Starbucks CEO Sees ‘Stir-Crazy’ Consumers Going Out, Eventually
Starbucks CEO says U.S. consumers will return to cafes, restaurants. But it’s going to take time.
(Bloomberg) -- Starbucks Corp. Chief Executive Officer Kevin Johnson says U.S. consumers will return to cafes and restaurants as they adapt to life post-Covid 19. But it’s going to take time.
“We have all been in our homes for six weeks, we have got a little stir-crazy,” Johnson said in a Bloomberg Television interview. “People want to get out and do something, but they want to be responsible.”
The Seattle-based chain aims to reopen 90% of its U.S. locations by early June, with most limited to drive-thru, delivery and pickup at store entries. The majority will start expanding operations next week, Johnson said. In some limited cases, it will allow to-go orders to be placed at the counter inside a store, so long as social distancing practices are possible.
The coronavirus pandemic is presenting a stern test to Starbucks’ central concept of creating a “third place” that’s away from both home and the office where consumers can relax and socialize. People won’t fully let their guard down until a vaccine is available, and even then, habits likely have changed for good, Johnson said.
“The effect and the experience in Covid-19 will affect all of us for the rest of our lifetime,” he said.
‘Gravitational Pull’
Even so, he remains optimistic that, with time, consumers will return to Starbucks.
“The fact is that, as human beings, we have this natural gravitational pull to interact with other humans,” Johnson said. That “feeling a part of community is really what the ‘third place’ is about.”
For now, there’s still widespread apprehension about going out, even as parts of the U.S. start to reactivate their economies. As a result, Starbucks isn’t going to provide any seating in its U.S. stores until it believes it is safe to do so. In China, where the company has been battling with the effects of the virus since January, most locations still aren’t offering seating. Others have very limited seating.
Prior to the pandemic, 80% of U.S. Starbucks orders were in a to-go form. The opposite was true in China, where the majority of customers preferred to take a seat in-store, a trend that’s now shifted during the outbreak.
Starbucks is focusing on China and the U.S. as its priority markets, and the coronavirus outbreak hasn’t changed that. Johnson said the company still plans to open 500 new stores in China this year, with the number inching up to 600 next year. He added the company has taken market share during the global pandemic.
Luckin Coffee Inc., a key competitor in the Chinese market, has been hobbled by an accounting scandal, stock crash and defaulted loans in recent weeks.
Daily ‘Uplift’
With economic data taking a turn for the worse, Johnson is also bullish on Starbuck’s prospects to thrive in a recession.
“Customers are looking for something to uplift the every day,” he said. “Maybe they cut back a little bit, but there’s an affinity customers have for Starbucks.” Johnson said customer-loyalty has carried the company through past recessions.
Edward Jones analyst Brian Yarbrough says large swaths of the population are hooked on their morning cup, and that could help Starbucks recover.
“Caffeine is addicting, people need their morning coffee,” Yarbrough said in an interview. “Their business was solid before Covid hit. If we come back from this, and consumers go back to work, they will go back to their normal routine.”
Starbucks had a tough second quarter, reporting yesterday that same-store sales fell 10% globally during the company’s fiscal second quarter. While almost all of its locations in China are now open, the lingering impact from the coronavirus pandemic will trim same-store sales there by 15% to 25% this fiscal year, the company said.
Even so, Starbucks is still optimistic about the long-term growth prospects in China.
Starbucks shares fell as much as 2.5% to $76.73 on Wednesday.
©2020 Bloomberg L.P.
