Howard Schultz tells Cramer: China will overtake U.S. as Starbucks’ biggest market by 2025
Howard Schultz believes Starbucks ‘ (SBUX) best days are still ahead, and we think it’s easy to see why the influential coffee executive thinks that way after the Club holding laid out its reinvention plan Tuesday. Schultz also talked to CNBC about ambitious goals in China as well as his controversial decision to halt stock buybacks and put extra cash into the business. Starbucks unveiled an in-depth breakdown of its multi-year innovation strategy during an investor day presentation , and Schultz — in the final few months of his third stint as CEO — drove home the corporate vision in an interview with CNBC. “The future of Starbucks,” the outgoing interim CEO Schultz told Jim Cramer, “has never been brighter. Our best days are ahead of us.” All in all, what Starbucks had to say Tuesday validated our decision to invest in the company in late August. With drive-thru ordering and cold beverages soaring in popularity, Starbucks looks well positioned to not only adapt to the new reality but succeed in shaping it. Fresh financial goals “This is a new era of growth for Starbucks,” Schultz told Cramer, noting that “over the next year or so,” the company is aiming to grow both revenue and per-share earnings by double-digit percentages. Starbucks’ old forecast had been for roughly 8% to 10% sales growth, while its EPS guidance range had already been in the double digits. Starbucks also plans to accelerate its store expansion, Schultz said, while still growing comparable sales in existing locations. “In addition to that, we’re going to open up one store every nine hours in China. We have 6,000 stores in China. By 2025, China will be bigger than the U.S., so Starbucks is ready for this moment in time,” said Schultz, who will step aside in April and hand the reins to incoming CEO Laxman Narasimhan, an executive with a track record of success . “At a time in America where people are doubting the consumer, we are not; doubting China, we are not. Inflation is going to come down. China is going to come back, and the equity of the brand has never been stronger at Starbucks Coffee Company,” Schultz said. Details of the reinvention Starbucks is rolling out a number of innovations to help meet its financial targets, set to spend roughly $450 million in upgrades, starting in its fiscal year 2023 that begins in October. Key to the strategy is improvements to how Starbucks baristas make cold drinks. Making these increasingly popular beverages typically requires multiple, time-consuming steps. On Tuesday, Starbucks detailed how its new propriety “Siren System” can significantly shorten the time it takes to make drinks like Frappuccinos. Combined with a new streamlined way to make cold brew, and Schultz said baristas in cafes should better positioned to handle what customers are ordering these days and how they’re ordering it — roughly 50% drive-thru and 25% mobile order and pay. Schultz said that by needing to spend less time making each cold drink, employees in stores have more time to engage with customers. The CEO said fostering those connections between customers and baristas has long been crucial to the company’s success in turning cafes into “a third place” between home and the office. However, consumer habits have changed during the Covid pandemic, and Schultz said Starbucks is innovating its operations to keep the “third place” idea core to its operations even if people are spending less time in physical cafes or, in the case of drive-thru customers, not entering them at all. “A hundred million people are coming to Starbucks every week, and they’re coming to Starbucks today in a way that they want faster service. But we do not want to embrace transactions. We want to embrace experiential convenience. We will be more convenient, but we want to create the experience you’ve known Starbucks to be,” Schultz said. Partner experience Recently, a wave of labor organizing efforts have swept over some Starbucks stores in the U.S. and, as of Monday, over 230 company-owned locations have voted to unionize, according to the National Labor Relations Board. Improving employee morale has been a key task for Schultz since he took over as interim CEO earlier this year. Schultz acknowledged to CNBC that Starbucks has failed to meet the expectations lately of some cafe employees, which the company calls “partners.” Schultz said Starbucks’ reinvention plan is, at its heart, about trying restore the formula success the company used to fuel its growth from Pacific Northwest coffee shop operator to global powerhouse: “exceed the expectations of our people, so they can exceed the expectations of our customer.” Schultz said he knows his decision to suspend Starbucks’ buyback program in April wasn’t immediately popular with the investment community, but said it will pay off over the long run because it enables Starbucks to invest more than $1 billion to raise wages and enhance cafes. “Buying back stock is not the wrong thing to do, but if you are at a balance and your not investing in your people, it is the wrong thing to do,” he said. “If we invest in our people, shareholder value is going to come back. Over the life of Starbucks, looked at what we’ve been able to do. We’ve always been able to exceed expectations. I feel like we’re going to under-promise and exceed again.” (Jim Cramer’s Charitable Trust is long SBUX. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
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