Starbucks may have had a solid fourth quarter, but it’s not resting on its laurels heading into the new year.
The coffee giant, which has nearly 30,000 locations worldwide, held its biennial investor day Thursday, giving analysts and shareholders a glimpse into what is in store for the company in 2019 and beyond.
It’s no secret that Starbucks has been struggling to get diners in the U.S. to frequent its cafes. While sales have been positive, foot traffic continues to stagnate.
Same-store sales, a key metric in the restaurant industry, have dwindled over the last year as customers have balked at some of Starbucks’ limited-time offerings. Comparable-store sales exceeded expectations in the latest period, rising 4 percent, but much of that was due Starbucks charging more for its lattes.
To remedy Starbucks’ sales woes, the company has shifted its strategy more towards cold beverages, which make up the majority of customer orders, and have sought to be more discerning in where it opens new stores. Starbucks executives told investors Thursday that the company plans to continue leveraging its strong digital presence and growing loyalty members as well as work with crew members to make the Starbucks environment more hospitable.
Decadent drinks topped with whipped cream are taking a back seat at Starbucks.
Starbucks’ blended Frappuccino beverages, which were once a major driver of sales growth for the company, are no longer resonating with customers. At the height of their popularity, these quirky treats helped bolster sales and got people to walk through the door in droves. That interest, however, has been waning.
But, the interest in cold beverages is not.
The company is now throwing more support behind its refreshment category, which includes Teavana branded iced teas and “Refreshers,” a line of fruity, lightly-caffeinated drinks. These beverages tend to have fewer calories and less caffeine than their coffee counterparts.
In addition, Starbucks is also leaning into its cold brew beverages. Nitro Cold Brew, cold brew coffee that has been infused with nitrogen, will be made available to all of its 8,500 company-owned stores in the U.S in 2019. Previously, it had only been in 2,500 stores.
Roz Brewer, chief operating officer at Starbucks, said that this beverage tends to be a “more habitual product” that is growing in popularity with customers. The drink also helps differentiate the brand from competitors like Dunkin’ Donuts and McDonald’s, which also sell espresso-based beverages.
In the last decade, digital and mobile ordering have become increasingly more important in the restaurant industry. Customers are looking to get their food faster and more conveniently. Apps like Starbucks Rewards helps make this happen.
While Starbucks has offered mobile payment since 2009, it didn’t launch its mobile order and pay option until 2014. By 2016, 5 percent of all orders were processed through Starbucks mobile app. In 2018, that number grew to 12 percent.
Much of this growth is due to the loyalty of the customers that use its app. Starbucks Rewards accounts for 14 percent of all transactions at the cafe and has more than 15.3 million members, a 15 percent jump from last year.
In addition, Starbucks Rewards members drove nearly 40 percent of sales in the U.S., the company said.
For non-Rewards members, the company has been building an email list and sending promotions. In the fourth quarter, Starbucks grew the number of registered customers to 10 million, up from 6 million in the third quarter.
The average digital and mobile check tends to be much higher than an in-store transaction. Customers have a longer time to peruse the menu and the company has a better opportunity to upsell other items before they check out.
On Thursday, Starbucks said it would partner with Uber Eats to offer delivery and help entice diners to spend more money at its cafes. The company expects to bring Starbucks Delivery to about a quarter of its U.S.-based, company-owned stores by the end of the second quarter.
During a pilot test in Miami, Starbucks said that delivery tickets were 2.5 to 3 times larger than a traditional in-store check. However, company’s like Uber charge a percentage to a company for each order, so it is unclear how much Starbucks is making on these transactions.
“Starbucks observed in the pilot stronger delivery sales in the underperforming afternoon daypart, though we are skeptical of coffee delivery gaining traction as simply put, it defeats the purpose of a coffee break,” Andrew Charles, analyst at Cowen, wrote in a research note Friday.
Not to mention, many customers may balk at the around $5 delivery charge Uber typically tacks onto the order.
Not all of Starbucks strategy will be seen by the consumer, however.
With more than 14,000 locations in the U.S. alone, Starbucks is the second-most common restaurant chain and that saturation has hurt the chain. Having so many locations can cannibalize sales and lead to fewer transactions at individual stores.
In 2019, Starbucks is expected to shutter 150 under-performing locations, three times the amount it typically does, in the hopes that this will help right the ship.
While growth in its China arm will be mostly focused on adding new units, something Starbucks does every 15 hours, growth in the U.S. will be more measured going forward.
In addition to more tempered store growth, Starbucks also identified weaknesses in its in-cafe operations.
Starbucks determined that 40 percent of a baristas time was being spent on tasks that did not involve the customer. So, it moved these “remedial tasks” from being done during the day to be done after closing.
Brewer said that baristas were leaving their station around 22 times per hour to do these tasks and their time would be better served interacting with customers.
Other restaurants like McDonald’s are also adopting this kind of hospitality model. In some remodeled McDonald’s locations, there are designated staff members that bring orders to tables, help customers use the kiosks and to greet incoming diners.
This model has proven particularly effective at Chick-fil-A. The privately held chicken restaurant is known for its customer service, with customers taking to social media often to praise staff members for going above and beyond to help diners.
Starbucks has been working hard to brand itself as a “third-place,” a place between work and home for customers to relax, enjoy a cup of coffee and feel a sense of community. This is especially evident in its upscale Roastery locations.
On Friday, Starbucks’ newest Reserve Roastery location opened in New York City. The nearly 23,000 square-foot location was designed to be a cozy haven for coffee fanatics looking to not only get their caffeine fix, but and up close and personal experience with Starbucks’ roasters, baristas and craft mixologists.
So far, Starbucks has locations in Seattle, Shanghai and Milan. Roasteries in Chicago and Tokyo are slated to open in 2019.
In the year that the Shanghai location has been opened, Starbucks has recorded over a million customer occasions. And at its Milan location, which has been open for three months, there is still a line out the door and stretching down the plaza just to get in.