Starbucks (SBUX) is doubling down on its efforts to adopt more stores to an “on-the-go” format as it adapts to the economic realities of life after coronavirus lockdowns.
On Tuesday, Starbucks forecast that COVID-19 related lockdowns would cost it more than $2 billion in the current quarter, and “adverse impacts” from the crisis will erode comparable quarterly sales by 40-45%. However, CEO Kevin Johnson told employees in a letter that “the most difficult period is now behind us,” and the company is in the midst of “ clear evidence of business recovery” as sales rebound.
The coffee giant shuttered many of its U.S. company-operated stores during the pandemic, and saw comparable sales drop. During the next 18 months, Starbucks plans to transform its stores by adding drive-thru and curbside pick-up options, as well as rolling out more Starbucks Pick-up stores — accelerating its initial transformation timeline of three to five years.
Approximately 96% of Starbucks stores are now open globally. In the U.S., 95% of the store fleet is open, while 99% of the locations in China are operating. Of those U.S. stores currently closed, most are in the New York City area.
While Starbucks’ recovery will extend into the next fiscal year, the coffee chain has seen six consecutive weeks of sequential improvement in its closely-watched comparable-store sales. Coming off its weekly low of -65% in mid-April, comparable-store sales in the U.S. for the final week in May were down 28% versus a year ago.
Coffee to go as ‘rebuild’ phase starts
Starbucks is now entering what Johnson calls the “restore and build resilience” phase. Key to that will be its transformation that centers around the “increasing demand for convenience, including mobile ordering and pick-up, drive-thru and curbside delivery,” he wrote.
In the last week of May, more than 90% of its U.S. sales were through the drive-thru window and mobile-order-and-pay offered through its app, compared to roughly 60% pre-COVID-19, Starbucks estimates. At the end of the fiscal second quarter, Starbucks had 19.4 million active U.S members on its app, up 15% from a year ago.
With more than 32,000 stores worldwide, Starbucks has long established itself as a destination — or a “third place” between work and home, as the company likes to call it, where people gather in its cafés.
While in-store café seating hasn’t been widely available due to the pandemic, the “sit-and-stay” experience that’s core to the Starbucks experience isn’t going away.
Before COVID-19, approximately 80% of U.S. store transactions were already “on the go.” Yet during the worst days of the COVID-19 crisis, Starbucks adapted to social distancing via contactless pick-up, mobile ordering and less in-store traffic.
“This dynamic led our leadership team to reexamine our U.S. store footprint to determine how we might evolve our retail presence over time through targeted store renovations, relocations and new stores, a process that has been underway for two years,” Johnson wrote.
Soaring mobile orders — and store crowding — led Starbucks to rethink its store experience in dense metro areas. As a result, Starbucks debuted its first Pick-up store in Penn Plaza in New York City for on-the-go customers, and plans to add more in the Big Apple, Chicago, Seattle, and San Francisco.
This process will include “retrofitting and repositioning many existing cafés” to expand its store mix that will see Starbucks reexamine renovations, relocations and closures, Johnson said. Meanwhile, the company will add more walk-up windows, drive-thrus, and curbside pick-up in the suburbs.
Starbucks reports fiscal third-quarter earnings on July 28.
Julia La Roche is a Correspondent at Yahoo Finance. Follow her on Twitter.