Starbucks, Built on Togetherness, Tries to Adapt to Distancing

(Bloomberg) -- Is a Starbucks even a Starbucks if there isn’t an aspiring screenwriter hacking away on a script at the next table?

Kevin Johnson certainly thinks so.

As the coronavirus pandemic redefines consumer comfort levels and transforms even more orders from sit-down to take-away, the chain’s chief executive officer is making a big bet that the future of restaurants will involve a lot less lingering over a latte.

“Until there’s a vaccine available at scale and treatments for Covid, all of us have to continue to monitor the spread of this virus and adapt appropriately,” Johnson said in an interview. “And I think that’s what we’ve tried to do.”

The beverage behemoth on Wednesday announced plans to accelerate the rollout of its “pickup” store concept, smaller-format stores that don’t have any of the tables and chairs that have traditionally made the chain’s cafes a popular place to sit, work and socialize. So popular, in fact, that the company years ago coined the phrase “the third place” to describe the experience: somewhere to spend time that isn’t home or work. Johnson maintains “the third place” isn’t going away, even with more grab-and-go options.

“Does this eliminate the third place? No, not at all. It complements it.” Humans want to “connect with one another,” Johnson said on a video call from the nearly empty Starbucks Corp. support center in Seattle. “That’s always going to exist.”

Grand Central

To make room for the new pickup locations, which will be in cities like New York, Boston and Chicago, Starbucks will be closing about 400 of its traditional cafes in those urban areas over the next 18 months. Eventually, those shuttered stores -- and then some -- will be replaced by the new format, which have roughly half the footprint of a normal store.

The company already operates one pickup location near Penn Station in New York and a second in Toronto’s Commerce Court. Another one is planned for the Grand Central Station area in Manhattan, with others following quickly behind.

“In Middle America and suburban areas, we have drive-thrus. Think of pickup stores as a ‘walk-thru’ in a dense metropolitan area,” Johnson said. Eighty percent of Starbucks customers already take their orders to go, he said, so it won’t even feel like much of a shift.

What has felt like a shift, though, is the daily routines that brought customers to a Starbucks in the first place. With many schools closed and whole industries working from home, the chain has reported a sharp drop in sales. Starbucks expects the coronavirus pandemic to reduce sales this quarter by as much as $3.2 billion. In the U.S., its critical home market, comparable sales were down 63% in April and 43% in May, though things have been improving with each passing week.

For many consumers, the new normal doesn’t currently involve a drive by a Starbucks location: “I didn’t get up this morning and drive straight into work; I get up, and I sit down, and I click on Zoom or I click on my video teleconference and I start my day,” Johnson said of the new American experience. “I do anticipate there’ll be more people working from home longer term and that’s part of why we’re repositioning the portfolio.”

A Little Lonely

Johnson has been working from home himself most days, coming into the office maybe once or twice week. “My personal life and the way I work has changed significantly. I’ve adapted to the Covid situation just like all of you,” he said. “There’s very few people here in our support center. Like all of us, there are times when I feel isolated and a little lonely.”

Things are picking up a bit faster for Starbucks in China, the chain’s other key market and a country further along the road to post-pandemic recovery. There, 99% of stores are open and same-store sales were down just 21% in May. That’s good news for a company that has made China a major growth target amid a saturated U.S. restaurant space.

China is on track to see same-store sales return to growth by the end of this fiscal year ending in September, with the U.S. recovering in early fiscal 2021.

“China is recovering because they started reopening faster,” he said. “But I think the U.S. is right behind them and yes, the U.S. might lag their recovery by a quarter. But it’s not years; it’s a quarter.”

©2020 Bloomberg L.P.