COVID-19 pressures pushing Starbucks to rethink its stores | 2020-07-29

[ad_1]

SEATTLE – Starbucks Corp. is making it easier for customers to stay out of their stores. The company is responding to changing consumer behaviors due to the spread of coronavirus (COVID-19) around the world. Initiatives currently in development include faster drive-thrus, the testing of curbside pickup, and a “blending of store formats” in urban areas.

“The No. 1 thing we can do to continue to grow our same-store comps and the recovery is basically increase the throughput in the channels that are safe,” said Kevin R. Johnson, president and chief executive officer, during a July 28 conference call with securities analysts to discuss third-quarter results.

The company has deployed employees to drive-thru lines at stores to take orders while customers wait. Rosalind Gates Brewer, chief operating officer and group president of Americas, said the effort reduces “window times” and gets food and beverages to customers more quickly.

Curbside pickup is currently being tested in approximately 250 stores and the company has a goal of getting it to 700 to 1,000 locations by the end of the fourth quarter.

“(We’re) really pleased with what we saw in those stores with curbside, which encouraged us to accelerate,” Ms. Brewer said.

She added that the curbside initiative was being tested before the COVID-19 pandemic started.

“This is an acceleration of a plan that we’ve already had,” she said. “We look forward to curbside to give our customers just one more contactless opportunity and our partners a chance to deliver the best customer service to our customers.”

In urban core markets where drive-thrus and curbside are not feasible, Mr. Johnson said the company will reposition store formats to create a blend of traditional Starbucks stores with new Starbucks pickup stores.

“These stores are built in a smaller footprint and create a familiar and convenient walk-through experience that is very relevant to customers in urban markets,” he said. “Each of these Starbucks pickup stores will ideally be located within a 3- to 5-minute walk from a traditional Starbucks store, giving customers the flexibility to enjoy their beverage in our store or on the go. We plan to accelerate the development of over 50 of these stores over the next 12 to 18 months with a view to have several hundred in the US over the next three to five years.”

Pushing management to rethink how it delivers its food and beverages to consumers is the current impact and future uncertainty caused by COVID-19. During the third quarter ended June 28, the company recorded a loss of $678 million. The company earned $1.4 billion the year prior, equal to $1.12 per share on its common stock.

Quarterly sales fell 38% to $4.2 billion.

“In response to clear shifts in consumer behavior and preferences, we are now accelerating strategic initiatives for the future and positioning Starbucks for continued long-term growth,” Mr. Johnson said. “We have moved aggressively to advance our evolution of the store base to accommodate trends that we have long seen emerging in our business that were only exacerbated by COVID-19.”

Revenues in Starbucks’ Americas business unit fell 40% to $2.8 billion and the business unit recorded a loss of $405 million.

“We estimate the decline in Americas revenue and operating income attributable to COVID-19 in Q3 to be approximately $2.3 billion and $1.5 billion, respectively,” said Patrick J. Grismer, chief financial officer. “This equates to a flow-through rate on lost sales of approximately 65% for Q3, which was a significant improvement from Q2 but still materially higher than the 50% variable flow-through rate that we typically observe in our business…”

International unit sales fell 40% to $950 million and had a loss of $86 million.

“The segment’s comparable store sales declined by 37% in Q3 relative to the prior year but exceeded the expectations we shared last month, primarily driven by Japan’s faster-than-expected pace of sales recovery boosted by successful seasonal product promotions,” Mr. Grismer said.

Starbucks’ Channel Development business saw sales fall 16% to $447 million. Operating income was $124 million, a 32% decline when compared to the same period of the previous year.

“This has been a quarter where demand for at-home coffee has soared, and our Channel Development business has demonstrated tremendous resilience and gained market share as customers adjust to their at-home routines,” Mr. Johnson said. “In the US, Starbucks’ share of total packaged coffee grew significantly in Q3, 21% growth in dollar sales, outpacing the coffee category, which grew 13% in the quarter.

“Our domestic ready-to-drink business grew by 11%, gaining 2 points of share in Q3. Our Global Coffee Alliance with Nestle, combined with our ready-to-drink partners, including PepsiCo and Tingyi, have extended our ability to meet customers where they are, which is particularly important in the current environment.”

Management expects comparable store sales during the fourth quarter to decline between 12% to 17%

“While the recent flare-ups of COVID-19 in several parts of the US underscore the persistent uncertainty in our operating environment, we expect continued improvement in our US business in Q4,” Mr. Grismer said.

Looking farther out, he said barring any new major and sustained waves of infection and/or global economic disruptions, Starbucks anticipates comparable store sales will substantially recover in China and the United States in fiscal 2021 by the end of the first and second quarters, respectively.

“Additionally, we expect that margin recovery for each business will trail sales recovery by about two quarters,” he said.

[ad_2]

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *