Key Starbucks Metrics
Starbucks interim CEO Howard Schultz penned a letter to the company’s partners (employees) this week outlining a reinvention of the brand and offering a blueprint for the next chapter of the company. Most of the key initiatives outlined by Schultz appear to be set on improving relationships with the company’s employees as the unionization efforts continue across the U.S.—according to NRN, 2% of Starbucks U.S. company-operated stores have voted to unionize. We see this as a critical step to relieve the “strain” that recent consumer behavior trends have placed on its stores and unlocking Starbucks’s capacity to keep up with demand.
- As we discussed in May, Schultz noted that "shifts in consumer behavior, accelerating demand, and algorithms built for different consumer behaviors" has placed strain on Starbucks stores and that the chain does not have "adequate capacity to keep up with demand". Among the consumer behavioral shifts that led to this strain is widespread adoption of Mobile Order & Pay and drive-thru ordering, which collectively represent over 70% of the U.S. store sales.
- Placer.ai’s Shira Petrack examined weakening visitation trends at Starbucks in a blog post earlier this week, with visits down both on a YoY and Yo3Y basis in June. As the post points out, the coffee category had been one of the strongest performing categories in the restaurant industry since June 2020 from a visitation standpoint, even if consumer behavior had changed over that time period with late morning and afternoon visits replacing some early morning trends. While we believe some of the softer visitation trends that Starbucks pointed during March and April can be attributed to constraint issues, based on commentary from other retailers and restaurants catering to a more affluent audience, it’s likely we’re also seeing some consumers trading out during June and July (below) and being more cautious with their discretionary spending.
- We believe slowing visitation trends might offer an opportunity for Starbucks to improve its capacity constraints. Not surprisingly, Starbucks has some of the highest visits per location in the coffee category. We examined visits per location for 30 of the largest coffee chains in the U.S. during 2021 and found that Starbucks was running more than double the category average. In fact, Starbucks had the second highest visit-per-location average for the category during 2021, trailing only Philz Coffee. While these figures don’t reflect recent visitation trends, they are indicative of the strength of the Starbucks brand, at least heading into 2022.
- However, as we shift the perspective a bit and examine the specialty coffee category on a visits per square foot basis (taking the 2021 visits per location and dividing by the chain average square foot as disclosed by the companies themselves, industry trade groups, or franchisee documents), Starbucks capacity constraints come into focus a big more. Starbucks still remains ahead of category averages when looking at visits per square foot, but we see other players like Dutch Bros (not surprising given the chain’s impressive drive-thru metrics that reinforce Starbucks’ efforts to open its own drive-thru locations) and Caribou Coffee outperforming. Based on these metrics, the company’s decision to invest an incremental $200M in training, wages, and equipment makes sense and should drive improved visits-per-square-foot trends as its relationship with employees improves and demand returns (which may still be a few quarters off given current macro headwinds).