Good morning. This week brought convincing proof that Starbucks’ comeback under CEO Brian Niccol is for real. The coffee chain on Wednesday reported that quarterly U.S. comparable sales rose 7.1%, their second straight gain. What’s more, for the first time in two years, profit and sales both rose, and customer visits increased, showing the investments Niccol has made in more staffing, higher wages, and store glow-ups are starting to pay for themselves.
The CEO’s overarching strategy has been to bring the human touch and pleasure of ordering back to Starbucks. Those experiences were damaged by the company’s efforts to contain costs, which led to understaffed and often chaotic cafés and bad decisions like removing seating at many stores.
“Customers now believe their Starbucks purchase is worth it compared to a year ago,” Niccol told Wall Street analysts earlier this week. Of course, no CEO can fix a company on his own, and he wouldn’t have gotten Starbucks back into shape without employee buy-in, from his C-suite all the way to his front-line workers. One of Niccol’s key hires was his former Taco Bell colleague Mike Grams, now his COO at Starbucks. I spoke to Grams this week, and he told me that Starbucks’ $500 million investment last year in more staffing has improved customer service, adding that increased benefits and incentives has meant less churn in store supervisory roles. (A union representing 600 of Starbucks’ U.S. stores disagrees with company claims about how good those benefits really are.)
Grams told me that, “This isn’t just a turnaround, but a reawakening of what’s made Starbucks exceptional in the first place.”
Starbucks’ reinvestment in its employees reminds me a lot of what went on at Walmart. The turnaround a decade ago that transformed that retailer into an ecommerce powerhouse would not have happened without the decision to vastly improve wages and benefits, often to the dismay of Wall Street, which fretted over profit margins. More recently we saw the same thing play out at Macy’s, which now has more employees tidying floor space and manning the cash registers, fueling the department store’s comeback.
A focus on leanness is often a defensive move by a company that doesn’t know how to grow anymore. But Starbucks’ $500 million investment has been central to returning it to sales growth in the U.S., which in turn has helped its market cap rise almost $20 billion since last summer. As the old adage goes, sometimes you have to spend money to make money.—Phil Wahba
Contact CEO Daily via Diane Brady at diane.brady@fortune.com
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S&P 500 futures are up 0.09% this morning. The last session closed up 1.02%. The STOXX Europe 600 was up 1.22% in early trading. The U.K.’s FTSE 100 was down 0.57% in early trading. Japan’s Nikkei 225 was up 0.38%. Markets in China, Hong Kong, South Korea, and India are closed today. Bitcoin was steady at $77K.
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CEO Daily is curated and edited by Andrew Wyrich, Jason Ma, Claire Zillman, and Lee Clifford.
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