Philadelphia incident has not hurt sales, CEO Kevin Johnson says
The days are numbered for gimmicky Starbucks beverages like the Unicorn Frappuccino.
The Seattle-based coffeehouse chain plans to pivot away from extreme LTOs, reducing the promotional drinks by as much as 30 percent year over year, COO and group president Rosalind Brewer said during a second-quarter conference call with investors on Thursday.
“While we still have unique products, such as Crystal Ball Frappuccino, our focus will shift to leveraging platforms with broader appeal,” Brewer said.
Starbucks instead wants to replicate LTOs like Blonde Espresso. The sweeter beverage proved to be so popular that the company opted to keep it on the menu for the rest of the year.
Candy sprinkles come in three colors: blue, purple and green — applied randomly.
Cold drinks will also play a crucial role in boosting afternoon sales, Brewer added.
“Our goal is for our cold beverages to be a must-have,” said Brewer, a former Sam’s Club and Wal-Mart executive who came to Starbucks six months ago.
Brewer and CEO Kevin Johnson briefly addressed the recent Philadelphia discrimination incident. In April, two black men were arrested for trespassing while sitting in a Starbucks cafe in the city without making a purchase.
Starbucks plans to temporarily close locations in the afternoon of May 29 for racial-bias education. Johnson told analysts that the culture training is “one small piece” of multiple actions Starbucks will take to prevent discriminatory acts in its cafes.
“All companies make mistakes,” he said. “Great companies learn from them and improve, and that’s exactly what we intend to do.”
The Philadelphia incident occurred outside of the current earnings window. Johnson said it has not hurt sales.
For the second quarter ended April 1, global and U.S. same-store store sales increased 2 percent. Revenue rose 14 percent, to $6 billion. Net income grew 1.1 percent, to $660.1 million, compared with the same period a year ago.
To improve margins, Starbucks said U.S. units will focus on expanding digital relationships with customers.
The company’s reinvented Happy Hour, which launched in late March, is already showing traction.
The invitation-only experience is exclusive to customers using the rewards app. In the past, happy hour was a 10-day “one-and-done stunt” featuring a deep discount on Frappuccinos, said Matthew Ryan, global chief strategy officer.
The promotion reduced margins, made staffing problematic and didn’t earn the brand any regular customers, the company said.
Over the past two years, Brewer said the old Happy Hour program “has not worked from a profitability standpoint.”
Making happy hour a digital-only experience with targeted drink specials will encourage customers to return on an ongoing basis.
“We are going after a customer base we haven’t touched,” Brewer said.
During the quarter, the chain added 1.6 million active members to its Starbucks Rewards program in the U.S, an increase of 12 percent over the prior year.
Loyalty members accounted for 39 percent of U.S. company-operated sales. Previously, Starbucks has said that mobile spending hovered at roughly 30 percent of sales.
Next week, Brewer said cafes will introduce a new Frappuccino that will become a core part of the blended beverage menu. She didn’t disclose further details about the drink, only calling it a “special up-level delicious afternoon treat.”
Starbucks operates 28,209 locations across 76 markets. Of those, 17,024 are in the Americas.
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