Operations
Starbucks CEO: 'US sales have fully recovered'
Starbucks CEO Kevin Johnson not only outlined the five consumer behaviors driving the chain's strategy but also revealed how artificial intelligence and store closures were helping it to move forward.
April 28, 2021 by Cherryh Cansler — Editor, FastCasual.com
Starbucks Corporation reported Tuesday evening that Q2 revenues hit $6.7 billion, up 11% from the same 13-week period ending March 28 in 2020. Net profits more than doubled, reaching $659 million from last year's $328 million, and shares on a non-GAAP(adjusted) per-share were also up 62 cents from 2020's 32 cents.
CEO Kevin Johnson told investors during an earnings call that because so many people — including himself — have lived this past year feeling isolated, they have a powerful craving for human connection and feel part of a community, which is what Starbucks offers.
"...With vaccination programs underway and in turn consumer mobility, we have begun to see what we describe as the great human reconnection," he said. "This is evidenced by our Q2 sales in the US, which fully recovered in the quarter as we had previously communicated, and the forward momentum across our business around the world as the COVID-19 vaccine distribution progresses at varying rates."
Consumer behavior, Johnson said, will continue to guide the company's strategy well beyond the pandemic, as he believes many of the emerging behaviors are here to stay.
"Our ability to move with speed and agility and to be out in front of these shifts has helped further differentiate Starbucks, positioning us well for the future," said Johnson, who outlined the five most notable consumer behaviors in which the chain was focused. They include:
- Human connection.
- Convenient, personalized experiences.
- Consistency.
- High-quality offerings that support the well-being of the planet and society.
- A desire to support brands with strong values.
"Not only have we been adapting to and benefiting from these consumer behaviors, but we also see a clear opportunity to further modernize and reinforce our leadership position, leveraging our strength in technology and predictive analytics as well as the continued transformation of our store portfolio, offering experiences that will drive greater customer loyalty in ways only Starbucks can do, "Johnson said.
Digital leading growth
Digital sales were the quarter's largest contributor with Starbucks Rewards members making up 52% of U.S. company-operated sales. Total 90-day active members grew by over 1 million members in Q2 to 22.9 million, and mobile orders represented 26% of U.S. company-operated transactions, up from 18% a year ago, Johnson said.
Deep Brew coming on strong
Another important aspect of the chain's digital strategy included the artificial intelligence initiative, Deep Brew, which automates daily inventory orders across hundreds of U.S. locations with all stores eventually moving to the platform.
"It is supporting partner scheduling and optimizing it in ways that improve both the customer and the partner experience," Johnson said, adding that it drives the company's pandemic dashboard used by retail leaders. "Deep Brew is now doing predictive analytics to model vaccination progress in key markets around the world.
"Our work in AI is providing Starbucks the underlying predictive models, enabling us to fuel the great human reconnection by freeing up partners to do what they do best, connect with customers and deliver a world-class customer experience."
Drive-thru fueling business
Starbucks is continuing to invest in its drive-thru business, which has improved quarter-over-quarter since the onset of the pandemic. Enhancements include adding handheld order devices as well as more efficient warming ovens and the accelerated deployment of Mastrena espresso machines, which Johnson called "more efficient."
As a result, drive-through saw a slight improvement in out-the-window times versus the prior year,.
"(It) drove over 50% of net sales in Q2, increasing more than 10% from pre-pandemic levels, unlocking capacity and enhancing the customer experience by reducing wait times, ultimately fueling our business recovery," he said.
When closing stores is a good thing
During the call, Johnson also gave an update on its store closure plan, the Americas Trade Area Transformation, which he first revealed last summer. It calls for shuttering up to 400 company-operated stores to leverage new store formats like Starbucks Pickup in dense metro areas that complement traditional café formats in suburban and rural areas. He said the strategy will help the company balance growth in high-volume and high-margin locations — primarily in cafes with drive-throughs.
"We called this early, and in just nine months we have already completed 70% of the strategic store closures, clearing the way for the development of new, innovative and more efficient retail store formats over time," he said.
We are responding to customers' increased desire for convenience, while also improving the overall profitability of every trade area.
"As the great human reconnection gains momentum and in anticipation of behaviors and daily routines continuing to evolve, we are meeting our customers wherever they need us to be with the right store in the right place and at the right time, yet another key differentiator of the Starbucks brand.
Q2 Fiscal 2021 Highlights
- Global comparable store sales increased 15%, driven by a 19% increase in average ticket, partially offset by a 4% decline in comparable transactions
- Americas comparable store sales increased 9%, driven by a 22% increase in average ticket, partially offset by a 10% decline in comparable transactions; U.S. comparable store sales increased 9%, driven by a 21% increase in average ticket, partially offset by a 10% decline in comparable transactions
- International comparable store sales increased 35%, driven by a 26% increase in comparable transactions and a 7% increase in average ticket.
- China comparable store sales increased 91%, driven by a 93% increase in transactions, slightly offset by a 1% decline in average ticket.
- Opened five stores, yielding 3% year-over-year unit growth, ending the period with 32,943 stores globally, of which 51% and 49% were company-operated and licensed, respectively
- Consolidated net revenues of $6.7 billion increased 11% from the prior year
- Non-GAAP earnings per share of $0.62, up from $0.32 in the prior year
- Starbucks Rewards loyalty program 90-day active members in the U.S. increased to 22.9 million, up 18%
About Cherryh Cansler
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