipment to improve speed and throughput? A: Brian Niccol, Chairman and CEO, explained that the combination of staffing, deployment, and technology is proving effective in achieving the desired customer experience. The company is scaling its labor and algorithm programs to improve service speed and connection, with plans to expand to over 3,000 stores by the end of the fiscal year. The focus is on judicious cost management and leveraging growth to enhance margins and financial results. Q: With margins down in North America, is there a fundamental change in the economics of Starbucks stores? A: Brian Niccol noted that while Starbucks has invested in labor, the assumption that equipment could replace labor was inaccurate. The focus is now on staffing and technology to enhance customer experience, leading to improved transactions. The company is evolving its Rewards program and focusing on quality transactions, which are expected to drive growth and improve margins over time. Q: What are the plans for evaluating the store portfolio and unit growth? A: Brian Niccol stated that Starbucks is reassessing renovation and new build costs to ensure they align with providing a great customer and partner experience. The company plans to slow down current builds to refine design and cost structures before ramping up growth, with the long-term goal of doubling the store count. Q: How is the menu simplification impacting transactions, and what is the approach to innovation? A: Brian Niccol emphasized that simplifying the menu allows for more relevant innovation. The percentage of stores with positive transaction comps has increased significantly, indicating progress. Starbucks is using a stage gate process to ensure meaningful innovation and is building a robust pipeline to support future growth. Q: How is Starbucks addressing potential macroeconomic challenges and protecting US traffic? A: Brian Niccol highlighted the importance of the third place experience, emphasizing connection, speed, and quality. The company is focusing on providing a simple everyday luxury that remains appealing despite economic challenges. Starbucks plans to leverage its innovation pipeline and adjust strategies based on customer feedback and market conditions. For the complete transcript of the earnings call, please refer to the full earnings call transcript. This article first appeared on GuruFocus. Sign in to access your portfolio
