Starbucks is rethinking almost everything, including how to make Frappuccinos

REUTERS
REUTERS

Summary

  • Changing tastes and frazzled workers prompt CEO Howard Schultz to press for a reset; ‘we will design new stores from scratch’

Behind a secure door at Starbucks Corp. headquarters lies a technology lab where the chain is plotting its renewal. That includes rethinking the onerous path its baristas must take to make a Frappuccino.

Inside the 20,000-square-foot space called the Tryer Center, baristas working in a mock-up of a Starbucks cafe walked back and forth between refrigerators, blenders and syrups to make a single blended coffee topped with cold foam and caramel drizzle. They asked if the company could build kitchens that bring the equipment closer together and make syrup pumps, milk dispensers and ice bins that work better.

Natarajan Venkatakrishnan, who is in charge of the center, is testing a new machine that could reduce the time it takes to make cold brewed coffee. He also wants Starbucks to have better blenders.

“Today, you go to a Starbucks store, you take this," Mr. Venkatakrishnan said, holding up one of the blenders currently in use. “You put a cap on it, you put it in, you blend it, you pour it out, you have to rinse this, you have to rinse the lid. All of that takes time."

Starbucks, the chain that made espresso ubiquitous in America, now faces daily crises in dispensing it. U.S. stores designed a decade ago struggle to meet today’s consumer demand. Cafes that once averaged 1,200 orders a day are now trying to make 1,500. Executives recently visited one East Coast cafe that averaged $1 million in annual sales a decade ago. Now, it is ringing up nearly $3 million in sales in the same 1,500-square-foot space.

Many U.S. locations need to be overhauled, said Katie Young, who as senior vice president of global growth and development is in charge of figuring out what new cafes should look like. Having so much demand is a privilege for Starbucks, but also a problem, she said.

Starbucks was hit hard by the pandemic. By last year, to-go orders had helped sales recover to prepandemic levels, but this year, rising costs have begun eating into profit margins, and the company has raised prices. In the quarter ended July 3, Starbucks reported that sales had risen 9% from the year-earlier period, but net income dropped 21%.

Executives also are grappling with a unionization push that began in its Buffalo, N.Y., market in August 2021. Workers have been pressing for better pay, staffing levels and hours. Turnover has shot up since the pandemic hit. One in four U.S. baristas are quitting their jobs within 90 days, according to internal figures, up from roughly one in 10 previously.

In March, Starbucks said then-Chief Executive Kevin Johnson would retire and Howard Schultz, who had turned the company into a global colossus, would take over on an interim basis. Mr. Schultz has since said that the company had made mistakes in recent years and needs to change.

In August, the company again increased wages. For more than a year, it also has been testing how to overhaul operations to improve the experience for both employees and customers. If employees spend less time running around cafes fetching foam and carrying 20-pound buckets of ice, executives said, maybe they will be happier working there.

“It’s the complexity of those cold beverages," Mr. Schultz said in a recent interview. “We will fix that. We will design new stores from scratch."

Starbucks, the world’s largest coffee company by locations and sales, started out by selling coffee to office workers in cities such as Seattle. Mr. Schultz took over in 1987 with the goal of bringing Italian-style espresso to Americans, building stores with small prep areas to brew a limited number of offerings.

As Starbucks expanded, so did its menu. It started serving Frappuccinos in 1995, and pumpkin spice latte and other flavors and toppings followed. Warm sandwiches came in 2003. It introduced cold brew and draft nitro coffee in the 2010s.

In 2015, the company launched an app feature that allowed customers to pay for their drinks ahead of time and to customize their coffee orders in what Starbucks says are 170,000 ways.

At the Tryer Center recently, barista Lisa Koss demonstrated the steps required to create one popular drink, an Iced Caramel Macchiato. Ms. Koss first dispensed shots from the espresso machine at the hot-bar section of the cafe, then crossed the floor to whip cold foam in a blender. She walked back to the hot bar to collect the espresso shots and grab milk from a refrigerator. She headed back to the cold bar for the foam, bent down to scoop ice, then poured the drink together. It took about three minutes to make. Other popular drinks require even more steps.

“There’s usually so much walking and bending, that after eight hours, it hurts," said Greg Pieczynski, another barista.

Starbucks expects workers to deliver handcrafted beverages fast. A clipboard in one Buffalo Starbucks, used to track workers’ drive-through delivery times, said “Expectations: Under 50 Seconds," according to a photo provided by one barista. Starbucks said there isn’t a standard time for drive-through service because each location is unique, but that service in 50 seconds or less is ideal.

In the company’s early years, baristas served coffee over the counter. Starbucks tested its first drive-through in 1994, and by 2009, more than one-third of the company-owned locations in North America had them.

Now, nearly half of Starbucks’s U.S. sales come from drive-through orders. Mr. Schultz wants 90% of the chain’s new stores to include drive-throughs––continuing a shift that he acknowledged has contributed to new pressures on workers.

“We have to ask ourselves, how do we exceed the expectations of both our people and our customers in an environment where the stores weren’t designed for that?" he said.

Soon after Mr. Schultz returned as interim CEO in April, he and other executives fanned out across the country to try to better understand the workforce and how they wanted their jobs to change. Workers cited problems with store designs, equipment and kitchen resources.

“My store is heavily restricted by its design. Store desperately needs a remodel to cope," one Starbucks executive wrote while listening to barista feedback during one session.

Baristas’ frustrations played into a unionization effort that began last year. As of Monday, the National Labor Relations Board has certified unions at 211 of Starbucks’s roughly 9,000 U.S. locations, and votes against unionization at 37 locations.

Workers have lobbied for better pay, equipment and operations.

Tensions flared recently at a Starbucks in Anderson, S.C., after union workers pressed the store manager about working conditions and requested new ovens and espresso machines. Starbucks said the manager later called the police after feeling threatened by the workers, and the company suspended some of the employees pending an investigation.

Starbucks Workers United said the baristas were demanding better working conditions in their store, as allowed under federal labor law.

Jon Hudson, a union barista there, said workers want to make drinks and food for customers as quickly as possible, but the store’s layout and equipment often get in the way. The current oven, he said, can heat only one type of food at a time, leading to logjams when orders pile up for various breakfast sandwiches and baked goods.

“We love our regulars. We have their orders memorized," said Mr. Hudson, who has worked for Starbucks for more than four years. “We know it’s annoying to wait for that food or when our equipment is down."

Starbucks has upgraded equipment periodically, including in the past year adding espresso machines that can pull three shots for complex orders, rather than two. The pandemic delayed some of the equipment installations, the company said.

Last year, amid workers’ calls for better store conditions, Starbucks executives formed a team to focus on what more they could do to improve cafe operations and productivity. They gathered at the Tryer Center to try to speed up the time it took Starbucks to launch new ideas.

Since late 2018, the company has used the space to develop new beverages, equipment and cafe procedures. It began pairing baristas, beverage developers and engineers to figure out how to carve seconds off the time it takes to prepare coffee drinks, particularly complex cold ones. It conducted motion studies to measure how long it took baristas to walk across the floor to pump extra syrup, among other tasks.

Engineers mocked up designs for the cafe prep area, producing prototypes with a bank of 3-D printers. Technicians studied such things as milk dispensers, ice machines and the size of dispensers for dried strawberries and dragonfruit.

“Every second matters with customers waiting," said Mr. Venkatakrishnan, who previously led engineering teams at General Electric Co. that developed industrial cooling and heating systems. He helped lead the construction of the Tryer Center space after joining the company in 2017.

In April of this year, on Mr. Schultz’s first day back as CEO, he asked Mr. Venkatakrishnan during an internal company address to demonstrate “something quite mundane but important." Mr. Schultz told assembled employees that he had gone to the Tryer Center skeptical about what was happening there, until Mr. Venkatakrishnan showed him a prototype of a portable blender.

The prototype could whip foam faster than the blender currently in use, and closer to a store’s espresso machines. The machine could save baristas one trip across the cafe floor, executives said.

“Every store should get two of these by next year," Mr. Venkatakrishnan said, holding up the portable blender.

“This is a big thing," Mr. Schultz said.

Starbucks has told employees that the company hopes to have new equipment and designs rolling out to its stores in the next three years. Investors and Wall Street analysts said they are eager to hear how much the work will cost and how it will improve productivity.

In August, Starbucks reported U.S. quarterly sales that outpaced analysts’ expectations, but costs also have grown.

During an internal company forum, Chief Financial Officer Rachel Ruggeri listed other challenges, including inflation and losses in the company’s China business. Starbucks needed to invest in its stores and business overall to help it grow again and improve employee retention, she said.

“It’s certainly not where we need to be," she said, “but we’ve seen signs of green shoots."

This story has been published from a wire agency feed without modifications to the text

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