Starbucks Is Closing 150 Stores, and It Has to Do with a Rising Minimum Wage
Having a Starbucks on every street corner may soon become a thing of the past. The coffee chain plans to shutter 150 shops in the U.S. in the upcoming year. Closings will be mostly in urban areas where stores are clustered together and rent and wages are high.
The closing stores are often in “major metro areas where increases in wage and occupancy and other regulatory requirements” are rendering them unprofitable, CEO Kevin Johnson said. “Now, in a lot of ways, it’s middle America and the South that presents an opportunity.”
Starbucks announced a second pay raise
Shuttering stores in higher-wage markets represents cost savings for the chain, which announced in January it would raise pay a second time this year. That raise, coupled with new stock grants and sick-pay programs, will cost the company $250 million. Starbucks currently employs 150,000 U.S. workers.
When the second raise was announced, company spokesperson Reggie Borges said, “Everyone is getting a raise — the level they get depends on the region and the cost of living.” Rising minimum wages in many cities and states means companies are under pressure to increase pay.
U.S. sales growth has stalled
The 150 closings were announced Tuesday amidst reports that U.S. sales growth has stalled. “Our growth has slowed a bit,” Johnson said. “I expect better, I think our shareholders deserve better, and we’re committed to address that.”
In 2008, former leader Howard Schultz returned to the company and similarly closed some underperforming stores. The chain was struggling then after having expanded too quickly across the country.
The latest round of closings will happen in the 2019 fiscal year. They reflect triple the average number the company has closed in recent years. In addition, Starbucks plans to slow the growth of licensed stores in airports, supermarkets, and retail stores. These non-company-owned stores tend to be less profitable. The chain can introduce products more quickly and keep its products and prices more consistent at its own stores, said chief Financial Officer Scott Maw.
On Tuesday, Starbucks said it expects 1% same store sales growth in the current quarter. In recent years, sales have been slowing. Last year, the company reduced its long-term sales and profit targets. In this year’s second fiscal quarter, traffic in its U.S. stores remained flat.
The chain faced backlash after arrests
For several hours this afternoon, we will close stores and offices to discuss how to make Starbucks a place where all people feel welcome.
Thank you for your patience and support as we renew our promise to make Starbucks an inclusive gathering place for all.
See you tomorrow.
— Starbucks Coffee (@Starbucks) May 29, 2018
The chain came under fire this spring after two black men were arrested while waiting for a meeting to begin at a Philadelphia Starbucks. They had not purchased drinks. A manager told the two that the restroom and premises in general were for patrons only. When the men declined to leave the premises, employees called police. The incident sparked protests over racial bias
The company promptly apologized and later closed around 8,000 stores to provide employees with racial-bias training. It also reached agreements with the two men involved.
New menu offerings
Starbucks plans to attract more diners with new menu items and an expanding tea business. It recently added a mango-dragon fruit iced drink to its menu and plans new lunch salads and sandwiches.
Johnson cited a consumer shift away from sugary drinks. “We’re putting more of our energy into that afternoon day part and the portfolio of beverages that are offsetting some of the declines we’re seeing in Frappuccino beverages,” he said.
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