Starbucks needs to fix its traffic problem.
The coffee giant’s net revenue grew 9.2% to $6.63 billion in the most recent quarter, beating analysts’ expectations of $6.49 billion. In the US, same-store sales increased 4%, while traffic was flat.
Growing traffic has proven to be difficult for Starbucks over the last year. Flat is an improvement over recent quarters, as traffic dropped 1% last quarter and 3% in the quarter before that.
“These results were enabled in part by solid execution during our holiday season,” CEO Kevin Johnson told investors on Thursday. “Our holiday plan was informed by insights we gathered from customers who highlighted what they appreciate from Starbucks during the holidays.”
Starbucks rolled out its full holiday assortment in early November, more than a full week earlier than it did in 2017. Stores were decked out in seasonal decor, baristas donned red aprons, and the chain debuted a successful reusable red cup promotion. Starbucks also pushed its holiday assortment with a “more robust” media plan, including a TV advertising campaign.
“This comprehensive insight-driven approach delivered results and importantly, created momentum that provides a solid foundation for future quarters, helped in part by strong performance in our gift card business,” Johnson said.
Starbucks’ ability to bring more people in during the holidays is part of the company’s wider plan to boost traffic, either by bringing more customers in or by bringing them in more often.
Starbucks executives say the company is working to improve customers’ experience with tweaks to workers’ jobs and remodeled stores. Getting more customers to sign up for the loyalty program and rolling out delivery both also have the potential to boost orders.
Making customers want to return to Starbucks
Starbucks’ New York City Roastery. Business Insider/Jessica Tyler
Analysts are in agreement on the importance of Starbucks’ boosting transactions and are optimistic about early results.
“To us, this is an important step in the right direction, as we believe that it will be imperative for SBUX to truly fix its traffic problem in the U.S. for the stock to work l.t.” or long term, Wells Fargo’s Bonnie Herzog said in a note on Thursday.
One of the biggest ways that Starbucks is trying to fix its “traffic problem” is by improving the customer experience.
“It is clear to us that a number of the company’s initiatives are paying dividends and helping to deliver growth,” Neil Saunders, Managing Director of GlobalData Retail, said in a comment.
“Foremost among these is the remodeling of many stores to create a more engaging and pleasant experience,” Saunders continued. “From our data, this has increased the amount of time customers linger and has helped to ease up average transaction values. We also believe that the refurbishment is an important step in preventing customers from switching to other brands.”
Johnson highlighted the company’s efforts to improve customers’ in-store experiences, which he said boosts customer loyalty and convinces them to return more often. Workers’ tasks are being tweaked — some work is being shifted to after-hours and others are being automated — in order to encourage more interaction with customers.
“Our Starbucks store partners who proudly wear the green apron are at the center of connecting with customers and we are on a mission to support them by simplifying work and reducing some of the non-customer facing tasks that historically have taken up to 40% of their time,” Johnson said.
Starbucks baristas have told Business Insider that many struggle to connect with customers, due to understaffing and an evolving business model. In 2017, the company rolled out a new employee training program that was intended to improve the customer experience, but some workers felt it ignored larger problems. Certain stores are also facing issues related to atmosphere, such as bathrooms in which visitors leave messes and drug paraphernalia.
Read more: Starbucks is quietly changing the business as furious baristas slam the ‘cult that pays $9 per hour’
According to Johnson, the work to improve customer experience will “span multiple quarters.” Customer connection scores have already improved, Johnson said, including in the afternoon, when Starbucks has struggled to grow sales.
Is Starbucks doing enough?
Starbucks’ holiday cups. Starbucks
Starbucks’ app and loyalty program have long been industry leaders. In the most recent quarter, the chain’s loyalty program reached 16.3 million active members in the US, up 14% compared to last year.
The company’s delivery strategy is more recent, but it’s still encouraging, according to analysts. Earlier in January, Starbucks announced plans to partner with Uber Eats to deliver coffee in six major US cities. The company plans to offer delivery in roughly 25% of its stores across the US by April.
“We believe introducing delivery into more markets will entice more sign-ups and app downloads and thus we expect growth to accelerate,” John Zolidis, president of Quo Vadis Capital, said in a note on Friday.
However, some long-term questions remain. Starbucks needs to boost traffic, and to do so it needs to find new customers — not just rely on its loyalty program.
Saunders notes that most of Starbucks’ growth comes from existing customers spending more money at the chain.
“The second issue we have with the numbers is that most of the growth appears to be coming from existing customers spending more,” Saunders wrote. “Starbucks does not seem to be attracting all that many new audiences.”
“Indeed, it still underperforms with younger coffee drinkers who are increasingly going to niche independent coffee shops because of the more authentic vibe and modern atmosphere,” Saunders continued. “In our view, this weakness will become more obvious as conditions become tougher and it is not something we believe Starbucks has plans to remedy.”