Bloomberg Audio Studios podcasts, radio, news. I'm here right now with Brian Niccol, 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. You're 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 hasn'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 really getting back to great customer service, I think really 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. 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 our rewards program that frankly we had been struggling to kind of reclaim momentum with that group. And 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 under pacing 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 can 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-thru, it's coming from takeout on the apps, it's coming from delivery, but you've put a big emphasis on the in-store 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 coffeehouse experience. That really is where you get the human-to-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 20%. 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-thru or mobile order Monday through Friday, but Saturday when they've got a little bit more time to dwell they want to hang out in a great space. And so just this past month the data I saw is 60% of our customers made at least one purchase from the counter and that doesn't include our mobile order pickup people that come into the store to pick up their coffee or obviously the entire business works because we have the right access modes, right? Mobile order pickup, delivery, drive-thru and then obviously the in-cafe, but I just believe the cafe experience and this idea of a community location, the third place, it's critical to people and it's critical to what makes Starbucks Starbucks. It's who we are.
And you think that's what customers want because we've seen the new entrants into the coffee space both domestically as well as some folks like Luckin 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-thru business. It's well over a $10 billion business. It actually would be a Fortune 500 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 coffeehouse, we really are unmatched and so that's our point of 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 the store at the same time somebody wants to grab and go or a delivery driver showing up to grab an 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 4 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-thru during peaks are below 4 minutes as well. So, it can be done, but we have to be intentional about it and you know, 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 is, I think one of your executives said yesterday at your investor day, is back.
Yeah, yeah. The cultural relevancy of the Starbucks, that's back as well. Our marketing, our menu innovation, one of the things we set out to do as 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 places at the right time with the right communication and Tressie Lieberman who leads our marketing efforts, she's done a phenomenal job. We are, in my opinion, Starbucks is back.
Well, speaking of her at your investor day yesterday she talked a lot about your rewards program. It's relaunching, 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 in bringing in new customers, those who aren't exposed to Starbucks on a daily basis.
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 is 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 going to have the reserve tier, the gold tier and the green tier.
Reserve would be the top. You know, you'll actually get a black reserve Starbucks card which you know, will be pretty cool cuz everything seems to be so virtual anymore. I think people like every once in a while to get something tangible. But the green tier then allows you to redeem stars and you can get you know, a reward with not that much engagement and so it just gets people to be more connected to the brand and then ideally over time, you know, they'll migrate into gold or you know, for some of those folks that migrate into reserve I think they'll find it's a really special experience.
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, 4% I think was it in the most recent quarter. I think your guidance is what, 3 to 5% a little bit longer term, but there are some analysts that are looking back to the heyday from a decade or two ago when Starbucks was more mid single digits and even up into the teens. Is that even realistic to get back to those levels?
Look, I've looked at this as I've come in and a company at our scale, you know, we have 40,000 coffeehouses around the world, over 400,000 green apron partners. I think if we can consistently deliver a comp that is 3% or better, you know, revenue growth that is 5% 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 13 to 15% range on margins here by 2028 and then actually that's just I think a mile marker. There's 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 $500 million close to $600 million into the labor experience and you know, the best way for you to then start driving earnings is we got to get the top line going. We've done that and then obviously we'll work on the middle of the P&L as well on the cost side of things which we've got clear line of sight on how over the next 2 years we'll probably be able to save close to $2 billion while we're growing the top line. So, it's a combination of growth and smart cost management.
