Starbucks is making a lot of changes — from a $1 billion investment in employees and in-store experience to the announcement of a digital third place with plans for NFTs — as announced during Tuesday’s second quarter earnings call.
We’re breaking down everything you need to know about Starbucks’ performance, goals and promises for the future, including benefits for employees, the digital third place and when the new CEO will be announced. For a more thorough analysis of the financial results of the second quarter ended April 3, read our story here.
Starbucks is implementing more pay raises for employees
Interim CEO Howard Schultz announced another pay raise for hourly employees, which would be the fourth pay raise in 18 months following the previous increase in wages announced last October. This pay raise is part of the $1 billion Starbucks committed to investing in partners and stores throughout the 2022 fiscal year.
As of the last pay raise, all Starbucks employees will make $15 an hour starting this summer and on August 1, average hourly wages will go up to $17 an hour. Employees with two to five years of service will receive a 5% increase in pay while partners with more than five years of experience will receive a 7% pay increase.
Employees will also get a new internal app and see the return of the black apron
As part of this reinvigorated investment in employees, Starbucks will be launching a new internal app for employees to improve communication with management. The company is also bringing back the Black Apron, which will be awarded to baristas who complete the coffee master program. In 2023, the company will also start introducing digital gratuities so customers can more easily tip
“What you will see is the coming transformation and reimagination of the Starbucks customer and partner experiences,” Schultz said Tuesday. “[…] We've identified over $200 million of investment that's incremental to the significant investments we've already committed to in our US company operating stores this year. These include further investments in training, wage and equipment, and new investments in internal communication with our people.”
Coming in September, Starbucks will announce more benefits including student loan refinancing, skills recognition programs, in-app tipping, and new profit-sharing initiatives.
But not for unionized stores
Although Schultz announced that these benefits would soon come to thousands of baristas nationally, he is unable to extend wage raises and benefits to unionized stores unless they participate in collective bargaining.
“You cannot change the terms and conditions of employment for anything good, bad or indifferent unless you bargain with the union,” labor attorney Magdalen Bickford told Nation’s Restaurant News in a previous interview.
Schultz doubled down on his views of unions during Tuesday’s earnings call.
“Our values are not and never have been the result of demands or interference from any outside entity,” Schultz said. “[…] Compare any union contract in our sector to the constantly expanding list of wages and benefits. We have provided our people for decades, and the union contract will not even come close to what Starbucks offers.”
But Schultz said that they would work with the union to create a contract:
“We will negotiate in good faith,” Schultz said. “Starbucks will not save her or discriminate against any partners based on union issues. And we will respect the right of Starbucks partners to make their own decisions when exercising these rights.”
Better equipment and store experiences are coming soon
As part of the investment in employees and stores announced this week, Starbucks will be introducing new equipment and reorganizing store layouts to improve in-store experiences:
“The equipment and layout of our stores have not been designed for the way customers are using stores today,” Schultz said. “There will be upgrades in equipment to relieve them of pressure, there will be a fair amount of investment in technology to upgrade algorithms of labor scheduling and upgrades in the app itself to provide customers an accurate assessment of when their beverage will be ready.”
Starbucks will launch a ‘digital third place’ with NFTs
One of the biggest pieces of news announced during Tuesday’s earnings call is more details on Starbucks’ metaverse presence, which will add NFTs and a digital community to customer experiences:
“We are extending the third-place concept of Starbucks into a new kind of community,” Brady Brewer, chief marketing officer said. “Emerging Technologies associated with web three, and specifically NFTs now enable this aspiration and allow us to extend who Starbucks has always been at our core: We are creating a digital third place.”
In the future expect Starbucks-branded “Community-based membership models” within the metaverse, and NFTs that customers can collect and use as passes to the “global digital Starbucks community” centered around coffee.
The new CEO will start his/her tenure in Q1 2023
After former CEO Kevin Johnson retired in April, Starbucks founder and former CEO Howard Schultz took over as interim CEO and immediately began working on new employee-centric initiatives, while fighting back against unions. But he won’t be around forever: expect the new Starbucks CEO to begin his or her tenure at the start of 2023, when Schultz will step down again and remain a member of the board.
Raising prices is not enough in this inflationary climate
Although Starbucks financial performance was overall positive, with double-digit same-store sales numbers in the North America market, the coffee chain is still feeling the heat during this time of inflationary pressure.
“Over the last year, we raised prices several times to address increasing inflationary pressures,” Schultz said. “Yet, we experienced negligible customer attrition, demonstrating the elasticity of demand for service coffee. Even so, inflationary pressures have outpaced our price increases, resulting in several points of margin compression in the short term and costing us over 200 basis points.”
Starbucks growth was driven by mobile and delivery orders
Starbucks executives all remarked how different the business has become over the last few years, from the switch to demand in cold beverages v. hot and the importance of digital transactions. According to CFO Rachel Ruggeri, mobile order and pay has gone up 400% in five years and 20% in the last year alone, while delivery has increased 30%.
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