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Smaller is likely to be better for Starbucks when it comes to a chunk of its future fleet of cafés in the wake of the COVID-19 pandemic.
The coffee shop giant said on Wednesday that it is fast-tracking its plan to build a sizable fleet of U.S. and Canadian Starbucks Pickup stores, smaller locations where customers can only collect a mobile order placed ahead of time but not sit, within 18 to 24 months. That is faster than the initial goal of three to five years and reflects what is expected to be the public’s enduring wariness of sitting in close quarters in cafés, coupled with the original goal of faster and more efficient service, particularly for rush-hour customers in big cities.
“This strategy aligns closely with rapidly evolving customer preferences that have accelerated as a result of COVID-19, including higher levels of mobile ordering, more contactless pick-up experiences and reduced in-store congestion, all of which naturally allow for greater physical distancing,” Starbucks chief executive Kevin Johnson and finance chief Patrick Grismer wrote in a letter to investors and employees.
As of now, the company only has a pair of Starbucks Pickup locations up and running, one near New York’s Penn Station, a major transportation hub, and the other in Toronto. A third, at New York’s Grand Central Station is coming soon. While Starbucks had planned to fine-tune the concept before expanding it, it is now putting the foot on the gas to roll them out.
All told, Starbucks plans to renovate or move 400 traditional cafes in the U.S. and Canada in the next 18 months, many of which will be turned into pick-up stores. In addition, the company aims to open 40 to 50 new pickup-only stores in that time. Some 80% of Starbucks’ U.S. transactions were ‘on-the-go’ (mobile orders and drive through) prior to the pandemic and that has risen to more than 90% now.
As much as Starbucks has touted its cafés as “third places” where people can relax in a place that is neither home or the office (which today are one and the same for millions of Americans) and opened a few lavish “Roastery” stores, the truth is that harried commuters and office workers at rush hour just want to get their coffee and food and go. And Starbucks’ push toward dedicated spaces for mobile orders inside its stores and the new store concept even before the pandemic were a recognition of the frustrating bottlenecks many people felt at Starbucks as they waited for several minutes for things like a blueberry muffin.
Ultimately, the pickup stores will be focused on larger metro areas and be near its regular cafes in a hub-and-spoke model, so if someone does want to sit while having their Starbucks products, that person can do so.
For now, the company’s strength in mobile ordering—the adoption of which Starbucks expects will permanently hit a higher percentage—has mitigated some of the disastrous effect of having stores closed for weeks. Yet, even though the vast majority of its stores in the U.S. have reopened for curbside pickup, business remains slow: Comparable store sales fell 32% in the last week of May, most of that from drive-through and curbside pickup. That was much better than the 65% drop a few weeks earlier but still a punishing decline. That is only spurring interest in having more productive stores.
In its letter on Wednesday, Starbucks said it expected current-quarter operating income to fall as much as $2.2 billion, with sales continuing to decline for the rest of the year despite stores largely reopening.
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