Starbucks projects long-term earnings, revenue growth in double digits as it implements new strategy

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Starbucks Chairman and CEO Howard Schultz speaks at the Annual Meeting of Shareholders in Seattle, Washington on March 22, 2017.

Jason Redmond | AFP | Getty Images

Outgoing Starbucks CEO Howard Schultz told investors on Tuesday that the coffee giant is projecting double-digit growth for revenue and earnings per share as it implements a plan to reinvent the business.

The revenue forecast was slightly better than its previous long-term forecast, which was given in late 2020. Chief Financial Officer Rachel Ruggeri is expected to provide more details this afternoon in her presentation during the company’s investor day in Seattle.

The new strategy is meant to address how the coffee giant’s business has transformed in recent years. Its menu has expanded, and cold coffee drinks now account for 60% of orders year-round and often include add-ons like cold foam or flavored syrups. Rather than ordering at the counter, customers are going through the drive-thru or using Starbucks’ mobile app.

Schultz said Tuesday the company was making “self-induced mistakes” and had lost its way, despite seeing record demand in the U.S. and abroad.

The company’s previous long-term forecast had projected adjusted earnings per share growth of 10% to 12%, revenue growth of 8% to 10% and global same-store sales growth of 4% to 5% for 2023 and 2024. In May, Starbucks suspended its fiscal 2022 forecast, citing lockdowns in China, investments in its U.S. employees and high inflation.

Shares of Starbucks were down 2% in early afternoon trading.

Updating Starbucks cafes

In its fiscal 2023 starting in October, Starbucks plans to invest roughly $450 million to upgrade its cafes with new equipment that will simplify operations and speed up service.

“Our physical stores were built for a different era and we have to modernize to meet this moment,” outgoing Chief Operating Officer John Culver told investors.

Starbucks is also using automation for tasks like taking inventory. Automated ordering will roll out in U.S. stores in the next few years, according to Culver. The company said the shift toward automation is meant to give employees more time to interact with customers and relieve them of the more mundane parts of the job.

Linking loyalty programs

One major change in consumer behavior has been the growth of mobile order and pay. A quarter of Starbucks transactions now come from mobile app orders.

The shift in ordering has been driven by Starbucks Rewards, the company’s loyalty program. The U.S. version had 27.4 million active members as of July 3.

To keep growing its base of loyal customers, Starbucks will link its rewards program to outside loyalty programs, like those for airlines and retailers. Consumers will be able to earn “stars” by shopping elsewhere or turn their rewards points into airline miles.

Chief Marketing Officer Brady Brewer said the company will announce the first U.S.-based partnership in October.

Changes for baristas

The changes in customers’ ordering habits have made cafes less efficient and added stress for employees. Turnover rates peaked in 2021, according to Frank Britt, Starbucks chief strategy and transformation officer.

Over the last year, Starbucks baristas have also been unionizing, expressing dissatisfaction over pay for tenured employees, understaffed stores and other working conditions. More than 230 company-owned Starbucks locations in the U.S. have voted to unionize as of Monday, according to the National Labor Relations Board.

Starbucks has sought to curb the union push by offering better wages and benefits to non-union workers. Those improvements have also helped with turnover rates in the last five months, Britt said.

As the company met with employees to craft its new strategy, Britt said it’s been looking at fixing the barista experience through the lens of product management.

“You assess the needs of consumers, you segment the needs of consumers, you do a test-and-learn agenda to figure out which of the things you thought could be true work,” he told CNBC.

The upcoming changes for U.S. baristas is just “phase one” of a multi-year plan, according to Britt. The company is also looking to improve the experiences of baristas overseas and for the employees who harvest its coffee beans, work in its supply chain and provide customer support.

This is breaking news. Please check back for updates.

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