Starbucks Corp. interim chief executive Howard Schultz outlined a wide-ranging revamp of the coffee chain on Tuesday, ranging from cafe upgrades to expanded employee benefits, which he said is necessary to put the company on track for a turnaround by 2024.
Starbucks over the coming year plans to spend hundreds of millions of dollars to update its stores, aimed at improving customer service and reducing employee turnover.
The company expects to spend between $2.5 to $3 billion annually through its 2025 fiscal year to build new types of stores and deploy updated equipment across locations, it said.
Mr. Schultz, in outlining Starbucks's planned operational overhaul at an investor meeting at the company's Seattle headquarters, said stepped-up spending on cafe operations and worker benefits would pay off in higher sales and profits.
The company said it expects global sales growth of 10% to 12% annually from its 2023 to 2025 fiscal years, and for adjusted earnings per share to increase by 15% to 20% annually during that time period.
"We are reinventing the company, but we're not reinventing what we do," Mr. Schultz said. "We're just reinventing how we do it."
Starbucks, the world's largest coffee chain, has grappled with self-made problems coming out of the Covid-19 pandemic, Mr. Schultz has said.
Over the past year, it has confronted frustration among workers and a union push, while having to reduce some store hours and services as a result of labor shortages.
Mr. Schultz returned in April to the coffee chain he built into a global giant, promising to tackle missteps that he said hurt the company's business, while installing the next generation of Starbucks executives.
Earlier this month, Starbucks chose Laxman Narasimhan, CEO of Lysol maker Reckitt Benckiser Group PLC, to succeed Mr. Schultz as Starbucks's next CEO.
Mr. Narasimhan is slated to take over from Mr. Schultz in April 2023, after a six-month period learning under the chain's longtime leader.
Mr. Schultz and other executives have been crafting what they call a reinvention plan for Starbucks, aimed at evolving the 35,000-location chain to better meet customers' current tastes.
Starbucks now sells the majority of its beverages with ice, versus hot cups of coffee. The chain's baristas have said they struggle at times with increasingly complex drink orders and growing demand for food.
Starbucks executives on Tuesday said the company would invest $450 million in its existing North American stores over the next fiscal year, including adding faster coffee brewers and food ovens.
A patented machine Starbucks will use to make batches of cold brew coffee, for example, is expected to cut the time to seconds from 20 hours currently, chief operating officer John Culver said.
Starbucks said it would also add 2,000 stores in North America by 2025, including new locations designed to handle only pickup, delivery or drive-through orders.
The new store designs and equipment aim to speed service and make work easier for baristas, the company said.
Starbucks said it expects to have nearly 45,000 stores globally by 2025, and is on track to reach a previously set goal of 55,000 locations by 2030.
Analysts polled by FactSet currently expect adjusted earnings per share of $3.37 and sales of $35.4 billion for the company's 2023 fiscal year.
Starbucks shares declined 1.4% Tuesday, while the S&P 500 fell 4.3% and the Dow Jones Industrial Average slid 3.9%. The broad selloff of stocks followed the release of new data showing that inflation remains stubbornly high in the U.S.
The chain's shares rose 2.29% after-market following the update of its guidance.
Through Tuesday, Starbucks's shares had declined 4% since Mr. Schultz assumed the interim CEO role, while the S&P 500 had fallen roughly 13% and the Dow industrials had dropped about 7%.
Mr. Schultz said Starbucks's business has remained strong despite inflation, and that the company recorded its largest-ever sales weeks earlier this month after the launch of its fall drinks.
"So far we have been immune from any recognition whatsoever that there is a downtown in customer traffic," he said.
Mr. Schultz canceled billions of dollars in stock buybacks soon after returning to the company in April, saying the money would be better spent on store operations and workers.
Starbucks suspended fiscal guidance in May, telling investors that executives needed time to assess how much the investments would cost.
Investors will benefit from Starbucks's planned revamp, Mr. Schultz said, through dividends and the eventual return of stock buybacks.
The company said it expects to return $20 billion to shareholders over the next three years in dividends and buybacks.
Starbucks on Tuesday showed a new cold-bar design for its cafes that Mr. Culver said can cut the time needed to make drinks, with a barista creating a Mocha Frappuccino in 35 seconds instead of the roughly 87 seconds typically needed to make the drink.
The company also displayed a new batch cooking system that could halve the time needed to make breakfast sandwiches.
Starbucks pledged to improve its food menu, saying it is considering adding freshly baked pastries and to-go salads.
The company said food orders are growing, with around 300 million breakfast sandwiches sold annually in the U.S.
Starbucks also said it would begin offering delivery through DoorDash Inc. next year, in addition to its existing service with Uber Technologies Inc.'s Eats division. The company said it would expand availability of mobile ordering through its app, including at airports.
The company discussed ways it aims to make working for the chain more appealing, including better sick pay, increased training, and technology allowing customers to use credit cards to tip individual baristas.
Starbucks has said it would spend $1 billion on additional labor investments this year, including hourly wage increases for baristas.
The company said Tuesday that cafe staffing is returning to prepandemic levels, and that normal hours of operations have returned to locations that had limited service because of being short-handed.
Meanwhile, members of Starbucks Workers United, the union representing U.S. cafe workers, rallied outside the company's headquarters.
The union said it was glad that Starbucks's investor presentation reflected its interest in baristas' working conditions, but said it should have been given a greater voice in the process.
"We look forward to negotiating over these conditions at the bargaining table so we can address our working conditions head on," Starbucks Workers United said.
Mr. Culver, Starbucks's operating chief, said Tuesday the company hopes to work with employees to address their challenges directly, without them needing to unionize.
He said the company would continue to bargain with union-represented stores.
The National Labor Relations Board said Tuesday that it had certified unions in 224 of Starbucks's roughly 9,000 U.S. stores, and votes against unionization at 42 locations.
Mr. Narasimhan, 55 years old, is set to join the company on Oct. 1 as "incoming CEO," according to the company, and learn Starbucks's business alongside Mr. Schultz for the first six months. After he becomes CEO in April 2023, Mr. Schultz is set to shift to a board role.
"It's an incredible opportunity for me to be learning at the feet of one of the best entrepreneurs in the world," Mr. Narasimhan said Tuesday about working with Mr. Schultz.
Mr. Narasimhan said strengthening the connection between the brand and its customers presented a key opportunity for the company.
Mr. Schultz said: "We clearly had to recognize that I'm 69 years old and I am long in the tooth, and it's time for a new CEO."
