Starbucks on Tuesday reported quarterly sales growth in the U.S. that blew past Wall Street’s expectations, and its operations chief credited more staffing in its stores and enhanced employee benefits for the coffee chain’s quickly improving fortunes.
“It really comes from the coffee houses and the partners who empower them, which has been a focal point of this turnaround all along,” Starbucks chief operating officer Mike Grams told Fortune in an exclusive interview after the earnings release. “It’s all led to our coffee houses just simply running more consistently.”
The company said that comparable sales, a metric that strips out the impact of recently opened or closed stores, rose 7.1% in the United States last quarter, the second quarterly increase in a row and well above the 4.5% increase analysts were expecting, according to Consensus Metrix. (Companywide, comparable sales rose 6.1%, while total revenue increased 9% to $9.5 billion.)
Most encouragingly for the company, U.S. store traffic was up again, rising 4.4%, meaning Starbucks continues to win back customers it had lost in recent years because of myriad problems such as long lines for order pickups, inconsistent quality of the items ordered and stores that had eliminated seating or were simply inadequately maintained and uninviting.
To address those in-store problems, under Brian Niccol, the former Chipotle CEO who took Starbucks’ reins in 2024, Starbucks has increased staffing at peak hours, raised wages, and enhanced parental, leave, healthcare and education benefits among other steps.
Some of Starbucks’ moves seem to address complaints the Starbucks Workers United union, which represents about 600 of the company’s 10,000 U.S. stores, has made regarding scheduling and wages. The union and Starbucks agreed last month to return to the bargaining table, with negotiations expected to start soon, the Journal reported. Grams told Fortune that stores, whether unionized or not, are all getting the same treatment regarding scheduling. In a statement to Fortune, union spokesperson Michelle Eisen said there are still workplace problems to solve at the corporation: “The reality of working at Starbucks is that stores are understaffed, and workers struggling to get by, and lack critical on-the-job protections.”
Starbucks said its baristas currently average $30 an hour in total pay and benefits. And that in turn has helped Starbucks execute a turnaround that is gathering steam, according to its executives. Starbucks’ investments had pinched profits in recent quarter, but this last quarter saw profit and sales rise simultaneously for the first time in two years, easing Wall Street’s nerves and sending shares up.
In all, Starbucks has spent $500 million on moves like adding staffing at peak hours to speed up service and make it more accurate. The company has also spent money on increased training for baristas and store upgrades.
Grams said that more staff during the rush periods helps it give green apron partners, as Starbucks calls its employees, more time to correctly read labels on an order, reducing the risk of mistakes. He also said that 95% of employees are getting their preferred schedules and that 98% of available shifts are filled, allowing the coffee store to operate more consistently. The extra staffing has meant more capacity for measures such as having an additional employee taking orders at the register, or more people around to make complicated beverages, or another person around to hand items off to the customer.
In many ways, this focus on staffing is reminiscent of the pay increases Walmart and Target announced starting a decade ago to improve customer service as those retailers reinvented, and the increased staffing we are now seeing at Macy’s that is fueling its comeback. It turns out happier employees who have bought into a transformation or turnaround are good for business.
Another focus of the Starbucks investment has been incentives to retain talent and reduce churn at the store manager level. “Our highest performing coffee houses are far more likely to have leaders who’ve been in the role over a year,” said Grams.
The Seattle-based company also plans to provide bonuses to baristas whose stores meet performance goals, such as sales targets and customer satisfaction. They can earn as much as $300 as a quarterly bonus, or $1,200 for a full year, the company said.
Also boosting Starbucks’ sales have been menu innovations such as protein-boosted drinks and energy refreshers. Starbucks’ comeback has been anchored by a focus on better service, upgraded stores and new beverages, instead of discounts to restore Starbucks’ standing with customers.
“This isn’t just a turnaround, but a reawakening of what’s made Starbucks exceptional in the first place,” said Grams.
Credit: Source link
