Starbucks: Prioritizing Elevation, Equipment & Experience for Long Term Growth 

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Rachel Ruggeri, CFO of Starbucks, spoke with Andrew Charles, Restaurants Analyst at our 7th Annual Future of the Consumer Conference. On this episode, they discuss the importance of the Starbucks Experience in the relationship economy and how that experience is laying the platform for future growth.  

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Transcript

Speaker 1:

Welcome to TD Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.

Andrew Charles:

Great. I’m Andrew Charles, I’m TD Cowen’s Restaurant Analyst. I’m really pleased to be joined by Starbucks’s CFO, Rachel Ruggeri. Starbucks is the largest roaster and retailer of specialty coffee in the world with more than 36,000 stores spanning over 80 countries. Rachel, thanks so much for joining me today.

Rachel Ruggeri:

Thank you for having me.

Andrew Charles:

I want to start… Yeah, the restaurant sector has experienced significant change in recent years. How is the approach to consumer engagement evolving?

Rachel Ruggeri:

It’s interesting because I was reading an article the other day about how the economy has become a relationship economy, and so I think that speaks to… Consumers are looking for experience, and what that means for Starbucks is we are well positioned. We have been in the experience business since 1971, and experiences have evolved certainly. It used to be an in-store experience. Now we’ve evolved to delivery, to drive-through, MOP, and I think what we’ve been focused on is how we create the very best experience in whatever way a customer comes to us. And so I look at that as a perfect position to be in today, and even as we think about the long term. How do we evolve and grow by keeping core to who we are, which is about ensuring the very best experience.

Andrew Charles:

That’s great, Rachel.

How does My Starbucks Rewards, the loyalty program, impact and change the way you engage your customer base? And really what I want to know as well is what is the ultimate goal of how you utilize data analytics to optimize the program?

Rachel Ruggeri:

We love to say that your perfect drink is just a tap away, and so our Starbucks Rewards program is one of the most reliable drivers of our business that we have today. And it’s our best way to be able to market to our customers, and that’s driven by what we see from an AI perspective. We use AI and what we call our Deep Brew system to be able to personalize the experience to a customer. So we know who you are and we have the ability to create experiences and offers that are relevant to you.

Now we’re continuing to evolve this so that we can deepen that relationship and deepen the engagement, but it’s all about creating what we call experiential convenience. So that connection that a partner makes with a customer in-store each and every day, we have the opportunity to do that in a digital experience and in a digital environment. And so we look at that as a way to really truly elevate this opportunity of the third place. It can be beyond the four walls.

Andrew Charles:

Absolutely.

Would you talk a little bit more in detail regarding the automation process and equipment upgrades that are improving service times as well as the employee experience? What is the sequencing of the rollout in 2023 through 2025?

Rachel Ruggeri:

We were incredibly pleased with our most recent quarter where we saw the investments we’ve been making over the last year, around equipment and around investments in our partners, including wages and training, lead to an incredibly strong quarter. Our North America business grew by 17% on the top line, and importantly with a 12% comp. And importantly, we saw our margin expand by 200 basis points. So that’s proof point to us that the strong performance is unlocking our capability and our capacity to be able to continue to invest in our business, which supports durable growth.

So when we think about that, we think about the longer term. It’s really about ensuring that we have a stable operating environment. So getting the basics right and ensuring we have the right partners, and the right hours per partner. And on top of that, it’s optimizing the production environment, and that comes through equipment and equipment rollout.

And while we’ve done things such as the new Mastrenas, the new warming ovens, cold beverage labelers, this year we’re looking at rolling out Clover Vertica, which is an elevated coffee experience. It’s better for our partners. It also has less waste and it’s a better cup of coffee. It’s really fantastic. We’re also rolling out cold foam blenders, which allows us to support customization. Equipment moves like that… And in the future we’ll have the rollout of Siren. We’ll have cold-pressed espresso, we’ll have refresher dispense.

So lots of ways for us to continue to improve the overall production environment so that it makes it easier for our partners to serve our customers. And that leads to unlocking capacity, but it also leads to overall engagement. And we have a journey ahead of us, but we’re really encouraged by what we’re seeing today. We’re operating today with excellence and rigor, but we have a lot more to come.

Andrew Charles:

Absolutely.

Can you talk about where Starbucks’s new CEO is leaning most with the reinvention plan, strategic playbook?

Rachel Ruggeri:

Yeah, so since Laxman’s come in, he took a look at our reinvention plan and I would say he expanded it. And so today we’re looking at how we elevate the brand. And that’s about running great stores, which is really the foundation of the reinvention plan.

In addition to that, we’re driving our leading digital capability by bringing in new and relevant experiences for customers. We’re growing globally and ensuring that we become more of a global brand and business, which is critical to our growth in the future.

We’re also focusing on reducing less waste and increasing overall productivity, and not just from a financial standpoint. Of course that’s important and good, but it also creates better experience for partners and customers. An example of that is our ability to be able to serve the stores more directly with better ways of purchasing and ordering so that we’re more efficient. Those are examples of that.

And then in addition to that, we’re focused on reinvigorating the culture of Starbucks and reminding what it means to be a partner. And that’s so important when you think about everything we’re trying to do is really about creating that very best experience, and so that partner engagement and that partner excitement is critical.

Andrew Charles:

Can you talk a little bit more about your purpose-built store strategy and how those stores are different from previous renovations?

Rachel Ruggeri:

Yeah. Purpose-built strategy is acknowledging the fact that we have the opportunity to elevate the brand through our store experiences, and being able to unlock productivity, but focusing on our portfolio and optimizing the demands through the portfolio. And what that means is we’re looking at new stores and renovations with a set of standards.

Now that might not sound new, but we’re looking at a holistic systems-thinking approach to be able to take into account the partner experience, the customer experience, the optimized equipment for production. To be able to create standards for our new stores and our renovations, to make them more intentional in how we serve our customers.

In addition to that, we’re focusing on stores that specifically meet the occasions of demand. Stores like a delivery only store, drive-through only stores. Drive-throughs may have a why lane where you have a single point or a double order point, as well as drive-through-onlys that may have a lane for drive-through and a lane for MOP, so that we’re supporting customers that are highly routinized and very specific in how they want to come to the stores. Putting that all together really gives us the opportunity to leverage our portfolio, to continue to support our growth over the long term.

Andrew Charles:

Great.

In the competitive coffee marketplace with all the changes in technology, how will the Starbucks brand continue to differentiate and stand out in the marketplace?

Rachel Ruggeri:

I would say it comes down to the ability to create experience. That’s what served us well from our very first store in 1971 to where we are today. We have to evolve that experience and we have. We’ve been evolving it through the in-store experience, drive-through, through MOP, as well as through delivery.

But as long as we continue to focus on that in every single thing that we do, then I believe that will continue to support our growth over the very long term. Our new CEO, Laxman, loves to say that we have limitless opportunity, and I would agree with that 100%.

Andrew Charles:

Absolutely.

My last question for you, you have a very habitual, very customizable product, got to know what’s your go-to order?

Rachel Ruggeri:

Oh, it is a Grande Quad Espresso over ice with extra, extra ice twice a day.

Andrew Charles:

Okay. Well don’t ask me to say that 10 times fast. That’s great to know.

Rachel, thank you so much for joining me today.

Rachel Ruggeri:

Thank you. I appreciate it.

Speaker 1:

Thanks for joining us. Stay tuned for the next episode of TD Cowen Insights.


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