Starbucks reveals expansion and cost-cutting plans

Starbucks cups are pictured on a table in Manhattan, New York, on February 16, 2022.

Carlo Allegri | Reuters

Starbucks On Thursday, it presented the latest stage in its plan to drive the company’s growth, which includes accelerating its global footprint and saving $3 billion in costs over the next three years.

The company said it plans to expand to 35,000 locations outside North America by 2030. Starbucks currently has approximately 20,200 global cafes, as of October 1. In total, the coffee giant aims to reach 55,000 locations globally by 2030, up from its current position. The number is more than 38,000

“Three out of every four new stores are expected to open in the near term outside the United States as our store portfolio becomes increasingly global,” Michael Conway, head of international divisions and channel development at Starbucks, said during a company presentation.

Starbucks also announced a $3 billion cost-savings plan. Executives said $1 billion of those savings will come from making its stores more efficient. The rest will come from cost of goods sold savings.

The final part of what Starbucks called its “triple reinvention strategy,” announced Thursday, calls for baristas to increase wages and double their hourly earnings compared to fiscal 2020 earnings by the end of fiscal 2025. That jump will come from increased hours and higher pay. Starbucks said it will share more details next week.

The announcement comes after more than 350 Starbucks locations have unionized under the United Workers umbrella, according to data from the National Labor Relations Board. Starbucks and the union have not yet reached a collective bargaining agreement at any of those locations, and both the union and the NLRB have accused Starbucks of violating federal labor law, including illegally withholding wage increases at union stores. The company denies all allegations of union busting.

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Momentum brewing

Earlier on Thursday, the company It announced its financial results for the fourth quarter. Starbucks beat Wall Street estimates for both its quarterly earnings and revenue, sending its shares up 9.5%. The stock move reversed stock losses earlier this year, giving the company a market value of $115 billion, as of Thursday’s close.

During the company’s conference call, CEO Laxman Narasimhan said the company’s “reinvention” plan unveiled last September is progressing ahead of schedule, driving increased sales and efficiency for Starbucks. For example, the new single-cup drip coffee maker has now been installed in more than 600 locations.

More broadly, this plan targets many of the problems that have plagued Starbucks and its baristas in recent years. Drink orders are becoming more complex and time-consuming, as cold drinks become more popular and Starbucks introduces more expensive add-ons like cold foam. Customers have also turned to ordering their drinks through the company’s mobile app and drive-thru lanes and expect their orders to arrive more quickly. Under this pressure, baristas have struggled to maintain fast service and a high-quality customer experience.

Former Starbucks CEO Howard Schultz unveiled a reinvention plan to streamline operations and improve service quality and speed more than a year ago. The strategy includes new coffee-making equipment and store formats as well as more automation.

Schultz, who later returned to the company for a third term in the company’s top job, said Starbucks made “intentional mistakes” and lost its way. He resigned from his position in March, handing over the reins to Narasimhan, a newcomer to the company who pledged to implement the plan.

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At its Investor Day last September, Starbucks forecast earnings per share growth of 15% to 20% annually over the next three years and annual same-store sales growth of 7% to 9%. The company’s same-store sales forecast of 5% to 7% for fiscal 2024 falls short of that range, but the rest of its forecast for next fiscal year meets those goals.

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