Key Starbucks Metrics
Starbucks' fiscal 3Q22 (calendar 2Q22) update was a busy one, capped off by better-than-expected transaction growth and the framework for a ‘reinvention plan’ in the U.S. highlighted by new store formats designed to better accommodate consumer’s evolving behavior regarding coffee orders. Ultimately, it was Starbucks’ commentary about the number of unique visitors being up versus pre-pandemic levels that caught our eye, as it not only reinforces Placer.ai's data but also reinforces the opportunity for increased visit frequency as the company puts its reinvention plan into place and can better accommodate throughput.
- Signs of trade down? Starbucks management says that it hasn't seen evidence of tradedown among its customers in the U.S., citing a 1% increase in visits during the quarter (U.S comparable store sales increased 9%, primarily driven by an 8% increase in average ticket). According to management, the company is "not seeing any measurable reduction in customer spending or any evidence of customers trading down, reflecting the strength of the Starbucks brand, deep customer engagement and loyalty, pricing power, and the premium nature of our beverage and food offerings." Placer.ai data suggests in-store visits (excluding mobile and delivery orders) decelerated throughout the quarter and turned negative in May, though the company is lapping some difficult comparisons in the year ago period. However, we share management’s views that the company’s more affluent customer base should insulate it more than many competitors during a cyclical downturn, as evidenced by Starbucks’ visitation outperformance compared to other coffee chains the past two months.
- Unique visitor growth offers potential AUV upside. In our view, the most interesting data point to come out of the company's update is that while Starbucks’ overall visits are below pre-pandemic (2019) levels, the number of unique visitors is up and reached record levels in the quarter. Placer.ai data (below) supports this statement, as calendar 2Q22 unique in-store visitors in the U.S. (122.9K) are ahead of the comparable period in 2Q19 (116.2K). Management attributed the unique visitor growth partly to increased penetration of Gen Z customers drawn to Starbucks’ expanded assortment of cold beverages (Placer.ai data also confirms a higher percentage of Gen Z visits compared to pre-pandemic levels). In particular, the company noted that its iced espresso platform has become its fastest-growing product category in its US company-operated stores (growing 50% year-over-year and more than doubling year-to-date). This is also creating new customer occasions in the midday and afternoon dayparts. As the company deploys its reinvention plan (more on that in a minute), we see an opportunity to improve frequency among these new unique visitors, which can have a meaningful impact on future average unit volumes.
- Store reinvention plans. As we discussed a few weeks ago, interim CEO Howard Schultz has noted that "record demand in our stores [has masked] significant underlying issues, including…store designs that were ill-suited for the evolving customer behavior and traffic patterns we are seeing post-COVID." While the company will elaborate on specifics behind its store reinvention plan at an investor event on September 13 in Seattle, management laid out broad strokes on the call including: (1) better coordination between retail, operations, and support; (2) improved in-store experience; (3) reimagined stores; (4) new ways to reconnect with customers; (5) better collaboration with its partnerships. We think these initiatives are prudent and can help to improve throughput.
- Loyalty program should also drive frequency. We also see Starbucks’ loyalty program driving future visitation growth. Active Starbucks Rewards membership totaled 27.4 million members in the most recent quarter, up 3.2 million or 13% year-over-year, and 3% sequential. Starbucks Rewards members drove a record 53% of US company-operated revenue. Mobile Order & Pay, drive-thru, and delivery also remain strong, driving 72% of the company’s U.S. revenue.
- Urban rebound? Management noted that it is seeing the morning daypart continuing to rebound, representing 51% of its U.S. sales and showing signs of a return to normal. A big part of this increase is the "urban core opening back up". Management noted that it saw positive comp growth in urban core stores for the fifth consecutive quarter. Starbucks Chief Operating Office John Culver: "We're optimistic that those morning routines are going to start coming back, which will drive higher transactions and probably a little bit lower ticket at that time because those are single transactions at that point in time."