As thousands of small cafes close, Starbucks boss is optimistic

Must read

If homebound consumers have found out how much they can save by skipping their morning lattes, no one has told Starbucks CEO.

the global pandemic Will only briefly halt the growth of Starbucks, beating the industry, Kevin Johnson told the Financial Times, as he remodels cafes, deploys artificial intelligence and increases wages to bolster the competitive advantage of the largest world coffee chain.

“People will be back Starbucks stores at a much higher rate than it was before the pandemic, ”he said in an interview on the eve of a biennial investor day.

Covid-19 has hit Starbucks hard, reducing sales by 40 percent year on year in the three months ending in June. However, Mr Johnson expects his business in China to fully recover in the current quarter and, with the rest of the world also improving, the group’s profits for the year through next September will approach or will exceed the 2019 figure.

He will detail how he plans to organize such a quick recovery at Wednesday’s event – where even the coffee tasting will be virtual, using samples of his holiday mix sent in advance to analysts.

Yet his confidence contrasts with the crisis that is hitting smaller rivals. The United States alone will lose nearly 2,000 coffees this year, predicts Euromonitor, ending years of expansion.

“Small specialty chains, mom and pop cafes. . . don’t have Starbucks balance sheets, ”said RJ Hottovy, consumer equity strategist at Morningstar.

Larger groups have also struggled: Caffè Nero, the UK’s third largest chain, was forced into financial restructuring, while Pret A Manger laid off some 3,000 people.

“There will be a lot fewer cafes,” Hottovy noted. “Starbucks will benefit.”

Mr. Johnson takes a sympathetic tone, saying he is in favor of new government stimulus “to help small businesses of all kinds, even independent cafes.”

But he added, “We have a line of sight to grow faster than the addressable market, which means we’re going to take market share.”

Starbucks annual earnings per share ($) column chart showing Wall Street forecast for rapid rebound after pandemic

Wall Street expects Starbucks to emerge from the pandemic in an even more dominant position. Its market value is up 80% from March lows and 13% year-to-date to near record $ 119 billion.

RBC analysts now see Starbucks as one of the few major consumer companies that can deliver double-digit profit growth in 2022 and beyond.

To do this, Mr Johnson is counting on a radical reassessment of nearly 33,000 Starbucks outlets. The pandemic has highlighted its dependence on pedestrian traffic in business districts and downtown transport hubs, prompting it to rethink the locations and formats of its stores.

in the WE in particular, it is now focusing its points of sale more towards drive-in in the suburbs and pick-up in the city center. And while Mr Johnson plans to open around 2,150 outlets in this fiscal year – around 150 more than last year – he is also closing 1,050 branches, up from 600 in 2019. The effect will be fewer new stores. net this year, with only 50 for the US.

33,000

number of Starbucks points of sale worldwide

This contrasts with Starbucks’ continued expansion in China, its second largest market, where its number of outlets increased 14% in September to over 4,700. The US total, including those operated by licensees, climbed 2 percent over the same period, to 15,300.

The company had continued to pay homeowners during the pandemic, Mr Johnson said, but was looking to renegotiate some rental agreements. With rental costs of $ 2.44 billion for the year through September, the savings could be substantial.

Yet Mr Johnson isn’t abandoning the sit-down coffee format that his predecessor Howard Schultz called ‘third place’ – neither at home nor at work. “This ‘third place’ experience that Starbucks was founded on will be in greater demand than ever in the wake of this pandemic,” he predicted.

Starbucks expects its business in China to fully recover during the current quarter. The company has more than 4,700 outlets in the country, its second largest market © Reuters

Mr Johnson has only entered work about two days a week, but is convinced that talking about the end of the office is overkill.

“You can have digital connections though. . . you want to have these relationships in person, ”he says. “It’s just a part of being human.”

Still, the former head of Microsoft and Juniper Networks is also counting on Starbucks’ technology investments, touting a set of artificial intelligence tools he calls Deep Brew.

It used AI software to turn data feeds on Covid-19 cases into recommendations on how its stores should adapt and to deliver more personalized offers to users of its mobile app and program. loyalty.

Starbucks’ digital push has been particularly aggressive in China, where the proportion of orders placed on mobile phones more than doubled from the year through September to more than a quarter of the total.

“China is sort of a leading indicator of where the digital consumer is heading,” Johnson said.

He stresses that he wants Starbucks to become “world class” in its use of technology not to replace staff “but to free them” to focus on customer service. Transferring inventory management, staffing calendars and other administrative tasks to Deep Brew improved both customer loyalty scores and sales, he said.

It’s part of a carefully calibrated message to investors that Starbucks can put its people and environmental initiatives first without sacrificing long-term financial returns.

As the Covid-19 epidemics closed stores from Shanghai to Seattle this spring, Mr Johnson decided to continue paying employee wages and benefits and to avoid time off or layoffs. This contributed to a loss of $ 678 million in the three months leading up to June, he noted, but “by putting people above profit I believe we have built trust with it. our partners and customers. with our shareholders as well ”.

Starbucks announced last month that salaries for baristas and other employees in the United States would increase by at least 10 percent. The move positions Starbucks for a hike in minimum wages across the country, but Mr Johnson has described it as “one of the biggest investments” the company will make this decade.

Despite the cost, he received no refusals from investors, he added. “Our major shareholders have told us: ‘we fully support what you are doing’. They understand the importance of our culture. “

Starbucks announced last month that salaries for baristas and other employees in the United States would rise by at least 10% © AFP via Getty Images

Juggling Mr Johnson’s goals and profits has helped to increase his market value by $ 36 billion in the two years since his last day for investors, with Starbucks delivering on that meeting’s promise to streamline and generate what he called “large-scale growth”.

His task at this year’s meeting is more difficult. As Starbucks increased its quarterly dividend by a tenth in September, it suspended share buybacks. After issuing around $ 4.75 billion in debt to help the company weather the pandemic, Mr Johnson said he needed to reduce his debt before resuming buyouts.

In the meantime, Starbucks faces new outbreaks of coronavirus cases that prompt authorities to implement more stringent restrictions in California and other major markets. Mr Johnson said his company had learned to ‘watch and adapt’ but relied on widespread vaccination to provide the more stable conditions upon which his plans depended.

“The vaccine will instill a sense of optimism in humanity, although we have to be careful over the next few months while the vaccine is being administered,” he said. “It’s only been a few months. . . I am very optimistic. “

- Advertisement -spot_img

More articles

- Advertisement -spot_img

Latest article