It's been a little more than a year since Starbucks brought in Brian Niccol, proven turnaround artist, to take over the business. Since then, he's already made major strides in breathing new life into the story. Although the stock's still struggling, there's been a lot of speculation about the value of the China business. Starbucks' CEO now tells me it's expected to be north of $10 billion. That includes the upfront investment by a potential partner, with the company retaining a stake in the China business and future royalty payments. Earlier today, we checked in with the man himself, Brian Niccol, the chairman and CEO of Starbucks. Take a look.
Brian, are we back to Starbucks yet?
We are definitely closer than we ever have been, and I'm really proud of the progress we've made over the last year and the team that is executing against the plan.
You are innovating. We're all very excited about protein cold foam, but you are the keeper of the numbers. Is it working?
You know, as a matter of fact, I had a protein vanilla latte this morning, which was terrific. And I think you might have seen us talk about it. We had a great start with the launch, and I think it's really a function of we've made tremendous progress with our Green Apron service model.
You know, we strengthened the operational foundation. Can you expand on that for people?
Oh yeah, sorry. So the Green Apron service model really was all about putting more partners back in the stores. So you've got more partners that are now deployed correctly, and we changed the focus from tasks to customer service. And so what this is all about is when you walk into a Starbucks, you should be greeted now from a barista, and then also you should see the craft happen, and they should have the ability to give you a moment of connection, whether that's writing on the cup, whether that's, you know, saying, 'Hey, have a great day,' or just saying, 'Jim, here's your coffee.' And then we've also started the process of uplifting our stores, which is returning the coffee house to a coffee house.
The third place. Have a great seat. You know, if you want to hang out, great. But I think it's important that when people walk in, they feel like it's their Starbucks. It's their community Starbucks.
Even if you're just grabbing and going.
But if you want to stay, there's a great seat. And so that's what the Green Apron service model was all about. And behind the scenes, you might remember I was talking about some technology. We call it the Smart Q, which was all about basically sequencing the orders for our drive-thru, the counter, and mobile order pickup. And the reason why that was important is because it then brought order to those three access points.
We like empirical data, but Tim Cook told me that starts with anecdotal. Are you hearing from a lot of people saying, 'You know what, my store's starting to work'?
That's exactly what we're hearing, Jim. The number of emails and then people that just come up to me and say, 'Hey, you know what? I'm noticing a difference in my Starbucks, whether it's the speed of service, whether it's the connection, and then obviously the physical environment when it changes dramatically.' People get really excited. Both our partners get excited about it. They, you know, I think they kind of stand up a little taller when we ask our barista or our coffee house leader to actually be leading a coffee house. And then, you know, I happened to be in Austin recently and I stopped by a store and this woman, Melissa, the coffee house leader, there happens to be a group of gentlemen that show up every Saturday. And one of those gentlemen I knew from a prior life, he reached out to me. He's like, 'You got to stop by my Starbucks. You're not going to believe the difference that's happening.' So, you know, those are the little stories that are happening. And what I love about it is it's happening all over the country.
Now, you closed 1% of the stores. For some reason, people think that it's far more than that. You open stores, it just nets out minus one. Are the stores that are closing ones that had minus comp sales, or were they just too gas station oriented?
You know, look, it was a combination of things where they weren't performing financially, and/or unfortunately we had done some things to the store that no longer allowed us to be able to make it a great coffee house. And so, and a lot of those times those things overlapped, right? So, you know, it was really all about do we believe we could get the financial performance back with this store, and could we give the partner and the customer the experience they want. If the answer was no to both, then it was time to actually close it. And to be honest, you never want to close a store. If there's any way to find the way to get it back to a great place of performance, we would have, you know, taken down that path. But in this case, it was just time for some of these stores, they needed to be closed. And you know, not to say we won't be back in the trade area with a new execution.
Now, I think that you and I are both sports fans and we're supposed to look forward, but never supposed to look back. But I was thinking about it's been fiscal year 2022, 2023 since you had four consecutive quarters of up comps. Now, that means that things must have deteriorated at a much bigger rate than maybe we knew. It takes three years of destruction. What happened in those three years?
You know, when I diagnosed it, what it looks like is we probably were, you know, too focused on efficiency. And as a result, I think we over-rotated on the idea of equipment and then trying to figure out how you could operate the stores with fewer, frankly, partners behind the counter. And then that compounded with I think COVID leading people to believe that the dining room or the coffee house seat or the third place was no longer important. So you had two things happen. And then obviously you also had some of the inflationary challenges where pricing got ahead of the business combined with removing some labor and then pulling back on the thing that makes us unique, which is our experience.
Did they think the comp store sales would go down if you do that, or did they think it would be kind of alchemy?
