An interior of a remodeled Starbucks location in New York City. | Photo by Jonathan Maze.
Apparently, Starbucks customers like visiting stores with seats and usable power outlets.
The coffee giant dramatically accelerated its remodel program, completing its goal to reach 1,000 locations this fiscal year with one quarter remaining. So, it is doing another 500 this quarter and plans to accelerate its pace of renovations next year, too.
The reason is simple: the remodeled units attract more customers. Company executives said on Wednesday that the locations generate a traffic lift across dayparts, formats and customer segments.
“In short,” CEO Brian Niccol told analysts, “We like what we’re seeing.”
Remodels are a crucial part of Niccol’s “Back to Starbucks” program, and the traffic lifts the company is getting from them are playing a role in the chain’s surging sales results this year.
U.S. same-store sales at the Seattle-based company rose 7.9% last quarter, the company’s fiscal third. Those sales came from a combination of higher traffic and consumers spending more on their visits.
In particular, those consumers are buying more food: Executives said they had a record high rate of food orders during the period.
The remodels are done overnight, so the store doesn’t close. They are designed to make the shops more inviting for in-store customers while improving the flow for customers who take their drinks, and food apparently, with them.
Starbucks is routinely adding seats to such shops, even when those shops are tiny, and they routinely fix power outlets that were covered up in prior remodels when the company shifted its attention toward the mobile-order crowd. Many include digital menu boards.
The chain completed 300 remodels by the end of its fiscal second quarter, then sped up their development, with more than 650 shops renovated last quarter alone. That has given Starbucks greater visibility into the impact from these remodels.
“I think that all just puts the brand in a much stronger position,” CFO Cathy Smith said on Wednesday. She noted that the company’s “brand health metrics” are their highest in five years. “I think all of that goes together with that great, full customer experience, and we’re seeing it with the uplifts,” she said.
The cost of the remodels is relatively minimal. The typical renovation costs $150,000, and the overnight renovations mean a shop is not offline. “They continue to be a really good return on investment,” Smith said.
Starbucks’ focus under Niccol has concentrated on its in-store experience. Under his predecessors, the company focused more of its attention on the takeout customer, building more drive-thrus, and replacing many of its urban shops with pickup stores that didn’t have seats. The reason: Mobile order and drive-thru represent the bulk of the chain’s visits.
But, apparently, those customers like to see nice interiors, too. Company executives said the transaction growth isn’t just coming from in-store customers but those who come in and leave.
“The uplifts have been really terrific performers for us,” Niccol told analysts. “We’re seeing the business respond, which has been our ongoing hypothesis that it would benefit all day long.
“But it would also benefit all access points because people just feel better, even when doing their mobile-order pickup, when they go to a coffeehouse versus a place that maybe wasn’t up to our Starbucks standard.”
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