Shownotes
This Omni Talk Retail Fast Five segment explores Starbucks' ambitious plans to add up to 10,000 additional U.S. stores and whether smaller-format locations can still deliver on the company's vision of rebuilding the coffeehouse experience.
Chris Walton and Ben Miller discuss Starbucks' "Back to Starbucks" strategy, the role of drive-thru, mobile ordering, and delivery, and whether smaller stores can truly function as a modern third place.
The conversation also examines operational challenges, menu complexity, and what Starbucks must prove before investors and analysts fully buy into the company's long-term expansion plans.
⏩ Tune in for the full episode here: https://youtu.be/toy5NmyXau4
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Transcripts
According to the nation's Restaurant News, the NRN Starbucks believes it can get bigger by getting smaller.
Speaker A:Specifically, the coffee shop giant wants 5,000 more locations in the US and believes that it knows the markets where it can open those units.
Speaker A:But the locations it plans to open will be smaller than those it has historically opened.
Speaker A: ial smaller location at about: Speaker A:These shops would still have drive thrus delivery in store and mobile ordering and they would still also have seats, but they would be cheaper to build requiring half the acreage.
Speaker A:Brian Nichol during the presentation also did not stop at just 5,000 locations.
Speaker A:Quote, there's probably another 5,000 sites that we can add on top of the 5,000 that we've already identified.
Speaker A:And that's how you get to 10,000 additional stores in the U.S. end quote.
Speaker A:Ben is Brian Nichols 5,000 plus small store strategy counter or congruent with his plans to try and re enliven the in store Starbucks experience.
Speaker B:It's a great question and I'm really glad we're starting here as this story.
Speaker B:So you know, actually to answer your question, what did I do on my first day post Shop Talk?
Speaker B:I went back and I watched the entire video of the Starbucks investor day earlier this year because I wanted to really get under the skin of this for two things.
Speaker B:I wanted to get a feel for the future cafe plans, but I also wanted to get a feel for where they were on this idea of the third place to see if there is a right, a contradiction there.
Speaker B:And you know, I think we've, we've all heard Brian Nicholl talk about this in his last 18 months in charge of the company.
Speaker B:But this whole idea of rebuilding the third place is, is absolutely core to the back to Starbucks plan.
Speaker B:Now I was seeing are they moving away from this?
Speaker B:Is there any.
Speaker B:No, yeah, they, they, they're talking about putting more seating in.
Speaker B:They talk about how the stores that they have put their, you know, better, more friendly concept they call the uplift program doing better comps.
Speaker B:They talk about community gathering points, they talk about the cafe at the heart of the business.
Speaker B:So like that's really clear when they talk about stores and I know it's a topic that you and I have talked about, you've covered in the board, they are absolutely clear that their stores need to be able to deliver on what they say are their four access points.
Speaker A:Right.
Speaker B:Okay.
Speaker B:So their access points are the cafe.
Speaker B:So sit down.
Speaker B:This third place, it's drive thru, it's mobile order and it's delivery delivery which is already billion dollar business for them.
Speaker B:And they're very clear that their units must.
Speaker B:Unless it's in an incredibly high density urban environment where you can't do drive through their units must be able to do all four.
Speaker B:So they're very, they're very glued to that as well.
Speaker B:So then they talk about 5,000 new stores with an opportunity of 10,000.
Speaker B:So I guess there's two things.
Speaker B:There's one is the where and one is then what does a unit look like?
Speaker B:So for the, for the where they're saying they're basically they're underrepresented in the middle of the country.
Speaker B:So they talk about the south central US and some bits of the northeast which they call that as well, which I thought was interesting.
Speaker B:That gets them to 5,000.
Speaker B:The next 5,000 locations they say is unlocking afternoon.
Speaker B:So they significantly under index sales in the afternoon.
Speaker B:They can get a proposition that fits there.
Speaker B:They can make more places hit the economics and that's how you get 5 to 10,000.
Speaker B:Their plan for next fiscal year, fiscal year 28 is 400 net new stores.
Speaker B:So this.
Speaker B:So there's a bit of a contradiction.
Speaker B:They're talking about 400 next year, but then we can see 10,000.
Speaker B:So they're not.
Speaker B:It's reality now versus concept later.
Speaker B:And this is where it comes.
Speaker B:They have developed a smaller format, half the size, lower capex, less space required.
Speaker B:So smaller sites, smaller land.
Speaker B:But we haven't seen it yet.
Speaker B:We don't really know what it's like.
Speaker B:So when you add it all together there's a bit of an alchemy and it's that alchemy that we haven't seen is how do you do all of those one things?
Speaker B:So look, I think on the Starbucks recovery turnaround right now I'm in pure X Files mode.
Speaker B:Yeah.
Speaker B:So.
Speaker B:So I, I am agent Boulder.
Speaker B:Chris.
Speaker B:Chris.
Speaker B:I want, I want to believe but they've got to give me more to know what they're actually doing.
Speaker A:So.
Speaker A:Okay, so if I play that back the, the, the X Files analogy is great.
Speaker A:But you're saying they're, we're, we're stuck a little bit in the hype cycle here potentially.
Speaker A:That's one thing I'm hearing with you.
Speaker A:But then net.
Speaker A:Net.
Speaker A: a third place experience in a: Speaker A:Is that.
Speaker A:Can you even Conceptualize that in my head because I'm having difficulty.
Speaker B:Yeah, I can conceptualize it because the units that we have in, in Europe are often smaller than US units.
Speaker B:So if I think, if I think of the Starbucks on my high street.
Speaker B: Yeah, it's: Speaker B:So I can see how that can work as a third place.
Speaker B:It doesn't have drive through, but drive thru is more a prop, a site play than it is a unit play.
Speaker B:And obviously the level of mobile ordering and delivery is a lot less.
Speaker B:But they are investing in machinery.
Speaker B:They've got new machines that will double the speed at which espresso based drinks are made.
Speaker B:Look, my biggest challenge to the whole thing, and I think you and I have talked about this before, is the range rationalization.
Speaker B:Is the merchants just, you know, thinking that's going to be required to get a range that they can put through in that space.
Speaker B:Because if they continue to proliferate.
Speaker B:Yeah.
Speaker B:Then that's the time it takes and that's the more workspace required and the more ingredients and that's, that's the bit I'm concerned about.
Speaker B:Now there is talk in the analyst presentation about being more disciplined in innovation.
Speaker B:I think that's probably the bit I'm yet to see in store, but I'm excited to hopefully see.
Speaker B:Obviously the other bit they need to do is get their price inflation under control and that, that's one thing I'm not talking about yet.
Speaker A:Right, right.
Speaker A:And feels like every retailer's got that issue too to some degree.
Speaker A:You know, the way I, I thought the, I really wanted to ask you that question to start because I think, you know, I think on the surface the idea sounds incongruent with the idea that you're going to invest in the third place because, you know, generally speaking, especially in the U.S. the typical footprint is bigger.
Speaker A:It's, you know, it's got the atmosphere, et cetera.
Speaker A:But as I step back from it, I think that's okay because both things can be true.
Speaker A:The existing store base can need a refresh and a, and also I might add a jolt of employee support and inspiration, which is also a key piece of the Back to Starbucks plan that Nichols laid out.
Speaker A:And then the second thing is, longer term, Starbucks also potentially does need a new format to spread out operational demand as well as tap into new markets.
Speaker A:Because the, the demand, especially with mobile order and drive thru, is just getting too high at many of these locations.
Speaker A:But with that said, Ben and I'm gonna let, let everyone in on a little Inside baseball here.
Speaker A:The thing that really frustrates me though is when he made, when he was touting the.
Speaker A:Or I don't know if it's him or somebody else in their, in one of their reports, the amount of delivery that they're doing.
Speaker A:And I wrote an article for Forbes saying, well, that's a testament to the fact that, you know, maybe you don't need that third place experience for the average Starbucks, for the average Starbucks customers.
Speaker A:Maybe it's not that important when you see delivery growing the way that it is.
Speaker A:And I immediately got a call from their comps team and I spent an hour, you know, on the phone with them debating.
Speaker A:Basically my point was like, okay, you can say you're always going to put chairs and seating in your cafes, but can't you just at least tell me you're leaving the option open to go down that road?
Speaker A:And, and so this tells me that you probably still are hedging that way.
Speaker A:Especially Ben, if you, as someone that follows this industry as closely as you do is also saying this sounds like a little bit of hype.
Speaker A:You don't know what to believe.
Speaker A:And it's kind of X File ish as well.
Speaker A:So I don't know.
Speaker A:That's, that's the one.
Speaker A:Just misgiving I have about this is like it doesn't, it doesn't feel like everything is being as transparent as it could be.
Speaker A:But you know, time will tell.
Speaker A:But do I think it's a bad strategy?
Speaker A:I don't think I do.
Speaker A:I think it's smart.
Speaker A:But there are inconsistencies in the logic that are worth pointing out, which is why, why, why we started Omni Talk to begin with was to call things out when things just aren't making sense and aren't lining up.
Speaker A:But Ben, what do you think?
Speaker B:Yeah, and I think that's where it's incredibly exciting.
Speaker B:You can see the logic.
Speaker B:Yeah, you can see the numbers.
Speaker B:Look, all credit to Brian and the team.
Speaker B:The comps are at plus 4% having been at yeah, high single digit negatives before they join.
Speaker B:So yeah, the team are in, the team are improving, the install standards are getting better and maybe they have as a team seen something to be able to drive some efficiencies out the back office and the way that they were, they've got, look, they've got an almost new executive team, they've got a new coo, they've got a new cmo.
Speaker B:So maybe they've seen something and then hopefully they'll invite the analyst community, we'll get to see these smaller stores and then you can see how they've pulled it off.
Speaker B:It's just the unknown makes you curious at the moment.
Speaker A:Yeah.
Speaker A:And to your point, with all those mobile orders coming in and drive through orders coming in, maybe you don't need as much seating space in the store too, and you can still have a vision that still complements the third place idea.
Speaker A:Yeah, that's a great point.