Starbucks a Diamond in the Rough

Oct 25, 2022 | Corporate Insights, No Bull Economics

Starbucks continues to impress with +9% same-store-sales growth (+8% check & +1% in traffic) in North America during 3Q22, revealing that spending from its higher-income guests is very strong despite ongoing economic stress. We think it is possible that the chain’s affluent guests are trading down their spending habits, allocating more of their budget to affordable luxuries like a trip to Starbucks. Unique customer visits were up +6% y/y & up +9% versus last quarter (although traffic remains lower than pre-covid levels). U.S. stores delivered record average weekly sales during the quarter (up +30% from pre-covid levels), generating 5 of the top 10 grossing sales days in Starbucks’ history.

3Q sales growth drivers are as follows: (1) Strong demand for customized cold beverages which now drive 75% of total beverage sales in U.S. stores. Guests are increasingly customizing their cold beverages by adding modifiers that enable the creation of a virtually unlimited range of taste, flavor & color profiles that are being shared on social media. Sales of all categories of cold beverages (including espresso, brewed coffee & refreshers) were up strong double-digits during the quarter. (2) Higher food attach (to beverage sales) drove a +19% y/y increase in food sales during the quarter. (3) Its Active Starbucks Rewards program membership grew +13% y/y to 27.4MM members & an all-time high member spend for Rewards customers was driven by more strategic pricing, more premium beverages, more personalization & greater food attach. (4) Continued strength in its convenience ordering channels with a 72% sales mix during the quarter driven by its drive-thru, mobile order & pay, and delivery channels.

Morning daypart sales (51% sales mix during the quarter) continue to recover (helping total traffic to also recover to pre-covid levels) as urban markets open up, with employees starting to return to their offices. In any case, new daypart routines are being established by Starbucks’ customers post-covid.

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