Howard Schultz: The Starbucks of the Future: More Food, Cold Drinks and Blockchain | Economy and business

When former Starbucks CEO Howard Schultz considered whether to expand Starbucks outside the United States, he first thought of Japan, but his board advised him to hire a consulting firm because the management team lacked international experience. The consultancy’s report was blunt – expansion into Japan would be a complete failure. The company’s smoking ban, the country’s high rental costs and the Japanese reluctance to eat out would doom the initiative. But in 1996, Schultz decided to take a chance and teamed up with a local company to open stores in hot and humid Tokyo. At the time, Starbucks still only served hot coffee, which would be their excuse if the venture failed. The day before the grand opening, Schultz told his Japanese partners through an interpreter, “It’s going to be a tough day,” which the interpreter carefully translated as, “It’s going to be a historic day.”

Schultz didn’t sleep well that night, but when he arrived to open the store in Tokyo’s Ginza shopping district, he saw a line of customers stretching around the corner. At first he thought someone had hired extras to fill out the crowd, but someone told him that many of the eager customers had been waiting in line all night. “We cut the ribbon and a young man, who didn’t speak a word of English, rushed to the coffee shop and ordered a double tall latte. That’s when we knew we were in good shape, Schultz said. Today, Starbucks has 400 locations in Tokyo and 1,800 across Japan. In mid-September, Schultz opened Starbucks Investor Day in Seattle (Washington, USA) with this anecdote, as a prelude to the company’s reinvention plan for the future.

Howard Schultz is credited with transforming the small, Seattle-based coffee house chain that in 1987 had just a dozen coffee shops into a global icon with a market value of $100 billion. It has 35,000 locations in 80 markets and more than 400,000 employees, including franchisees. Schultz has retired twice – in 2000 and 2017. He returned in 2008 to lead Starbucks out of the global financial crisis by closing unprofitable locations, revamping its management team and implementing new growth initiatives such as the loyalty program and expansion into China. Now Schultz is back again after another global crisis – the Covid-19 pandemic – but this time he vowed to stay for just one year. In April 2023, he will be succeeded by Laxman Narasimhan, a former Pepsico executive. Narasimhan, who made his debut at Investor Day, told the audience: “I came to this country with nothing. I am the epitome of the American dream. My resilience defines me.”

Schultz, who vows his third retirement will be his last, unveiled a road map to Starbucks’ future to the investors and analysts gathered at the company’s headquarters in Seattle. It was a six-hour marathon of presentations liberally sprinkled with references to reinvention. “Don’t worry,” joked a Starbucks manager, “we have plenty of coffee.”

The investor day included announcements of new products, such as next winter’s big launch of a cold brew with pistachio, cocoa and citrus flavors (Pistachio Creme Cold Brew), demonstrations of time-saving coffee makers and optimistic business initiatives with promises of millions. dollar dividend.

“We’re reinventing the company, but we’re not reinventing what we do. We’re just reinventing how we do it,” Schultz said. It’s a reinvention that actually began during the pandemic, when Starbucks had an insignificant home delivery service. The company now receives 25% of its orders via mobile apps, and 50% of the business is take-away.

Eat at Starbucks

Starbucks says most of its customers are millennials or Generation Zers who prefer cold drinks, which account for 70% of the company’s sales in the US (up to 80% in the summer). Cold drinks are not the only products that drive sales. “More and more customers are looking for food at Starbucks. It’s another growth accelerator, says Brady Brewer, marketing manager at Starbucks. Not long ago, he said, only one in five customers ordered something to eat with their drink. Now it is twice that – 40%. “We’re just getting started,” Brewer said. The company is currently testing products such as freshly baked cakes, salads, vegetarian food and eggs. It is also betting on the sale of finished products in supermarkets and other channels as another avenue for growth.

The loyalty program Starbucks Rewards already has 58 million members, almost half of whom are in the United States (one in ten American adults). The loyalty program currently only rewards purchases made in Starbucks-owned stores, but the company plans to expand it to all of its franchisees in hotels, airports, supermarkets and other locations. Starbucks is also set to launch a non-fungible token (NFT)-based loyalty program using blockchain technology. The program, called Starbucks Odyssey, is designed to allow customers to both earn and purchase digital assets that unlock exclusive experiences and rewards.

A new initiative – Starbucks Connect – aims to increase mobile app ordering. The company has already teamed up with Uber Eats, and will begin delivering orders in the US with DoorDash in 2023. Starbucks will open dedicated delivery locations to ease the burden on its busiest stores. “No matter what time it is, Starbucks can serve you in the car, at home, on the beach or wherever you are,” said Brewer, who also emphasized the power of the Starbucks brand. “Last December, Starbucks sold more gift cards than Apple, Google, Home Depot and Target combined.” In the US, almost half of consumer spending at Starbucks is prepaid, which provides a huge strategic advantage. The company also has a new initiative called Rewards Together, an alliance with other loyalty cards to earn and redeem points with airlines, clothing retailers, hotels and other brands. The company expects to launch its first Rewards Together partnership in October.

The stores themselves will also undergo refurbishment. “It is clear that our physical stores have to change. They were built for a different age and need to be modernized to keep up with the times, says John Culver, chief operating officer at Starbucks. The focus will be on automation of ordering systems and updated production equipment. The company demonstrated its new Siren System, which will reduce the time it takes to make a Frappuccino from 83 seconds to 35 seconds. A new machine will make cold brew coffee in seconds, instead of today’s 20-hour steeping process. Quality will not suffer, Schultz promised. “We will not take a single step back.”

“Reinvention will usher in a new era of growth,” asserted Rachel Ruggeri, chief financial officer of Starbucks. More sales at existing coffee shops, new openings and higher margins will result in annual profit increases of 15%-20% over the next three years, up from our previous forecast of 10%-12%. The company plans to have 45,000 locations by 2025 and 55,000 locations by 2030, with most new stores located in China. “We expect to open almost eight locations a day,” Ruggeri said. Starbucks will distribute 50% of profits in dividends, which combined with share buybacks will add $20 billion in shareholder value over the next three years.

Schultz, who turned 69 this year, has taken back the helm at a time when Starbucks is facing labor unrest in the US. The company has fought back against barista unions with admittedly sketchier tactics, and now admits it did wrong with its workers, whom it euphemistically calls “partners.”

“We have a trust deficit with our partners. Not all, but too many, especially those who wear the green apron – our shop-based employees. We have not lived up to our commitments,” admitted Frank Britt, chief strategy officer at Starbucks. The company promises wage increases, easier digital tipping, career planning tools, more paid leave, greater work schedule flexibility and other improvements in working conditions. It also finally shows some openness in negotiations with workers who want to organize, and demonstrates that reinvention has also come to the HR department.