Hey, everybody. I'm David Palmer, Evercore ISI. Really excited about this one. Thanks so much for joining the Evercore Consumer and Retail Conference. I'm pleased to welcome Brian Nickel, Chairman and CEO of Starbucks, to this conference. And, you know, congratulations to you and the team so far on many areas of progress from service times to innovation to marketing and loyalty to productivity savings. There's a ton of initiatives, a ton of things for us to talk about. Comps have turned with fiscal second quarter U.S. transactions growing across all income cohorts, mourning back to 22 levels, and operating income and EPS inflecting for the first time in two years. So it does make sense when you talk about saying that there's been a turn and the turnaround. At this point, I know investors will want to understand if that 7% U.S. comp we saw last quarter is the start of a durable sales recovery. And of course, I think they'll be wanting to see that be a profitable one as well going forward. So many initiatives to talk about. You've talked about five big ones lately, the Green Apron Service, menu and marketing innovation, brand digital rewards, that whole area, the reimagined afternoon, and the coffeehouse uplift. So I think I have that right. And so when you think about those initiatives, what's been important so far, and what do you think will become increasingly important in your growth in the quarters ahead?
Yeah. Well, thanks, David. I don't know what else we need to talk about. You covered it.
Good to do this for today. This one question for 30 minutes. Yeah, that's fine.
So, look, you know, I think for any turnaround, you have to get the operational foundation healthy. And that's really where we spent our time. The labor investment was all about reestablishing a great customer experience and reorienting the company back to being a customer-focused company. And I think that's what you're seeing in our stores. And then we've scorecarded the program as well with what we call the gross scorecard. And you hear us talk about, you know, do you get zero-shot score or a five-shot score, and where are you on that spectrum? And the reason why that's important is twofold. it shows us what stores are performing and it also shows us what stores still have work to do and it also provides feedback for our store leaders on what's working what's not working and so you know very proud of the progress that we've made there mike and our operators have done a phenomenal job you know we now have close to 70 percent of our stores performing at four shots or better and the reason why that's important is we know when we're above three shots we see really nice transaction and comp performance. And so still work to do because there's 30 percent of stores that aren't where they need to be. But the good news is now we have clarity of what they need to work on in order to get them to that three, four shot performance. On the menu marketing side of things, the good news is once you have a strong foundation, it makes a lot of your menu and marketing work a lot more effective because you're working from a position of strength as opposed to a position of weakness. And I think that's what you saw with our protein launch, our matcha menu reset, our bake case reset, you know, and what you'll see us going forward is as we tackle the afternoon, one of the key pieces of that puzzle is we've got to fix the supply chain to support the afternoon, but we also just have to have the right offerings, both in drink and food. And I think that's what you're going to see us continue to do. And on the refresher side of things, next week we launch the Blue Coconut Refresher. We've already added to our refresher platform energy. What's great about the energy is both in the morning people are able to have more energy in their food forward drink and in the afternoon they're able to take out all the energy so they can have zero caffeine in the afternoon if they would like and you're starting to see that play out. And then when you think about food you know our food business looks pretty good in the morning. I think we've got the right assortment. We still have opportunities to be better, but in the afternoon, we do not have the right assortment, and we have work to do on the food offering to attach with the right beverage offering, but I view that as all opportunity, and then on your point about uplifts or getting the stores back to being a great coffee house, we've done this in about 700 stores so far. Our plan is to get it across, you know, eight, nine thousand, and we have seen when we fix the store environment and we give you a great seat and a great coffeehouse experience, people spend time there. And we see an uptake in afternoon business, and we also see people just have more engagement with the brand, period. And also, our partners prefer working in places that are great coffeehouses versus not. And so it's just got an add-on effect for building the brand, satisfying customers, and making our partners feel great about the place that they work in.
And in the process, we're putting seats back in, which, you know that's kind of store 101 it's good to have seats for customers yeah that would make sense if you want them to hang out for sure you said it with enthusiasm yeah it makes you wonder what was happening before you know but um dancing yeah what were they doing uh the the operations turnaround let's let's double click on that a little bit i you it feels like you've come a long way I know sub four minutes was a big goal for you in terms of in cafe and the drive-through and you've said that the original Green Apron service rollout stores those 650 of them are still out comping the system
by two points and it makes you wonder like where's the end you know what what is it what do you think this operations throughput stuff but also customer satisfaction levels from operations might be doing for comp doing to comps right now and where's the end yeah look i i mean the reality is from a transaction standpoint we're still not all the way back to 2023 levels or 2019 levels and 23 2019 we're roughly kind of the same level um so there's still a lot of headroom just in transactions um and i would say you know i don't know if you're ever done you know i think the reality is uh customers are going to demand experiences to justify spending their dollars. And I think if you're just a transaction, I think you lose in the long run. I think if you're an experience with great craft, I think you win in the long run. And I think fortunately for us, that's kind of the Starbucks model, which is craft expressed through customization and a barista that personalizes it for you. And the connection, meaning the third place, and also this idea of a community environment. So, you know, And when you look at this gross scorecard, it's very simple. It's like, are we in stock? Are we food safe? Are we satisfying customers? Are we doing great throughput? Are speed requirements, right? And so, you know, when you just look at these things, this is like the basics of how you run retail. And the good news is our partners, as a result, understand the feedback, and then they can understand the action that they need to take. And the other one in there, too, is are you staffed? So, you know, you do those five things correctly, guess what? You end up with a great store.
Yeah, I remember asking you this. This is a little off script, but I remember when we were chatting a year into when you were running Chipotle, I was asking you about, you know, what sort of score would you give the major buckets of the business? You know, right now I can think of menu and innovation, operations, supply chain would be on the list there, marketing would be on there. You know, where do you think, you know, if 10 is where you really think you can be, and, well, let's just say, you know, one was where you were. Where are you on those major areas, do you think?
Yeah, I mean, the way I kind of think about it is, for the most part, we've got the fixing done on operations and marketing menu, but there's still lots of opportunity to be better. And so in all these cases, I feel like the good news is now I'm on my front foot for operations for menu marketing but still early innings of what i think we're capable of versus supply chain i would say we're still in the process of fixing technology we're still in the process of fixing the store um you know experience through uplifts still in the process of fixing the store pipeline we're still in the process of fixing so you know i think some things are working um and we're on our front foot other things we're still fixing better than we were but still need to be fixed and then you can turn it into a position of strength and that's ultimately what I'm after is operationally I want to be in a position of strength marketing position of strength supply chain position of strength and you know once you have those strengths then the trick is how do you build on it you know just put plus I'll never give myself a 10 out of 10 like yeah there's right there's you're dealing in a customer business that customers attitudes beliefs are always changing we have to be a learning organization that doesn't get complacent you know what do you if you had to go back to just the the grow report and what you know you saw with Mike originally with the operations you know just give us a sense of just the operational the org structure the accountability what you're trying to achieve and and where
you are in that journey, how important has this been for comps?
Yeah, look, I think it's been critical. Like, if you can't operate consistently, it's going to be very hard, I think, to consistently perform. You know, it's just that simple. And the good news is Mike, I think, is one of the best operators you can find in the industry. He's got 31 years of experience. You know, I think he is best in class. And as a result, our operations will be best in class because that's the leadership that he expects. And, you know, I think the standard will continue to elevate. And I think it'll continue to be a source of growth for us. Not, you know, you never want your operations to be something you have to make excuses for. And you see a lot of places make excuses for it through discounts or promotions or whatever it may be. I think at the end of the day, the company's got to be able to stand on great execution and it's got to be able to stand on great operations especially when we're operating as many stores as we are with as many people that we are and you know I just think at the end of the day if it's not additive to the business something's off and therefore then we have to fix it you know one of the the other big areas is menu innovation It feels like the speed is being improved from idea to shelf.
Can you talk about this? And just, you know, it kind of is amazing to me. Some companies I've seen out there in the quick service space, they don't want to over test things. They don't want to get bogged down by that. They'd rather do a fast fail type approach. Tell us about what you think your approach is versus what we might see elsewhere and what's working.
Yeah, I mean, look, it depends on what the innovation is, right? Like, if the innovation requires a huge capital outlay and, like, we're going to go have to touch all the stores and knock out walls, you're going to test that thoroughly. If it is a syrup, there's low risk to getting the syrup wrong. And so I think you just have to balance the innovation to be like, well, what's low risk? What's high risk? with something that we need to be opportunistic and go fast on versus something that we can be, you know, more programmed on. And, you know, you mentioned this. Like, when I first got to Starbucks, it was taking us 18 months to do a syrup. Like, that's ridiculous, right? Now, on an existing syrup, we can turn it around in four months. And so, you know, I always like to have a pipeline that has a plan but also has the flexibility to be opportunistic. And that's really the process and the organization that we're building which is if a door opens we're going to run through that door and at the same token we have conviction what we believe are long-term trends so that we set the brand up to be culturally in front of kind of where society is or where society is moving so you got to have both and that's what we're building into the supply chain and then that's also we're building into the organizational structure so that people understand what you're accountable for and the performance matters so So if you put a SERIP out there and it doesn't work, we've got to have the intellectual integrity to say it didn't work and learn from it. That's how we then get even better and faster.
I remember when it was the analyst day, we talked about, I said, what might be the story of 27 by the time we get there? And he said, by then we'll have some operational improvements that will give us some momentum, but we'll also be identifying what platforms are kind of working for us. And we can kind of double click on those and go deeper on those. You know, maybe you can talk about just what has been the evidence of what is working so far, and where do you think might be the story of 27 in terms of your menu and innovation?
Yeah, so there's a couple platforms that are working for us. Matcha, protein or health and wellness is also working for us. Cold foam is working for us in a big way, that modifier. And then I think you're also going to see that Refreshers is also a big platform, more specifically energy right now. But ultimately, Refresher is going to be a platform. You know, it's an over $2 billion business today, frankly, that we've under leveraged. And, you know, it's a huge tool for us to grow from as you look at the afternoon, as well as continuing to expand our drink portfolio. Next week, we'll launch the blue coconut refresher, which will be great because now we'll finally go from two, which is strawberry, acai, and dragon fruit, to now three with the blueberry – I'm sorry, blue coconut. Blueberry's coming. Getting ahead of myself. But, you know, these platforms are powerful. The big case that we reset is proving to be another really powerful platform for us because Attach is a big deal in the morning. I think you'll see us in the afternoon have platforms around bites, grilled cheeses, and then obviously we'll continue to drive the cake pot platform. That's a big winner for us as well. So the good news is we've got these platforms in our menu. The other big unlock for us, frankly, is getting the third place back. You know, putting the seats back in with a great environment where people want to spend time and dwell will drive the afternoon day part, and it will also drive the morning-day part. And, you know, we're going to get better and better at how we build those stores and how we keep those stores current.
I was just thinking about how you have two things that might be unlocked for your afternoon a little bit, obviously the uplifts and how the hangout factor, but also supply chain and food, you know, just enabling some of the stuff you want to get done. I mean, maybe you could talk about that. When are you going to get the supply chain ready for you to get bigger into food in the afternoon?
Yeah, so supply chain, we're going to be at a place where we can have daily deliveries in all our stores by the end of this year. And we're also going to have a replenishment system where now we can replenish things in less than 24 hours. Versus today, we're in like 60% of our stores with daily deliveries and it's a 72-hour replenishment system. It's very hard to run an afternoon business and a food business if you don't have 24-hour replenishment. And the reason is because, I'll give you an example, right? If you have a turkey sandwich, a steak sandwich, and a vegetarian sandwich, if you're only shipping in cases of those sandwiches, you're not recognizing what's actually being consumed. So therefore, you end up with a lot of waste is really what happens. Or you just end up out of stock. And, you know, the principle we've mandated is if it's on the menu, it's going to be in stock. And then we've got to have the supply chain to support that menu execution. So getting to the idea of 24-hour replenishment with daily deliveries is going to unlock our food business in a big way because we'll be more in stock with the right items at the right time. And by the way, and also one other thing, we can shrink the back of house. So it also helps our build capability because now we can shrink the back of house because now you're bringing in eaches as opposed to cases.
You know, one of the things I wonder about on the innovation front, I was hearing Sir Khanna talk about beverages are growing versus food that's declining in America today, which is an interesting thing in and of itself. And three of the wellness things that were driving beverage, obviously hydration, but also energy and protein, conveniently come through that. And I was just thinking about you guys, and I wonder to what degree are you using those sort of basic insights to go after the wellness occasion, because a lot of times we just think of you as coffee shop and maybe a little bit of...
Coffee is the original, or I guess the OG of wellness when it comes to drinks. And so I do believe, I mean, exactly what you just said, drinks are a traffic driver. And, like, I think if you just stop and think about that for a second, drinks are a traffic driver both in the morning and in the afternoon. You would have a different frame on what a craft drink company is capable to grow into. And then what we have to do is figure out what are the right attaches to go with those traffic drivers. And so that's really what we're focused on. And you hit the nail on the head. it is wellness it is hydration and it is energy and we actually do all those really well and I think we're building on the wellness platform with protein you'll see us do other things right collagen creatine like the things you would expect on the hydration the ability to get into these other fruit forward drinks and then customize your caffeine allows the hydration game to be played at a different level and then obviously on the energy side of things the caffeine is a really clean way to get to that energy yeah what one of the things that we're also wondering about is how you're doing this doing so well
with Gen Z and Millennials and we hear all the time about the struggle with those generations yet at you know 40% increase in cold foam mix increases going on across the menu it's incredible that you're doing that with those generations so you know I would just wonder how you think that that you are doing that and how you know maybe is it something category what is the insight there about you know connecting with those younger generations that you're that you're clearly winning with yeah look I think this is where this the actual store experience matters so the coffee house experience really matters and when you can create a space that you know 15 year olds want to hang out in
as well as 80-year-olds, newsflash, it's called a coffee house, okay? So if we can own that third place, we have relevance now with every age cohort you can think of. And you can also think about just about every occasion, too, whether it's the PTA or, you know, the retired guys having coffee, like whatever occasion you can think of where people want to have a community experience, The coffee house is at the center of those things. So that's why I'm so passionate about getting this coffee house back. And that's not to say the drive-through occasion is not important, the mobile order pickup occasion is not important, the delivery occasion is not important. I just think the centering point is the coffee house. And that's what makes it magnetic to all these different age groups because they can all realize a connection with that idea of having a community place for whatever age of life they're in. then you factor in what can we do with food what can we do with drink to make it even more relevant and this is where it gets really interesting because like protein a protein latte you know initially I was like oh this will be you know for folks after a workout yes but actually the 30 to 50 year old female turns out really liked protein lattes and you know we're seeing that continue to grow. And now what we're also developing is a protein cold foam business in a big way. And you're seeing the protein cold foam have resonance on cold drinks, which is really interesting because now our cold drinks have just become that more, much more valuable to people. And so, and also I think the way we're showing up in social media, advertising, all the ways that we're communicating, I think we're communicating in a much better way, in a much more culturally relevant way from, you know, we did a store in Nashville with Taylor Swift, where we launched her new album, and we wrapped the place to be Starby's. Okay, so it was one store, Starby's, but it turned into a social media platform that lasted for two or three weeks. One store. Coachella, we did the Unicorn Frappuccino at Coachella, that created all sorts of buzz. In a couple weeks, we're going to do Unicorn Frappuccino. But again, we were culturally in these relevant places, And then our social media, if you just look at what's happening on social media, I think the team has done a phenomenal job of moving away from puns and cringy stuff to things that are connected, relevant, and being viral. And then even last night, like, if you were watching the Knicks game, hopefully you saw our Starbucks ad was on with, like, four minutes to go, and it was a coffee ad. And it was a great coffee ad. like you know unfortunately the Knicks lost so I think more people were buying coffee this morning than if they had won people may not have shown up in the morning there may not be as many people here right now if the Knicks won last night but you know my point in this is we have the ability to connect with wherever you are in your age of life wherever you are in your income journey and also wherever you are in your social circles and the coffee house is the third place where it doesn't matter what your age is, what your income is, or where you're coming from. It's a place where people connect and create community. And I think we're uniquely set up to do it better than anybody else. Yeah.
I remember when you were first focusing on this stuff, I think people were thinking, well, that's like a Gen X guy thinking that that still matters, you know, that it wasn't, you know, the relevant, because people are blowing and going and they're ordering digital. And so that was leaning against it at one point.
Yeah, yeah, well, you know. If you're saying, you know. I think we'll prove that the third place is highly relevant. And like I said, I think people sometimes misinterpret that statement of saying that I don't still value the drive-thru occasion. I absolutely do. And you've got to win in all those occasions. That's why we created these operating standards where if you're in cafe, you're going to get your drink in under four minutes. If it's mobile order to pick up, it's got to be on time and accurate. We've got a little more grace because you're usually off premise, so it's 10 to 12 minutes. In the drive-thru, it's got to be less than four minutes. Delivery, it's got to be around 25 minutes. So it's like if you set up the operating model to deliver on those occasions, why can't I also have a great cafe for that occasion when you walk in the store to grab your drink? Look, last I checked, even if you're grabbing something to go, would you like to get that from a place that's great or a place that looks like a hellhole? Like, I know what I would like. I'd like it to come from a place that's great. It makes you feel better about your purchase decision. You have less buyer's remorse if you go into a place that was great, made you feel good, even if you're only there for a split second.
When it comes to marketing, what's the big picture about, you know, there was a strategy in the past that was a lot more in-app discounting. You've increased the weighting in traditional and other. Are you where you want to be now? Can you just talk about the marketing strategy from a big bucket perspective?
Yeah, look, I think the team's doing a great job with our marketing spend. We stopped a lot of the discounting and reallocated those dollars to, I would call it, marketing at the top of the funnel. We still have a lot of work going on with marketing, frankly, at all levels of the funnel, right, if you think about our digital marketing, our rewards program. But I just think in general you're better off building a brand through engagement than trying to build a brand through discounting. I think those are borrowed transactions versus earned transactions. And, you know, we have a really simple approach, brand over time, sales overnight, and you can do both. And that's what Tressie and the team are tasked with. And then Mike and the team have to make sure when people show up, they get an experience that says they want to do it again. And I think our partners are doing that. You know, if you haven't been to, I guess there's a coffee shop, just across the street from here somebody told me her nickname is java julie and uh she runs a great starbucks you know and i wish every starbucks had that type of leader so that everybody has that type of connection um you know and it was this is kind of along those lines of when you do the marketing right and you get people to really commit and then our partners deliver on the experience um the loyal following is unbelievable like i've never seen it in a business the purchase frequency and how habitual people are with starbucks is pretty remarkable yeah one of the things that seems to also be a thing so to speak right now in restaurants is that that young people want more rapid news to keep their attention i don't know if you just agree with that general statement but it seems like you you are but with your strategy you are talking about doing more new news could you talk about what yeah yeah yeah look i think you know the reality is uh culture is moving faster than it ever has and if you want your brand to stay relevant you got to be in culture and in front of culture and that requires I think in my in our case news happening all the time but we got to be purposeful enough where we know we've got news happening at least every two to three weeks now that doesn't mean it's a new product right like you'll see us this week we're doing some stuff around the fact that all the soccer is going on right and we've got a clever weigh in on the soccer tournament right next week we've got the blue coconut refresher two weeks after that I think is s'mores frappuccino and then there's a bunch of other fun things happening from merchandise standpoint and I think that's the other thing that we got really complacent on was our merch and you know you guys probably saw this when we did the barista we finally got back to some great merchandising during holiday and that was a huge driver of performance, and frankly, people showing up at our stores at, you know, 5 a.m. on the nose when we opened. So I think you've got to have news across your business. You've got to have news, whether it's digital, commercial, packaging, cultural, product, or taking advantage of what's happening in culture at the moment, too. You've got to figure out how your brand can show up authentically, right? You don't want to show up in a way where it makes people cringe, though, right?
There are those examples where like like ah that didn't feel good um you you got to show up in a way where people are like oh they should be there and I hope they're there again next time yeah you say you're going to be doing something with world cup in a way that's unique to starbucks I wonder what that will be or how that will be we have a cup yeah okay there you go we have a global we have a world cup yes yes yes got it uh and i'm not even in the marketing department no you nailed yes got it and i got it yeah um let's talk about rewards um for a minute you know you've made some changes there
i know you've been happy with some of the results you know what needs tweaking what have you learned so far yeah look the the rewards launch has gone really well um and we did this back in march I fully expected our kind of user population would go down because whenever you change anything usually people quit but instead We actually saw an uptick in users, so we went to like 35.6 million and usually at time that time of year we also see a natural decline as well So we kind of broke the seasonality of it And then we also kind of broke the idea of making a change being able to keep people engaged and kind of the key things we heard from this were, well, we addressed the complaints people had about our rewards program. First was, can I have my birthday reward on more than just my birthday? You wouldn't think that's a big deal, but apparently for a lot of people, they want to get their free drink more than just on the day of their birthday. So we addressed that in the rewards program. Now you have 30 days to redeem your free drink for your birthday. Big unlock for people. The other one was they wanted the ability to earn and burn faster. So one of the things we put in here is for 60 stars, now you can get $2 off a drink. That's proving to be highly, highly effective. And then the other thing that we did in here is we recognized people for their loyalty. So now you have a reserve status, a gold status, and a green status. And there was an element of like, geez, you know, why am I treated the same way as the person comes once a year versus I come 200 times a year? And, you know, I think they had a point and so what we've seen is those that qualified for reserve or gold high levels of engagement they're more engaged with our starbucks shop they're also oddly enough already it's pretty amazing if you've looked in your app and you slide over in your reserve or in your status you can see where you are on the journey of maintaining your status or achieving the next status and i'm amazed how many people have already achieved their status again so it's like it's pretty powerful in that gold and reserve area and then the other thing that we did too is on the reloadable card you now get differentiation in stars for how you reload your card so 50 gets more stars of reloadable 30 and then 25 and so we've seen as a result more stored value because people want the rewards to go with it. And then we talked about this earlier. We talked about cold foam. We've also introduced this program where once a month we do Mod Monday where you can get cold foam or a modification for free. And then what we've seen is that becomes really sticky for people, and then that becomes part of their new routine. So we're pretty happy with the rewards program, the way it started. Still early days, but off to a really good start.
Normally, if we're doing this and we're another company, We've talked about the low-income consumer, how you keep them in the game, and the fact that you say you're growing across all the income demographic buckets sort of makes that sort of question moot. But why do you think they're staying in the game, the low-income consumers? And then maybe to the degree that you would recognize that it's not going to maybe get any easier for that side, how do you make sure that stays that way?
Yeah, look, I mean, it's clear, like, if you, all the surveys we do, and I think all the surveys you probably do, the low-income consumer is under more stress than they ever have been. And they're going to be more choiceful with the dollars that they choose to spend than they probably ever have been. And so I think this is where our experience and the customization that we provide really is a point of difference that makes them feel good about spending their $10 with Starbucks. And, you know, that's, we're going to have to continue to push to make sure that when they decide to spend ten bucks with us, they feel like it was a good choice to spending the ten dollars with us. And I think you run into a, you're in a difficult situation if it's very transactional, because it's very easy to trade out of that transaction, a lot harder to trade out of an experience that you feel was well worth it. And I don't think it gets any easier, that's why I wish we could get these uplifts done even faster. and, you know, we're going to have to continue to make sure that our partners are getting the experience where people walk out of that experience saying, like, hey, that was worth it. Regardless of what income level you are, you know, you want people walking away feeling like, yeah, that was worth handing over my $10.
You know, when I talk about competition a little bit and how you view your strategy, When you see that competition, people here in New York, they might see a luck in doing just digital orders in a very small box at cheap prices. Then they could see a higher-priced artisanal brand down the way, and then they see in the suburbs the Dutch Bros of the world. And so they are scared of the increased competition, even though you seem to be coexisting extremely well right now with them. What would you say about what the competition represents to you in terms of opportunities for you and threats?
Yeah, look, I think the competition is an endorsement of the category. Like, I think, you know, the only reason why you have more players coming in and more players that are growing is because the category is growing and more people want to experience drinks. And I think in our case, when we do Starbucks correctly, there is no better brand. When we don't do Starbucks correctly, we open the door to competition. But when we compete correctly, I like our chances of coming out on top. And, you know, when you put a drive-through with a cafe just about anywhere, it works. And when we do an in-line cafe with the right seating, with the right partner experience, again, that works. So, you know, I think we have opportunities, right? It's like the other thing I love about competition is it highlights where maybe you got a little complacent. I think we got complacent in our refresher business. Like the fact that we only have two really drinks in our refresher business. Meanwhile, there are whole businesses that basically exist because of the refresher platform. I think it's a wake-up call. And I think it's a wake-up call that says opportunity. Because at the end of the day, I've got the scale and I've got the market share and I've got the brand. So, you know, I view it as like, you know, stay on your front foot and, you know, you need to compete. And we weren't competing. You know, we didn't have a small drive-through execution. We didn't have a half-acre execution with a cafe. Now we do, and we'll start building it. You know, I think we're a little bit behind on energy and sparkling and blended drinks. We're going to get there on that.
Yeah. To some degree, I think when you say the food and the sparkling, I hear afternoon, just like with the uplift could help the afternoon. I just wonder from an afternoon day part opportunity, you know, could you just give us a sense of what that day part is today? Maybe the TAM? Yeah, yeah.
Well, I mean, so I'll put it to you this way. 50% of our business happens before 10 a.m. Like 65% of our business happens before noon. i i want to emphasize like winning the morning is not any less important yeah like we have to continue to win the morning and be the premier solution i actually like what mike says on this it's like we're going to be the first coffee shop open in the morning and we're going to be the first choice for coffee in the morning and we are going to be the first destination in the morning like by no means saying that we can create an afternoon day part doesn't mean we take our foot off the gas of winning the morning with that said i think there's a real opportunity to create a second peak around the afternoon between like two and five and I think it can be driven by drinks and then I think you have we've got another tremendous opportunity to put food with those drinks so ideally I'd love the afternoon peak to be as powerful as the morning peak we're a ways away from that but I don't see why that can't be the case and you know we've got a really strong platform with matcha we've got a really strong platform with refreshers and I think we're gonna have a really strong platform with the cafe because it's going to be the third place for where you want to be in the afternoon.
The one thing I wanted to touch on was that sort of incremental margin debate. You know, we would love to see the strong comps and profitability, please.
Yeah, me too.
So I guess, you know, last quarter, phenomenal comp growth. There was still some North America margin compression. A lot of this is planned. I mean, you're obviously still in the labor investment year. But as we kind of cycle past some of those, that half a billion dollars you spent on Green Apron service, you know, are we going to see that 60% to 65% incremental margin from that business?
Yeah, look, there's no structural reason that would prevent us from doing that. Now, if we don't have growth, yeah, it's very hard to do it, right? You've got to have consistent comp performance. But assuming we have the consistent comp performance, we're going to have cost discipline. We're going to have a stronger supply chain. And from here, you earn all the additional labor hours. And I wouldn't say I spent a half a billion. I would say I invested a half a billion into our stores with labor. And I think we're going to see that play out and continue to pay dividends. So by all means, I think I said this from the beginning. It's like, look, we've got to fix the basics, get the top line growing, and then we will get the bottom line. I share everybody's desire to get to, you know, the margins that we experienced in the past sooner rather than later, but it is a process, and I think the good news is we're ahead of schedule on that process, and I think you can start to see we stay disciplined on the things that matter, we'll get the top line, and we will get the bottom line.
One of the things that I know you've been working hard on is the supply chain side of things, and it kind of goes all in for this. you know, the $2 billion savings, which is a third COGS, a third OPEX, and a third GNA, so almost $700 million per area, I guess. On the OPEX side, you just got done spending the incremental labor or investing. Yeah, thank you. Are there any savings that are going to come back? You know, what are the nature of the savings that come out of the OPEX? Is some of that coming out of the store side, or are you really talking more about the supply chain when you're talking about that OPEX savings?
I mean, you're going to laugh at this. It's a little bit of both. But what I would say is, you know, our goal is to flow as much of it as we can to the bottom line, okay? We talked about it in gross terms, only because we know we can control the gross. I don't know what's going to happen between now and the end of the year that would potentially impact some of the $2 billion of savings. What I will tell you is there's no structural big capital program that we're trying to offset $2 billion of savings with. So, but I don't know what I don't know, right? Right now, I'm dealing with some higher fuel prices. You know, a year ago, it was high coffee prices and tariffs. And so I think it's just more prudent to tell you, hey I know I can control getting the two billion and we have a commitment to get as much of that to the bottom line as possible we'll see how that plays out over the course of time and it's going to come in phases it doesn't all happen at once but the good news is we got really great line of sight on it we've captured I think clarity on hundreds of millions of that two billion and we see our path to how you get to the two billion over the next you know call it 12 to 18 months labor productivity you know you you guys did a lot of that at chipotle the first step was to invest in in labor but now we have a world of ai which can be an enabler plus you're going to be refining things with as the team kind of gets into a rhythm of how you deploy that labor that's right yeah so how can we think about uh the that sort of labor productivity upside from here yeah look i think you touched on it one we're learning better how to deploy and where you know when you earn the labor where do we actually put the labor in the stores to capture the most throughput and ultimately the most sales and transactions um but the other thing i will tell you is the good news is as you earn from here you know it's not a one for one kind of thing right it's it's one of those things where you know you don't need to add a person because one additional drink one out the door. And by the way, to add a person, you know, that requires a fair amount of transaction growth before that happens. On the other side of this, too, with AI and technology, you know, ideally what we want is our technology to be invisible to the customer and invisible to the partner. Because at the end of the day, it's going to be a human experience. You're going to have barista to customer experience. And what you should see with our technology, it's all happening kind of back-of-house supply chain forecasting management of like the smart queue system of how you sequence tickets establishing the queue inventory management you know a lot of the tasks that frankly take our partners away from servicing customers is what we want to use AI and tech and robotics to solve for and there's even opportunities I think in the corporate office as well to embrace the technology to be even more efficient and effective. So I think the combination of just being smarter about the business and how we deploy the labor combined with smarter tech to help us do it, and then focusing on the task that, frankly, at the end of the day, take our partners away from servicing the customer is a big, big opportunity.
I know we're coming up towards the end. I just want to make sure I ask something about, you know, how you spend capital going forward and unit growth opportunities, and I know some people would find it hard to believe that there is an opportunity to double units, you know, why could that be? And then just double-clicking back on the uplift, what is the uplift, the sales uplift, from these uplifts?
So, you know, to answer the first part, look, we've got clear line of sight on at least another 5,000 units, and it's not hard to get there when you start looking at the places where we're, frankly, under-penetrated, and we're really under-penetrated in the middle of the country and call it Texas up to Virginia, okay? And, you know, for whatever reason, I wasn't around for this. We just have had a West Coast, East Coast bias and didn't develop enough in the middle of the country. You know, perfect examples even like Nashville. You know, if you look at Nashville proper, I don't think we have a Starbucks corporate store in Nashville proper. We have a handful of licensed stores inside hotels, but we probably should have at least a dozen Starbucks in that area and then even when you go out to like a Franklin or some of these other suburbs and we have like one and we should have like eight okay then I think if we're successful in creating the afternoon day part and changing kind of the four wall economics that just opens the door with the smaller footprint that we can now build right on a half acre or an inline store for sub thousand square feet there's probably another 5,000 sites that we can add on top of the 5,000 that we've already identified, and that's how you get to 10,000 additional stores in the U.S. And then around the world, I know we don't talk about it a lot, but look, we've got 22,000 stores outside the United States. There's no reason why that can't double. And if you just look at our partnership in China, I think in short order, we're going to go from 8,000 stores to 20,000 stores just in China with our partner there. So there's a lot of sirens to be developed around the world and in the United States. And then to your question about the uplift, part of the reason why we're so excited about get going on the uplift is, you know, one, all of them are coming in budget or below budget. So we're spending $150,000 or less, and we're seeing a transaction uptick. And, you know, that is really exciting because what we were doing before with this remodel program and the SIREN program was spending a a lot of capital for not a whole lot of return and now i think we're doing the right type of remodel uplift and getting a really exciting return and so the trick is how can we do it faster you know we'll have over a thousand by the end of this year and then hopefully two or three thousand next year and ideally by 28 you'll you know get to eight thousand um you know so by the time you get to 29 you're like wow you're through this program yeah well thank you very much great conversation yeah I appreciate it thanks everybody