Starbucks is refocusing on unit growth again after the company moved its business to more take-out-focused locations during the pandemic.
The Seattle-based coffee giant announced last week that it plans to open around 2,000 net new locations in the current fiscal year, which began in October. This would be the highest number in four years and would represent unit growth of about 6%.
Granted, it’s not like Starbucks pulled out last year. The company still opened a net total of 1,173 global locations during the 12-month period, driven entirely by aggressive international development.
But it is declining in North America. The company chose to close around 600 locations in the United States last year as part of a strategy to refocus its asset base. Starbucks has closed coffee shops in urban areas and shifted from mall development to urban locations focused on take-out and drive-thru units.
Yet in the process, Starbucks has shrunk.
The chain ended its year with 16,826 locations in North America, up from 16,960 a year ago. While the chain opened more licensed stores during that time, it closed nearly 250 company-operated locations. Almost 60% of the chain’s locations in North America are company-operated.
Number of Starbucks units
Source: documents filed with the SEC
By closing these stores, Starbucks executives said the brand was more profitable. The company’s operating margin in North America improved 510 basis points to 22.5%, although the chain’s investments in wages and benefits weighed on margins by 270 basis points.
Executives put the credit on the growth of the average ticket. But they also said the chain’s “transformation of the shopping area” had improved margins.
Driving and mobile orders and payments now account for 70% of the company’s total sales. That’s a 15 percentage point increase from pre-pandemic levels. “We have made the strategic decision to transform the store portfolio in the United States,” said CEO Kevin Johnson. “We have essentially repositioned nearly 600 stores to better serve our customers and offer us better profitability.
“This strategic decision gives us today an increase in margin and a high customer experience. “
Starbucks’ return to unit growth also shows where its future lies. The company said 75% of its net new units next year will be outside the United States, in places like China, where much of its growth is expected to take place.
Indeed, the chain managed to increase its number of international units by 8% last year to just over 17,000 locations despite restrictions linked to the pandemic.
That said, Starbucks comments imply that the chain will add around 500 domestic locations this year.
The more aggressive unit growth of the business comes as more and more large restaurant companies accelerate their global expansion as the pandemic eases. Yum Brands, the owner of KFC, Taco Bell and Pizza Hut, said he was on track for a potentially record-breaking number of new units this year.
And McDonald’s executives said last week that they had stepped up the pace of unit growth in China despite a resurgence of COVID there. Chief Financial Officer Kevin Ozan said China was “a market of critical importance to us”. “We plan to be even more aggressive in opening new restaurants in this market,” he said.