Starbucks CEO Brian Niccol Talks Earnings, Growth, Unions

Bloomberg Audio Studios, Podcasts, Radio News here right now with Brian Nicol, fresh off his investor day here in New York City and fresh off an earnings report that actually seemed to please a lot of investors. Your five quarters right now into your tenure as CEO of Starbucks, and you put together a couple of quarters of growth, something that the company hadn't seen in quite some time.

Yeah, it was a great quarter for us.

You know. The thing that was really exciting is to see the growth was driven by transactions and also the fact that the initiatives that we put in place around operating, supporting our partners with the green Apron service model, and then really getting back to great customer service, I think really showed it. It showed up in the results this last quarter. So we're pretty excited.

So when you say transactions, are you getting more people in the store.

Yeah, that's exactly right.

Yeah.

So what was great to see too, is the growth in transactions came from existing customers that are in our rewards program as well as customers that are not in a rewards program that frankly, we had been struggling to kind of reclaim momentum with that group. In this quarter, we had both groups growing in visits, and as a result, our market share increased in visitation as well.

I'm curious about the actual amount of money that they're spending as far as a growth in tickets that was actually a little bit underpacing what you actually saw in transactions themselves. What explains that that's right?

So, you know, we saw about a little less than a point of ticket growth, and that's really driven by the fact that we've launched this new program around protein, so you get a protein cold foam on any drink, and that's a modification. And then obviously the balance of the growth came from just more people coming to Starbucks, either more often or coming back to the brand that hadn't been here in a while.

Since you took over, you've put a big emphasis on, I guess, reimagining the stores to a certain extent. This may seem like a dumb question, but why. I mean, when I look at where your revenue comes from, a lot of that is coming from the drive through, it's coming from takeout, on the apps, it's coming from delivery. But you've put a big emphasis on the instore experience, and I don't understand why, Yeah.

Sure, well thanks for the question, because I do believe Starbucks is defined by the cafe and the coffee house experience. That really is where you get the human too human connection with our baristas.

It's where you see the craft.

Of Starbucks, and then you also get just the soul of Starbucks. So you know, our in store business is still over twenty percent. The thing that I always like to remind people too, is people access Starbucks in all these channels. So they may go via the drive through or mobile order Monday through Friday, but Saturday, when they've got a little bit more time to dwell, they want

It's who we are and you think that's what customers want. We've seen some new entrance into the coffee space, both domestically as well as some folks like Luck in coming to the US taking a much different business model basically grab and.

Go more or less.

The thing I like to remind everybody is we actually execute those channels right. So we have a mobile order pickup business, which is one of the competitors. We have the biggest drive through business. It's a well over a ten billion dollar business. It actually would be a fortune five hundred company just.

On its own.

So we know how to operate and give great experiences in all access modes. What we've seen over and over again though, is when we have all these channels with a great coffee house, we really are unmatched. And so that's our point difference. And that's not to say we can't be great in these other access modes and compete effectively.

I mean that sounds great on paper, but that sounds also complex. I mean, how do you maintain the integrity of everything when you're trying to have this experience in store at the same time, somebody who wants to grab and go, or a delivery driver showing up to grab in order as well.

And that is why it's so important that we get this green Apron service model dialed in, and really at the foundation was making sure we have the right number of people on the roster, the people are deployed correctly, our partners then know what they're accountable to execute, and what we've been able to see is between technology and I think simplification of the actual operating model, our partners can do a great job.

A cafe experience happens.

In less than four minutes from order to drink with a personal handoff mobile order. We're more on time and accurate than we ever have been, and our drive through during peaks are below four.

Minutes as well.

So it can be done, but we have to be intentional about it, and we have to set our partners up to be successful to operate that omni channel experience. So, you know, I love the fact that we're seeing the success that we're seeing, and I love that, you know, people are talking about the Starbucks experience again like that shine, that soul that really is magnetic, that vibe.

But I think one of your executives said yesterday, your investor Day is back.

Yeah.

Yeah, the cultural relevancy for Starbucks that's back.

That's back, as well our marketing, our menu innovation. One of the things we set out to do is part of this turnaround is get back into culture, get back to leading culture. And you know you got to do that with the right drinks, the right food, and then frankly, the right representation of the brand showing up in the right place is at the right time, with the right communication. And Tresie Lieberman, who leads our marketing efforts, she's done

Speaking of her your Investor Day yesterday, she talked a lot about your rewards program. It's re launching, being reimagined, I believe in early March, talk about the need to retain your existing customer base, but how that rewards program helps, if at all, and bringing in new customers, those who aren't exposed to Starbucks on a daily base.

Yeah.

So, look, we got a lot of feedback on the rewards program. It's been a great program, but the feedback we got was it's not very personalized, and so really, what the team has done is made it more personal and the feedback we get from people that don't participate, it's like, look, you know, maybe I don't go to Starbucks with enough frequency to really benefit from the rewards program.

We're changing that.

Because now when you get into the Green Tier, and there's three tiers now, so you're gonna have the Reserve tier, the Gold Tier, and the Green tier Reserve Top Reserve would be the top. You know, you'll actually get a Black Reserve Starbucks card, which you know will be pretty cool because everything seems to be so virtual anymore. I think people like every once in a while to get

You've managed to sort of get sales back up. There are still some analysts that look at some of the growth rate that you have four percent. I think we'll say in the most recent quarter, I think your guidance is what three to five percent a little bit longer term, but there are some analysts there looking back to the heyday from a decade or two ago, when Starbucks is more a mid single digits and even up into the teams. Is that even realistic to get back to those levels.

Look, I've looked at I've looked at this as I've come in and a company at our scale, you know, we have forty thousand coffee houses around the world over four hundred thousand Green Apron partners. I think if we can consistently deliver a comp that is three percent or better, you know, revenue growth that is, you know, five percent or better, and then earnings growth that outpaces that, that would be world class.

And we're a world.

Class company and we will deliver I think world class results as we get going on this turnaround. So make no mistake, we are a growth company at scale, which is really exciting.

I think on the top line, when does the bottom line catch up?

So the bottom line will start You'll start to see us make improvements. I think as we get into the back half of this year and then every year from here on out, and that's really what we guided people towards is we'll get into the thirteen to fifteen percent range on margins here by twenty twenty eight. And then actually that's just I think a mile marker. There's an opportunity for us to grow even beyond that.

What's holding back that margin expansion, that profitability right now?

You know, look, initially we had to do some reinvesting in the business to get again the right people. We invested over I think it's five hundred million clus to six hundred million dollars into the labor experience. And you know, the best way for you to then start driving earnings is we've got to get the top line going.

We've done that, and then obviously.

We'll work on the middle of the l as well on the cost side of things, which we've got clear line of sight on how over the next two years we'll probably be able to stay close to two billion dollars while we're growing the top line. So it's a combination of growth and smart cost management.

I am curious, at least here in the US, with regards to those growth plans, how much have you taken into account the economic environment. I mean, a lot of your products are still if not premium, certainly proceed as premium priced products here, does that work against you if we do end up in the economic downturn.

You know, Look, I think at the end of the day, the thing that I'm excited about is people are saying the experience they're getting at Starbucks, the whole package.

They're saying, it's worth it.

And we're we're seeing some of our highest scores through consumer claimed statements. And that's why I think it's so important that we have this great cafe experience, we have this great customer experience where it's a connection between our barista and then look, we've always been unwavering in the quality of our coffee, our drinks, and the ingredients that we use. So yeah, you know, we're going to be an affordable luxury item, but if you look at it,

Do you think you have that pricing power right now? Should you feel like you need to pull that lever?

You know, Look, pricing is one of those things that will always be the last lever that will pull. There are times where you do have to put some pricing into the business, you know, But fortunately we've been able to hold off for the last little more than a year. So we'll see how things evolve. But you know, if we need to do it, we'll do it very strategically and we'll try to do it as minimal as possible.

You're spending a lot to revamp your stores. I know that's a temporary costs in theory, but there are other additional costs you're having to deal with, including labor costs and things that are going to be a long more, longer term and permanent. How has that factored into the forecast?

Yeah, you know, look, obviously you always have to think through what does it cost in order to make sure we maintain the integrity of the experience. And right now we're having to come back in we call it our Coffee House Uplift program, where we are just basically retouching all of our cafes. So we want to have great seats, great atmosphere, a place that feels warm, place you want to be. And then obviously we have been and will always be some of the best benefits, best wages you.

Can find as a.

Partner, and so when you look at it in retail, there's no doubt we have one.

Of the best jobs in retail.

And that's the reason we can also see it is we have the lowest turnover in our industry by a lot. Our turnover is below fifty percent at the hourly level. In this industry, turnover is usually over one hundred and twenty five percent.

So we're definitely doing something right.

And the feedback I'm getting from our partners is they definitely feel supported, they're engaged, and they love doing the work that they're doing.

I am curious though about somebody union as draw that kind of predated you, but obviously still there as well. Have you spoken with those unions in any sort of meaningful way recently. Are they still demanding more than what you've already offered?

You know, Look, I think we've talked about this.

I'd love to be able to find a deal so that we could get a contract and move on, but it's going to have to be reasonable, and it's going to have to reflect the fact that we are the leader in benefits wages for people that work twenty hours or more in our company because it has to be sustainable so that all four hundred thousand partners and all two hundred and fifty thousand partners in the United States can continue to have a great experience, a great career,

The US is obviously your primary market for quite some time, and made a real big push into China. At one point you were the largest coffee chain in China. You've chunched from that just a little bit, and you've recently entered into a partnership to effectively sell off the majority of that business to the private equity firm. Boyu, what is Starbucks going to look like, particularly in China and the rest of the rest of the countries.

Yeah, Look, I think the one thing I want to be clear on is we do believe China is a tremendous growth market. You know, today we have over eight thousand coffee houses.

We believe with our.

Partner BOU that could be fifteen twenty thousand coffee houses, and they are the great They are a great partner for growth, and part of the reason why we decided to do this is for our next chapter of growth.

You talked at your investor day about this being sort of an asset light model that you're taking there. Does that also mean that investors should expect maybe slimmer margins because of the fact that you have to share a lot of that money with Boyo.

No, you know, and look the way we've structured it is obviously the partnerships are in the cases where we have full license scenario, we don't end up deploying our capital into the markets. We support the licensee in a different fashion through you know, marketing and menu and technology and you know design. So it just becomes less of a requirement on our capital. But it's still you know, in most cases you see the margin actually right and becomes margin and creative.

To the total business. And the thing that's really.

Exciting is there's so much opportunity for growth and when you have these local partners in these international markets, we just end up, i think, getting access to the premieer real estate and at a speed that we couldn't do from our Seattle offices.

I am curious about the scale of this business, particularly in light of some of the businesses that you ran before, relatively successfully. For those who don't know a former brand manager at P ANDNG. You went on, turned around Taco Bell, you turned around Chipotle. Now you're Starbucks. Is Starbucks too big to handle right now?

Oh? No.

The thing that's great about Starbucks is the brand is beloved, it's iconic, and when you go around the world, there's no doubt that people want to engage with the Starbucks brand. As I was looking at the US, I think we just moved too far away from what made Starbucks Starbucks. And I think you were at our investor day yesterday and I think Mike said it really well, which is, we don't need to change who we are. We just need to be great at who we are and what

Are you're going to be intentional about the locations. I mean, under your predecessors, there was a big expansion plan where at least here in New York City, I mean you can walk down a single block and have like five Starbucks, you know, all competing against each other. That's we're trenched a lot.

Do you go back to that, Well, look, I think there are opportunities for us to continue to grow in New York City and frankly in a lot of communities around the United States. We talked about the Essially, we believe we can add five thousand stores. We've got line of sight on that, and as we grow our afternoon day part and grow the economics of the business, we'll probably go well beyond those five thousand that we've identified. So you'll see Starbucks continuing to to bring new stores.

Most of your revenue is still waited to the morning. You mentioned the PM, if you will, afternoon what actually gets people not only in the stores in the afternoon hours, but also spending more.

Yeah, well, so we have an afternoon business today, but I think there is a multi billion dollar opportunity to grow our afternoon day part. You know, as we get the cafe set up to be a great place for you to you know, kind of reset, recharge, whatever you want to do, and we pair that up with the right beverage and ultimately the right food. I think there's no reason why we can't have as strong of an afternoon day part as we have in the morning.

And speaking of food, you are making some major menu changes. One thing I noticed at the investor day there were a lot of non caffeinated beverages now that are coming down the menu. Y.

I think we were sampling a lot of the things that we think are going to be right for the afternoon. And you know, we talked about our new energy refresher platform, or you'll be able to do, you know, completely decaffeinated to what is our standard caffeination and then add a little bit more and you'll be able to customize this. So, you know, we want to have the right drinks for you whether it's morning or afternoon. And what we're seeing is in the afternoon, some people in certain cases aren't

No olive oil, not right now. All right. You know, Brian, you've done a good job so far, and you know investors are going to demand a lot more. Done a great job turning around other companies. I just have to end this by asking you a really hard question hereverse Miami University. Yeah, you guys are twenty one to zero. First time you guys have really kind of been contender since the Wally Serbiak area. It's going to be that year where you guys get back to the NCAA.

You know, Look, it is as an alum of Miami Obio. It is great to see the success team is having and Coach Steele is having. Yeah, you know, I was at Miami. I graduated in ninety six, So after I graduated. We had that great run with Wally Zerbiak, and it was fun to see they got to the Sweet sixteen. It's fun to see the students having a great time, and it's fun to see the school on the national stage. It's a great school. I've got great friends, great memories,

All right, Brian, we'll really appreciate you being with us here. Turnaround going on right now at the Miami Universe. See Enter Turnaround at Starbucks