Starbucks makes a big bet on a post-pandemic recovery
Photo courtesy of Starbucks
Starbucks expects the increases it plans to give to its more experienced employees starting in January will reduce its margins, even with higher prices, improved efficiency and increased sales.
Still, company executives insisted on Thursday that now was the time to take the steps, arguing that they represented significant investments in employees before an expected increase in customer numbers as the pandemic s ‘attenuates.
“The most important investment we can make is in our partners,” said CEO Kevin Johnson. “We have proven time and time again that when we take care of our partners, they always step up and take care of our customers.
“Not only is it the right thing to do for them, but it is also the right thing to do for all of our stakeholders. “
On Wednesday, Starbucks announced plans to grant increases of up to 5% for workers who have been with the company for two years or more, and 10% if they have been with the company for five years. In addition, he expects the starting salary to hit $ 15 an hour by next summer, earlier than expected.
The merger will reduce the chain’s operating margin. Starbucks executives said they expect the operating margin for the next fiscal year, which began Oct. 4, to be 17 percent. That’s below the chain’s long-term goal of at least 18%.
Rachel Ruggeri, chief financial officer of Starbucks, said the wage increases would hurt profits by 400 basis points, while additional inflationary pressures, investments and fewer government subsidies would also hurt profits.
The company expects to take prices as sales and productivity also offset lower profits.
Still, executives say they see 2022 as a “pivotal year” for the company and believe wages will pay dividends across the board.
Starbucks is coming out of what it said was a record quarter. Revenue for the quarter hit a record $ 8.1 billion, the company said. Same-store sales in the United States, its largest market, increased 11% over two years.
Johnson told analysts the company also expects a strong holiday season. For example, the company said it expects $ 3 billion to be loaded onto Starbucks cards before the end of the year. “We are ready for this vacation,” he said.
Yet the company also predicts that an easing of pandemic restrictions will bring more customers back to its cafes, especially after the chain changed its strategy last year by building more drive-thru outlets while moving away from the mainstream. walk-in stores for which she had been known.
When the pandemic hit last year, customers generally reduced the frequency, choosing to order more items at a time when they did.
As the markets reopen, however, Starbucks is attracting more and more customers. The number of transactions in the United States increased 19% in the last quarter. And executives believe customers will keep coming back as the pandemic subsides and people return to normal.
Johnson said Starbucks has gained market share in recent months, saying its sales are growing faster than the entire coffee market. He believes the market share gains are permanent, but the company needs to hire staff to handle the increased traffic to its sites.
“We’re in the spotlight right now,” Johnson said. “And we have this opportunity to accelerate by investing in the growth curve. With this investment, we anticipate higher market share gains as consumers return to our stores, and those share gains will be permanent. “
To support its point, Starbucks said it would return $ 20 billion to shareholders over the next three years in the form of dividends and share buybacks.
“We just think it’s the right thing to do right now,” Johnson said. Executives believe that as sales return and the efficiencies the chain is working on, operating margins will return to the 18% to 19% range by 2023.