Howard Schultz vows Starbucks rebound after coffee chain ‘lost its way’

Starbucks will spend another $450mn to overhaul its coffee machines and stores as it seeks to accelerate its growth, catch up with changing consumer tastes and repair relations with restive baristas.

The company had “lost its way” in recent years, said Howard Schultz, the founder who returned as interim chief executive in April. But, he predicted, “the best days of Starbucks are ahead of us”.

Schultz said Starbucks would rebound faster than it had after an earlier crisis in 2008. He told an investor meeting in Seattle on Tuesday that the company would deliver double-digit revenue increases long term, at the top end of earlier projections, with a similar expansion into profits.

The “reinvention” plan will include $450mn of new investment in its North American stores next year, on top of 2022’s $1bn investment program.

Chief financial officer Rachel Ruggeri hailed “a new era of growth”, saying Starbucks’ earnings could expand by 15-20 per cent annually over the next three years, compared to the 10-12 per cent it had previously guided.

Starbucks also revealed new equipment that cuts the time it takes to heat food and create the increasingly complex cold drinks that now account for 70 per cent of its coffee sales.

The new machines are needed to handle booming demand in its US stores and address the frustrations with increasingly complex orders that have exacerbated employees’ concerns about pay and conditions.

Starbucks Workers United, a group of baristas who have unionised more than 200 stores across the US, protested outside Starbucks’ headquarters against what it called the company’s “aggressive union-busting campaign”. Two Seattle stores went on strike for the day.

The National Labor Relations Board has accused Starbucks of violating labor law by withholding pay rises and new benefits from stores that have voted to unionise. The company has said that it cannot extend such benefits without “good-faith collective bargaining”.

John Culver, Starbucks’ outgoing chief operating officer, told investors it would “continue to bargain in good faith”.

But Culver said he saw two paths for the company and its people. “We can work together as partners, side by side, or we can have a third party between us,” he said. “By working side by side we can efficiently deliver solutions that support partners in their jobs as well as in their lives.”

Despite the union movement’s successes, chief strategy officer Frank Britt said Starbucks’ staff turnover rates had fallen from a 2021 peak of around 22 per cent above 2019’s level to just 97 per cent of that pre-coronavirus pandemic rate.

Starbucks executives said the company would increase its revenues in North America by about 40 per cent and would more than double profits outside its home market on a similar increase in sales.

China’s zero-Covid policies have forced many Starbucks stores to close across its second-largest market, but the company said it saw “huge potential” in a country where the average consumer drinks just 12 cups of coffee a year, compared to 380 in the U.S.

“China’s coffee market is about to enter a new era of growth,” said Belinda Wong, chair of Starbucks China. It will open one store every nine hours for the next three years to expand from 6,000 outlets to 9,000 by 2025.

Earlier this month, Starbucks named Laxman Narasimhan, the former Reckitt Benckiser chief executive officer, as its incoming chief executive, said he would work alongside Schultz before succeeding him in April.

On stage in Seattle, Narasimhan said he saw “limitless” opportunities for the brand. Schultz greeted him by handing over a gold coffee bean he had been given by a Guatemalan coffee farmer, who sat on his desk for about 40 years.

Boosted by higher same-store sales and plans to open eight new stores a day, revenue growth would hit 10-12 per cent a year, 2 percentage points higher than previously expected.

Ruggeri, the chief financial officer, also announced plans to resume share buybacks, which Schultz suspended in April to fund investments in its operations, in its 2024 fiscal year. Including dividends, Starbucks would return about $20bn to shareholders over the next three years, she said.

Starbucks stock, which has fallen by 25 per cent this year, was up 2.5 per cent in after-hours trading.

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