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Sep 5, 2019

Starbucks CEO's new ideas start with a pick-up-only store in NYC

Starbucks Still Sees Strong Growth in China Despite Trade War, CEO Says


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They’ve scrapped the newspapers and beefed up the food, but most Starbucks cafes in the U.S. don’t look all that different today than they did a decade ago. That’s about to change.

Starbucks Corp. Chief Executive Officer Kevin Johnson, in the role for more than two years now, is ripping up the old store blueprints in a bid to revitalize growth. First on the list: a pick-up cafe in New York set to open this fall to cater to busy coffee-drinkers on the go.

The Manhattan store, which is still in development, will build off of the chain’s success with its Starbucks Now concept in China that lets customers order in advance on mobile phones and collect their items in a specialty “express” shop without the wait. Starbucks could eventually roll out similar pick-up locations in other cities including Boston, Chicago, Seattle, San Francisco and Los Angeles, Johnson said. They aren’t intended to replace the existing cafes, which give consumers a “third place” to relax that’s away from home and work.

“What we’re using Starbucks Now for, and what will be Starbucks pick-up stores in the U.S., is to blend them in where we have dense urban areas where we have a lot of Starbucks third-place cafes,” Johnson said in an interview at Bloomberg’s Chicago bureau. “Think of it as a Starbucks pick-up.”

Barista Support

Johnson, 58, is also reimagining the chain’s nearly 15,000 U.S. locations by leaning heavily into automation. Shift scheduling and counting inventory are among the tasks being moved off of human workers through automation, which means baristas and managers will have more time to come out from behind counters to tidy up tables and offer free drink samples to customers.

They’ll also have more time to plan community events outside of those prescribed by the company, Johnson said. For example, a Starbucks manager in Trenton, New Jersey, used her freed up time to host open-mic nights on Saturdays to boost weekend traffic, the company said.

The coffee behemoth is gathering 12,000 store managers and other employees in Chicago this week in its largest worker meeting ever for workshops, classes and lectures on the automation and other changes ahead, plus sessions on mental health and sustainability. It’s a $50 million investment for the Seattle-based company.

“Helping partners spend more time with customers -- it’s really at the core of driving growth,” Johnson said. “As we grow, one of the investments we have to make is that investment in labor.”

Johnson’s Tenure

Starbucks, the world’s second-largest restaurant company by market capitalization, has been refocusing on its priority markets of the U.S. and China in a push to underpin more vigorous growth. Earnings in the company’s most recent quarter were a step in that direction, with Starbucks posting its fastest global sales growth in three years.

These aren’t the first big changes from Johnson, who has held the CEO title since 2017. He already expanded delivery in both China and the U.S., and he has prioritized getting new food and drinks into the hands of customers faster by slashing development times to as little as 100 days, whereas before it may have taken as long as 18 months.

He has also closed poorly performing locations in densely penetrated U.S. markets and turned over some foreign operations to partners. Last year, the company announced it would cut about 5 per cent of its corporate workers in order to boost profit and streamline decision making.

Investors have applauded Johnson’s efforts: Starbucks shares have surged nearly 50 per cent so far this year.

China Growth

In China, where it operates about 4,000 restaurants and plans to have 6,000 by 2023, the chain is still expanding at breakneck speed with a new location every 15 hours. Globally, the company is opening a store roughly every four hours.

While Starbucks has been in China for two decades, more rivals are popping up, including plucky Luckin Coffee Inc. To compete, Starbucks is experimenting more with ghost-kitchen locations in Shanghai and investing in the pick-up and delivery stores in Beijing that will help model the U.S. version. Tim Hortons is also betting big on China’s large and growing middle class that’s drinking more java.

“It’s no surprise there’s going to be more competitors, and that’s okay,” Johnson said of the Chinese market. “More competitors help accelerate the introduction of premium Arabica coffee to Chinese consumers and ultimately, that’s good for the industry. And ultimately what’s good for the industry will be good for Starbucks.”

--With assistance from Jonathan Roeder, Isis Almeida and Elizabeth Campbell