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Just over a year since he was named the next Starbucks CEO, Laxman Narasimhan introduced a plan Thursday that will substantially expand the coffee giant’s global footprint and save $3 billion through efficiency measures.
The announcement came as Narasimhan presented Thursday the progress achieved on the reinvention plan — a $450 million plan introduced by his predecessor Howard Schultz in September 2022.
Narasimhan’s plan appears to be his twist on the reinvention plan under a catchy, coffee-themed phrase “Triple Shot Reinvention Strategy with Two Pumps.”
“We’re taking the next step in the refounding, building on the mission and laying out our long-term strategy,” Narasimhan told investors during a presentation Thursday afternoon.
Narasimhan’s plan includes expanding the Seattle-based coffee giant’s store portfolio from 38,000 to 55,000 stores globally by 2030. Of the new stores, 75% will be outside the U.S. The international expansion is in line with how Starbucks has been leaning heavily on global expansion in the past few years, particularly in China.
“Over the past five years, we have opened 9,000 stores — 7,000 of which were outside of the U.S.,” said Michael Conway, group president of international and channel development, in a statement. Aside from China, the company’s second largest market, Starbucks is looking to open stores in markets including India, Southeast Asia and Latin America, according to Conway.
Narasimhan’s plan also touts introducing efficiencies that will lead to savings of $3 billion over the next three years. According to Narasimhan, $1 billion will come from increased store efficiency and $2 billion from saving on the cost of making Starbucks’ products, known as cost of goods sold. The money would be reinvested in the “Starbucks experience” and returned to shareholders, he said.
Starbucks global expansion is one of the three items under the reinvention strategy in “Triple Shot Reinvention Strategy with Two Pumps.” The other two are scaling Starbucks’ digital capabilities and elevating the brand. The “two pumps” include unlocking efficiency as well as reinvigorating the partner culture. Starbucks calls its employees partners. Narasimhan introduced the five items as long-term growth paths.
Under this plan, Starbucks will aim to double the number of its reward-program members, currently at 75 million, within the next five years. New partnerships will help achieve this goal, Starbucks Chief Marketing Officer Brady Brewer said.
Narasimhan said Thursday that Starbucks is ahead of its schedule on the reinvention plan goals, including improving employee sentiment. Investments on employees have decreased “attrition,” he said, without providing statistics. Employee retention is also improving, according to the company.
Starbucks boosted its investment on employee benefits and pay in 2022, at the same time that a unionizing campaign was gaining steam, leading to workers joining a union in at least 359 U.S. stores.
On Thursday, Starbucks said that as part of the employee culture tenet, it plans to double the hourly income of its workers by the end of fiscal year 2025 compared to 2020.
As Starbucks speeds up its digital advancement, experiences of customers and employees might also change as the coffee giant partners with Apple, Microsoft and Amazon on new technology. The company said more technological advances will increase customization, a rising trend. Customizable drinks make up 85% of net beverage sales.
Narasimhan’s take on the reinvention plan came hours after Starbucks announced record quarterly and annual revenues of $9.4 billion and $36 billion, respectively. Starbucks stock was up nearly 9.5% Thursday.
In the most recent quarter, Starbucks said it opened a net of 816 new stores worldwide in the quarter, including 515 in North America. In the previous quarter, the company reported 588 net new stores globally, including 542 net new stores in North America.
Thursday marked the first time Narasimhan reported full-year earnings of the company since he took the helm in March. The strong results were ideal for Narasimhan as the CEO succeeding long-time Starbucks leader Howard Schultz, said David Wagner, a portfolio manager at Aptus Capital Advisors.
“It’s a great quarter,” Wagner said. Narasimhan is “really coming out firing with this reinvention plan now that Howard’s gone. He’s kind of putting all his eggs in this basket.”
Despite the strong results, Starbucks’ forecast for next year is more moderate as it weathers economic uncertainty. Wagner said that Starbucks is among other companies refraining from calling the economic uncertainty a recession. But the brand remains strong even among customers who are penny-pinched, Wagner said.
“They’ve incorporated it into their daily routine,” Wagner said of Starbucks customers. “They’re still willing to spend on this.”
Starbucks fans’ splurge on Pumpkin Spice Lattes in the latest quarter helped drive record revenues, according to the company.
Still, Starbucks reduced the forecasted increase in comparable store sales, or the revenue generated by a retail location, from 7% to 9%, to 5% to 7%.
The company also announced a Starbucks Art Prize. Every year, Starbucks will sponsor one visual artist with $1 million and display their art in Starbucks stores globally. The company will also pick five emerging architects to design five stores each year.
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