Starbucks to spend $450M next year to revamp stores

Starbucks — ringing up record sales but struggling with low employee morale — plans to spend $450 million next year to make its North American stores more efficient and less complex.

The company also said it plans to open 2,000 net new stores in the US by 2025, with an emphasis on meeting the growing demand for new types of service, including drive-thru, mobile ordering and delivery. Drive-thru now makes up 50% of US sales, for example, while delivery demand has grown by 24% so far this year.

Customizable cold drinks — which now make up as many as 75% of Starbucks’ US beverage orders — are also taxing employees in kitchens designed for simpler hot drinks. Starbucks debuted a new work station that requires less movement and can cut 50 seconds off the process of making a blended iced mocha. A new technology will cut the time needed to make cold brew coffee from 20 hours to a few seconds.

“It’s clear that our physical stores have to change. Our physical stores were built for a different era,” said John Culver, Starbucks’ chief operating officer, at a day-long event for investors in Seattle Tuesday.

Starbucks executives made little mention of a growing unionization effort at its US stores during morning presentations Tuesday. But it has clearly been an impetus for the company to think more deeply about ways to improve employees’ work life. Since late last year, 236 of Starbucks’ 9,000 company-owned US stores have voted to unionize, an effort the company opposes.

“The reality is, we have a trust deficit with our partners,” said Frank Britt, Starbucks’ executive vice president and chief strategy officer. “The work we do in our stores today is too physically hard.”

Leading the revamp will be Laxman Narasimhan, a former PepsiCo executive who was named Starbucks’ CEO last week. Narasimhan will spend the next six months shadowing interim CEO Howard Schultz, who helped shape the company after buying it in 1987 and has been leading it on a temporary basis since April. Schultz will remain on Starbucks’ board when Narasimhan assumes the CEO position in April.

“It’s an incredible opportunity for me to be learning at the feet of one of the best entrepreneurs in the world,” Narasimhan said,

Schultz said Starbucks notched the best sales week in its 51-year history in August when it introduced its fall drink lineup. But Schultz said Starbucks lost its way during the pandemic, when employee retention tumbled even as customers demanded new service like curbside pickup.