R.J. Hottovy, Head of Analytical Research at Placer.ai, unpacks the recent changes at Starbucks and if the brand refresh has helped the business. Watch!
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00:00The last time you picked up your morning coffee at Starbucks, you may have noticed at least a few
00:04new changes as of late. Could be some new menu items, a personalized greeting on your cup, or
00:10a new uniform for the Starbucks baristas. In recent months, the company has undergone what
00:15some are calling not necessarily a rebrand, but at least a bit of a brand refresh. Here to talk
00:20more about it is the head of analytical research at Placer AI, RJ Hadovy. RJ, grateful for being
00:27here. So the stock is up here despite the earnings miss, but the stock is down 9% year-to-date.
00:33What factors do you think have most contributed to the company's performance in the last quarter,
00:38or how are you assessing Starbucks' current strategies? Yeah, there's a couple different
00:43ways to look at it, but I think the important thing is that there are signs of noticeable
00:47change within the organization. Brian Nichols, who's had a long history, both Taco Bell and
00:52Chipotle, really knows a lot about the restaurant experience. I do think little things like writing
00:58names on cups, bringing back the condiment station, changes in uniform policy, these are
01:04all things consumers can see. It hasn't really shown up in the total number of visits and
01:09visit frequency, but they're holding on to the visitors that have been coming in. I think
01:14as people start to get more familiar with what's changing, the hope is that we drive greater
01:18visit frequency out of it. But I think even just these little changes maybe have helped
01:23to kind of bring back that emotional attachment with Starbucks, which really long built its
01:28brand on being this coffeehouse experience. And I think at least these initial steps are
01:32positive. It may pay time for the full results to kick in, but I think at least it's positive
01:36here. We saw a decline in both U.S. as well as global same-store sales. Is there anything
01:43we could already take away from a potential consumer shift, a consumer pullback, especially
01:49given the general market conditions we're dealing with, RJ?
01:52Yeah, what we did see was, at least in the U.S., it was a broad-based pullback in visits,
01:58and really it started to happen late January. As we got into February, it became a lot more
02:02pronounced. Obviously, that coincided with a lot of uncertainty about tariffs and potential
02:08return to inflation. We were seeing egg prices up at that point. A lot of other headline
02:13news going on there. And so, not just restaurants. Restaurants were certainly impacted in February,
02:17but really across the entire retail space. And almost every sector that we look at saw
02:22a year-over-year decline in visitation trends. Things have normalized and kind of stabilized
02:25a bit in March and April, but there's a lot of evidence that the overall macroeconomy is weighing
02:30on consumer mindset right now. And so, I think that that's going to continue to play out.
02:34I think the implementation of tariffs from certain categories certainly could accelerate that.
02:39But it's been a tough environment, not just for Starbucks, but really everybody in the
02:42restaurant space, everybody in the retail space. There's a lot of consumer uncertainty
02:46right now.
02:47What are your top takeaways so far from what you've seen out of Brian Nichols' leadership
02:51style?
02:51You know, what I think is interesting about it, too, is he really knows how to bring
02:55the important part of the business back into focus. Starbucks is a brand that built its
02:59brand on being this experience. It's third place. And I think the company is really trying
03:05to bring it back. Maybe not all locations on that. I do think that they're trying to serve
03:10effectively two different audiences at the same time. You've got your experienced customers
03:14that have grown up with the brand and really like that third place. At the same time, too,
03:18you've introduced mobile order and pay, and you've got some customers who just want that
03:21quick cup of coffee. I think they're doing a better job of kind of distinguishing which
03:25locations kind of address which customer. It's really hard to serve both of those customers
03:29in the same group. So, I think that's kind of the first step is kind of understanding
03:32what need state you're serving with each store. I think Brian, with his background of being a
03:37marketing guy, really good job on some of the ads they've been running, really brings
03:41back the experience. I think that's really important to this day and age. And I think
03:46we'll continue to see more TV ads. I think we'll continue to see more menu innovation or
03:50even just simple repackaging. One of the things that was so successful early on during his
03:54tenure at Chipotle was the introduction of lifestyle bowls that really connected well
03:58to the customer that maybe had been staying away from Chipotle because of how good is this
04:03for me kind of concerns. I think so much I'll start to lean into that with some of the new
04:06menu innovations and some changes in the forward. It is a competitive space. I think, you know,
04:11the last couple of years we've seen the, you know, rise of, you know, kind of drive-through
04:15coffee places like a Dutch Bros or Seven Brew. And it is going to be difficult to compete with
04:19those guys. But I think kind of staying in focus and, you know, knowing what really kind
04:23of separates the brand from the rest of the category opens up an opportunity for them.
04:28The Starbucks Workers Union has been very quick to sound off. Even in just the last few
04:33days, I'm quoting now from one of their social media posts, Starbucks workers across the country
04:38are facing understaffing, inaccessible benefits, discrimination, and low wages. Instead of fixing
04:44these issues, the union says, the companies decide to introduce an unpopular, more conservative
04:49dress code. Union baristas in Seattle are marching on management in response. The strife or the general
04:56story, RJ, between Starbucks and the union is not new, but this might be newer fuel to that fire.
05:05How big of a headwind or how important of a story is that as part of where Starbucks is today?
05:11Yeah, I think it's an important one. I think management certainly has the, you know,
05:14it's on their radar screen. I think they're taking it seriously. I do think that one of the things that
05:19we've seen is that understaffing and just being able to get people through has been a big
05:24to turn to the company. If you look at our visitation data, the number of total visitors
05:29coming to Starbucks really hasn't changed significantly the last couple of years. It's
05:33just visit frequency is down. So people are coming in, but just coming in less frequently is kind of
05:37the main thing we've observed with our data. And I think to correct that, a lot of that comes down
05:41to, you know, getting that throughput down, making sure that you're not waiting an excessive amount
05:46of time. So the company talking about investing more in its labor, that was one of the central
05:50messages coming out of the last second quarter update. I think that is really going to be focused
05:54and so I think some of these things that, you know, that the unions talked about, I think
05:58they are front center for the company because they are critical to improving the overall experience.
06:03So I think that's one of those things that we'll continue to see more, more news on. I think
06:06management's certainly sympathetic to it.
06:09RJ, Starbucks has said that it's now aiming to reduce wait times for customers to under four
06:14minutes. How feasible a goal is that? And any challenges you see that might arise in trying
06:20to implement that type of standard across all locations. And as we know, this is the company
06:25with a lot of locations.
06:26It is. And that's certainly, it's not an easy task. And I think that's probably the number
06:30one challenge or number one obstacle facing Brian Nickel and the rest of the management
06:33team is how to get that time down, particularly peak hours, kind of the morning and even, you
06:39know, to some extent, some of the afternoon day parts where we've seen a bit of consumer
06:42behavior and shift towards that day part. That is a really difficult and again, balancing both
06:47the experience and that convenient customer. Some people want to come in and sit down and
06:51enjoy their cup of coffee. Some people just want to grab and go. It is really difficult
06:55to balance all that, especially when you do those peak hours. So I think there's a combination
06:59of things that have to be done. One is to better synchronize all the technologies that they
07:04use to make it happen. In a lot of ways, it's training the consumer on this too, making
07:07sure if you're more of a convenience customer, you know to go to a pickup type location, whereas
07:12experienced customers go to a different location. It's not an easy task. It's going to require
07:16some investment in labor technology and probably some, you know, new types of store formats
07:21as well. But I think that that is the normal goal that I think, you know, as consumers,
07:26I've kind of started branching out to other coffee houses. This is one of the ways to recapture
07:29and bring them back in.
07:32All right, Jay, I'm about out of time, but what is the most interesting part of the current
07:35Starbucks story that you think we're not paying close enough attention to?
07:40I mean, I think above all, I mean, it's a brand that's really well recognized. It's a brand
07:44that generally does well with a younger audience. And some of these more operational things
07:49as they start to, you know, invest and make improvements on it. It's a brand that can come
07:53back. We've seen it time and time again, this really strong brand that, you know, does capture
07:57a lot of visits. And I think that they, as they can implement, continue to implement these
08:01improvements, they can really start to improve on that visit frequency, which is key to the
08:04story here.
08:06RJ Haddavy, head of analytical research at Placer AI. RJ, thanks for the great context on all things
08:12SBUX. Appreciate you being here today.