Starbucks projects profit growth from tech, stores, workers spending

SEATTLE – Starbucks projects profits to grow between 15 per cent to 20 per cent per share over the next three years, a significant increase from previous guidance based on spending plans of US$2.5 billion (S$3.5 billion) to US$3 billion over the same period on technology, new stores and renovations, the coffee chain said on Tuesday.

The company is introducing technology to speed up production of its increasingly popular cold beverages and send digital orders away from busy locations as it seeks to prevent cafes from being overwhelmed by orders and improve working conditions for employees, it announced during its Investor Day event.

The Seattle-based company expects to return US$20 billion to investors through share buybacks and dividends from fiscal 2023 to 2025.

Wall Street analysts had largely expected earnings updates to be in line with previous guidance of 10 per cent to 12 per cent growth.

A surge in digital orders, which now make up nearly a quarter of all orders, has helped the coffee chain gain market share during the Covid-19 pandemic but has also led to barista burnout and strained the physical capacity at older stores.

The company is exploring “load balancing” technology that can send orders to stores that have capacity to actually fulfil them – instead of to stores already being slammed by drive-through customers, for instance, chief technology officer Deb Hall Lefevre said in an interview with Reuters.

The pandemic changed customer behaviour, leading to a deluge of mobile, delivery and drive-through orders, as well as an increase in cold beverages and customised coffee drinks.

Calling it a “reinvention,” the company laid out a sweeping plan spearheaded by interim chief executive Howard Schultz, who will be replaced by Mr Laxman Narasimhan in April next year.

The plan includes new equipment to heat food faster with less plastic waste, new store designs with larger shelves for orders and additional employee benefits.

A new system for iced coffee drinks shaves nearly a minute off the time it takes to make a mocha frappuccino, down to 35 seconds.

Baristas would no longer need to haul a bucket of ice to the station every hour because the ice will be automatically fed into the new equipment.

Another machine, which brews hot coffee one cup at a time instead of in bulk batches and eliminates paper filters, is being tested in Minneapolis locations and could be rolled out next year.

Starbucks is on pace to reach 45,000 stores by the end of fiscal 2025 – or nearly eight new stores per day – it said. That includes a net new 2,000 new US stores and some delivery-only locations.