Starbucks' Strong Growth in China and the U.S.

2023-07-30

Starbucks held its Q1 2023 Earnings Call, where the company's executives discussed the financial and operating results for the first quarter of fiscal year 2023. One of the main topics of discussion was the recovery and growth of Starbucks in China following the COVID-19 pandemic.

During the call, Rachel Ruggeri, the Executive Vice President and CFO, highlighted that Starbucks' 10% comp (comparable store sales) was primarily driven by an increase in average transaction value. Although transactions per store per day were still below pre-COVID levels, Ruggeri noted that the morning and midday dayparts experienced a year-over-year increase in transactions, units, and ticket, aligning with the company's reinvention plan to enhance the customer experience during the busiest dayparts.

Ruggeri also mentioned the strong performance of Starbucks' U.S. business, indicating successful navigation of the market and growth in domestic operations. The company's market outlook for China was positive, with strong recovery momentum since January and a fantastic traffic surge during the Chinese New Year holiday. Starbucks is confident in its ability to capture future growth opportunities in China and aims to have 9,000 stores by 2025.

The key drivers of Starbucks' business include menu pricing, traffic and transactions, growth in the U.S. and international markets, the channels business, and favorable foreign exchange. The company plans to implement incremental pricing adjustments, equipment innovations, and the Siren system in the future to improve efficiency and customer service.

Starbucks believes it has a strong competitive advantage in the market, with factors such as strong operating muscle, customer and partner relationships, brand strength, quality products, unique customer experience, omnichannel capabilities, national presence, and a digital ecosystem. The company emphasized its relevance and resilience in the market, with a large customer base and high engagement levels, even in challenging economic conditions.

In terms of innovation, Starbucks has a future roadmap focused on cold, customized, and plant-based beverages. The company also prioritizes its digital platforms, which have been successful in retaining customers, and aims to improve efficiency and customization through equipment. Overall, Starbucks is actively adapting and innovating to stay ahead in the competitive landscape.

During the call, several key performance indicators (KPIs) were discussed. The Customer Connection Score reached a record high in Q1, indicating strong customer engagement and satisfaction. Starbucks reported having more customers in the total population than ever before, with 56% of transactions coming from reward members, demonstrating high customer loyalty. Despite macroeconomic challenges, the company achieved growth in both ticket and transaction numbers, showcasing resilience and sales growth. Additionally, Starbucks achieved the highest average ticket in its history.

The company made progress on strategic initiatives, such as implementing incremental pricing in the U.S. business and rolling out equipment innovations to improve efficiency and customer service. These initiatives led to improvements in drive-through window times and Mobile Order & Pay uptime. The company also completed automated ordering for food and lobby, freeing up energy to focus on customers. The implementation of the Siren system, expected to improve efficiency and productivity, is planned for a later rollout. Overall, Starbucks saw all-time highs in productivity.

The participants of the call included Howard Schultz (Interim Chief Executive Officer), Brady Brewer (Executive Vice President and Chief Marketing Officer), Rachel Ruggeri (Executive Vice President and Chief Financial Officer), Frank Britt (Executive Vice President, Chief Strategy and Transformation Officer), Sara Trilling (Executive Vice President and President of Starbucks North America), Michael Conway (Group President of International and Channel Development), and Belinda Wong (Chairwoman of Starbucks China).

In conclusion, Starbucks reported strong financial and operating results during its Q1 2023 Earnings Call. The company's performance and growth in different markets, particularly in China and the U.S., were highlighted. Starbucks remains confident in its ability to capture future growth opportunities, with a focus on innovation and customer engagement.