Dive Brief:

• Starbucks will accelerate its new store growth, outfitting 90% of new stores with a drive-thru, interim CEO Howard Schultz said Tuesday during an earnings call. 
• The drive-thrus will incorporate new store designs and technology, including more handheld devices and equipment aimed at increasing efficiency, speed and profitability. 
• The company is investing $1 billion in its employees and technology this fiscal year to meet ongoing consumer demand across drive-thru, mobile order and pay — which makes up 70% of store volume — as well as delivery and in-store orders, Schultz said.

Dive Insight:

During the pandemic, the company experienced long lines at its drive-thrus with stores closed. To help alleviate the issue, it added curbside pickup at 2,000 locations. By 2021, the company began focusing on its drive-thru model, including building more units in the central U.S., with hundreds of locations using handheld point-of-sales devices, but these moves have not been enough to meet ongoing consumer demand. 

Starbucks would typically make investments to increase capacity to better meet demand, but the pandemic interfered with its ability to invest in store design, operations, infrastructure and technology, Schultz said. 

“We've been unable to meet the relentless demand we're seeing in our U.S. stores as seamlessly as our customers and partners expect and candidly deserve,” Schultz said. “Simply said, we do not, today, have the adequate capacity to meet the growing demand for Starbucks coffees.”

In addition to more tech-centric drive-thrus, the company will launch credit and debit tipping in late 2022. Equipment and technology enhancements will include upgrading all in-store iPads with newer models, accelerating the rollout of equipment like Merrychef Ovens and Mastrena 2 espresso machines and resolving all noncritical repair and maintenance issues immediately. 

“The transformation will accelerate already record demand in our stores, but the investments will enable us to handle the increased demand and deliver increased profitability, while also delivering an elevated experience to our customers, and most importantly, reducing strain on our partners,” Schultz said. “We must reintroduce joy in the customer and emotional connection back into the partner experience.”

During the company’s fiscal Q2 2022 quarter, North America’s comp sales increased 12% over last year and 23% compared to 2020, Schultz said. Delivery, which makes up about $500 million in sales, is up 30% during the first half of the fiscal year, he said. 

Mobile order and pay, which generates over $400 billion in sales, is up 400% in five years and over 20% from last year, Schultz said. Starbucks Card holders also spent roughly $11 billion last year in prepaid purchases, he said, adding that over $1 billion is on Starbucks Cards waiting to be spent. Rewards memberships were up 17% during the quarter to 27 million members.

"Starbucks has long fashioned itself as a 'third-place' to connect and build community but with around 75% of transactions coming through mobile order-and-pay, drive-thrus and delivery, it has perhaps become more important that the company be able to provide great coffee experiences to-go," Lyle Margolis, senior director at Fitch Ratings, said in an email to Restaurant Dive. "The drive-thru remains an integral part of that strategy and we expect it to be a focus for new unit development going forward."

The company will also be making significant investments to extend its digital capabilities to further reach more customers, he said. That will also include creating nonfungible tokens through its Starbucks Web 3.0 experience, which is expected to create a digital third place for consumers, said Brady Brewer, EVP and CMO at Starbucks. This digital experience is expected to launch later this year.