Go. All right. Time? Yep, great. 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 Niccol, Chairman and CEO of Starbucks, to this conference. 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, morning back to 2022 levels, and operating income and EPS inflecting for the first time in two years. It does make sense when you talk about saying that there's been a turn in 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. Of course, I think they'll be wanting to see that be a profitable one as well going forward. 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 Coffee House Uplifts. I think I have that right. 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.
Yeah.
The-
You could do this for next-
Yeah
Just one question for 30 minutes.
Yeah. That's fine. Look, 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. I think that's what you're seeing in our stores. Then we've scorecarded the program as well with what we call the Grow Scorecard. You hear us talk about, do you get zero-shot scored or a five-shot score, and where are you on that spectrum? 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 and what's not working. Very proud of the progress that we've made there.
Mike and our operators have done a phenomenal job. We now have close to 70% of our stores performing at four shots or better. The reason why that's important is we know when we're above shots shots, we see really nice transaction and comp performance. Still work to do because there's 30% of stores that aren't where they need to be. 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. You're working from a position of strength as opposed to a position of weakness.
I think that's what you saw with our protein launch, our Matcha menu reset, our bake case reset. 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, we also just have to have the right offerings, both in drink and food. I think that's what you're going to see us continue to do. 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.
You're starting to see that play out. When you think about food, our food business looks pretty good in the morning. I think we've got the right assortment. We still have opportunities to be better. 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. I view that as all opportunity. 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 8,000, 9,000. We have seen when we fix the store environment and we give you a great seat and a great coffee house experience, people spend time there.
We see an uptake in afternoon business, and we also see people just have more engagement with the brand, period.
Also, our partners prefer working in places that are great coffee houses versus not. 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. In the process, we're putting seats back in, which that's 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 that with enthusiasm.
Yeah. Well, it makes you wonder what was happening before.
Yeah. Dancing.
Yeah. What were they doing?
Yeah.
The operations turnaround, let's double-click on that a little bit. 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-thru. You've said that the original Green Apron Service rollout stores, those 650 of them, are still out comping the system by two points. It makes you wonder where's the end? What do you think this operations throughput stuff, but also customer satisfaction levels from operations might be doing to comps right now, and where's the end?
Yeah, look, the reality is from a transaction standpoint, we're still not all the way back to 2023 levels or 2019 levels. 2023 and 2019 were roughly kind of the same level. There's still a lot of headroom just in transactions. I would say, I don't know if you're ever done. I think the reality is, customers are going to demand experiences to justify spending their dollars. 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. 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.
When you look at this Grow 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, our speed requirements, right? When you just look at these things, this is the basics of how you run retail. The good news is, our partners, as a result, understand the feedback and then they can understand the action that they need to take. The other one in there, too, is are you staffed? You do those five things correctly.
Guess what? You end up with a great store.
Yeah. I remember asking you this, and 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 what sort of score would you give the major buckets of the business? Right now I can think of menu and innovation, operations, supply chain would be on the list there. Marketing would be on there. Where do you think, if 10's where you really think you can be, and let's just say one was where you were, where are you on those major areas, do you think?
Yeah, the way I 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. In all these cases, I feel like the good news is now I'm on my front foot for operations, for menu marketing.
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 experience through uplift, still in the process of fixing. The store pipeline, we're still in the process of fixing. I think some things are working, and we're on our front foot. Other things, we're still fixing. Better than we were, but still need to be fixed. You can turn it into a position of strength.
Yeah.
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. Once you have those strengths, then the trick is how do you build on it?
Just-
I'll never give myself a 10 out of 10.
Yeah. There's-
Right.
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.
If you had to go back to just the GROW Report and what you saw with Mike, originally with the operations, just give us a sense of just the operational, the org structure, the accountability, what you're trying to achieve and where you are in that journey. How important has this been for comps?
Yeah, look, I think it's been critical. If you can't operate consistently, it's going to be very hard, I think, to consistently perform. It's just that simple. 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. I think he is best in class.
As a result, our operations will be best in class because that's the leadership that he expects. I think the standard will continue to elevate, and I think it'll continue to be a source of growth for us. You never want your operations to be something you have to make excuses for. 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. 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.
One of the other big areas is menu innovation. It feels like the speed is being improved on from idea to shelf. Can you talk about this and just, 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 and-
Yeah, I mean, look, it depends on what the innovation is, right? If the innovation requires a huge capital outlay and 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. I think you just have to balance the innovation to be like, well, what's low risk, what's high risk? What's something that we need to be opportunistic and go fast on versus something that we can be more programmed on? 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. I always like to have a pipeline that has a plan, but also has the flexibility to be opportunistic. 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. At the same token, we have conviction in what we believe are long-term trends so that we set the brand up to be culturally in front of where society is or where society is moving. You got to have both, and that's what we're building into the supply chain, and then that's also what we're building into the organizational structure so that people understand what you're accountable for, and the performance matters.
Like, if you put a syrup out there and it doesn't work, we got to have the intellectual integrity to say it didn't work.
Yeah.
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 2027 by the time we get there?" He said, "By then we will have some operational improvements that it will give us some momentum, but we'll also be identifying what platforms are kind of working for us and we can double-click on those and go deeper on those." Maybe you can talk about just what has been the evidence of what is working so far.
Yeah.
Where do you think might be the story of 2027 in terms of your menu and innovation?
There's two platforms that are working for us. Matcha protein, or call it health and wellness, is also working for us. Cold Foam is working for us in a big way, that modifier. 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. It's a over $2 billion business today, frankly, that we've under-leveraged. 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 Açaí and Mango Dragonfruit, to now three with the Blue Coconut. Blueberry's coming. Getting ahead of myself. These platforms are powerful.
The bake 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 obviously we'll continue to drive the Cake Pop platform. That's a big winner for us as well. 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.
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. 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 unlocks for your afternoon a little bit, obviously the uplifts and how the hangout factor, but also supply chain and food. They're just enabling some of the stuff you want to get done. Maybe you could talk about that.
Yeah.
When are you going to get the supply chain ready for you to get bigger and into food in the afternoon?
Yeah. 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. 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. The reason is because I'll give you for 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. You just end up out of stock. The principle we've mandated is if it's on the menu, it's going to be in stock. We got to have the supply chain to support that menu execution. 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.
Yeah. By the way.
Also one other thing, w e can shrink the back of house. It also helps our build capability because now we can shrink the back of house.
Yeah.
Because now you're bringing in each as opposed to cases.
One of the things I wonder about on the innovation front, I was hearing Circana talk about beverages are growing versus food that's declining in America today, which is an interesting thing in and of itself. Three of the wellness things that were driving beverage, obviously hydration but also energy and protein conveniently come through that. 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.
Well, coffee is the original.
Yeah.
The OG of wellness.
Yeah.
When it comes to drinks.
Yeah.
I do believe exactly what you just said, drinks are a traffic driver.
Yeah.
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. What we have to do is figure out what are the right attaches to go with those traffic drivers. 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.
Yeah.
We actually do all those really well.
Yeah.
I think we're building on the wellness platform with protein, you'll see us do other things, right? Collagen, creatine, 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. Obviously, on the energy side of things, the caffeine is a really clean way to get to that energy.
Yeah. One of the things that we're also wondering about is how you're doing so well with Gen Z and millennials, and we hear all the time about the struggle with those generations, yet a 40% increase in Cold Foam mix increases going on across the menu. It's incredible that you're doing that with those generations. I would just wonder how you think that you are doing that, and maybe is it something category? What is the insight there about connecting with those younger generations that you're clearly winning with?
Yeah, look, I think this is where the actual store experience matters. The coffeehouse experience really matters. When you can create a space that 15-year-olds want to hang out in as well as 80-year-olds, newsflash, it's called a coffeehouse. Okay? If we can own that Third Place, we have relevance now with every age cohort you can think of. You can also think about just about every occasion, too. Whether it's the PTA or the retired guys having coffee. Whatever occasion you can think of where people want to have a community experience, the coffeehouse is at the center of those things. That's why I'm so passionate about getting this coffeehouse back, and that's not to say the drive-thru occasion's not important, the mobile order pickup occasion's not important, the delivery occasion's not important.
I just think the centering point is the coffeehouse, 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. 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, initially I was like, "Oh, this will be for folks after a workout." Yes. Actually, the 30 to 50-year-old female, it turns out, really liked Protein Lattes.
We're seeing that continue to grow, and now what we're also developing is a Protein Cold Foam business in a big way. You're seeing the Protein Cold Foam have resonance on cold drinks.
Which is really interesting because now our cold drinks have just become much more valuable to people. 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. We did a store in Nashville with Taylor Swift where we launched her new album, and we wrapped the place to be Starbucks. Okay? It was one store, Starbucks, 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 of weeks, we're going to do the Unicorn Frappuccino.
We were culturally in these relevant places, 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 cringey stuff to things that are connected, relevant, and being viral. Even last night, if you were watching the Knicks game, hopefully you saw our Starbucks ad was on with four minutes to go, it was a coffee ad.
It was a great coffee ad.
Yeah. Unfortunately, the Knicks lost, I think more people were buying coffee this morning than if they had won.
Yeah.
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. 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. The coffeehouse 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. 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.
Yeah.
That it wasn't relevant because people are blowing and going, and they're ordering digital. That was leaning against it at one point.
Yeah. Well.
If you say, you know.
I think we'll prove that the Third Place is highly relevant. Like I said, I think people sometimes misinterpret that statement of saying that I don't still value the drive-thru occasion.
Yeah.
I absolutely do. You 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 pickup, it's got to be on time and accurate. We got a little more grace because you're usually off premise, so it's 10-12 minutes. In the drive-thru, it's got to be less than four minutes. Delivery, it's got to be around 25 minutes. 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.
Yeah.
I'd like it to come from a place that's great. It makes you feel better about your purchase decision.
Yeah.
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.
Yeah. Well, when it comes to marketing, what's the big picture about. There was a strategy in the past, there 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 Starbucks Rewards program. 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. We have a really simple approach, brand over time, sales overnight, and you can do both. 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. I think our partners are doing that. If you haven't been to, I guess there's a coffee shop just across the street from here.
Somebody told me her nickname's Java Julie. She runs a great Starbucks. I wish every Starbucks had that type of leader so that everybody has that type of connection. This is kind of along those lines of when you do the marketing right and you get people to really commit, then our partners deliver on the experience, the loyal following is unbelievable. 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 young people want more rapid news to keep their attention. I don't know if you just agree with that general statement. It seems like with your strategy, you are talking about doing more new news. Could you talk about what-
Yeah
The cadence is?
Yeah. Look, I think, the reality is 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. That requires, I think in our case, news happening all the time. We got to be purposeful enough where we know we've got news happening at least every two to three weeks. That doesn't mean it's a new product, right? You'll see us this week, we're doing some stuff around the fact that all the soccer is going on, right? We've got a clever way 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. Then there's a bunch of other fun things happening from merchandise standpoint.
I think that's the other thing that we got really complacent on was our merch. You guys probably saw this when we did the Bearista, 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 5:00 AM on the nose when we opened. I think you got to have news across your business. You 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 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, "That didn't feel good." You got to show up in a way where people are like, "Oh, they should be there.
Yeah.
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'll be.
We have a cup.
Yeah. Okay. There you go.
We have, We have a World Cup.
Yes. Got it.
I'm not even in the marketing department.
No. You nailed Yes. Got it. I got it.
Yeah.
Let's talk about rewards for a minute. You've made some changes there. I know you've been happy with some of the results. What needs tweaking? What have you learned so far?
Yeah. Look, the rewards launch has gone really well. We did this back in March. I fully expected our user population would go down, because whenever you change anything, usually people quit. Instead, we actually saw an uptick in users. We went to 35.6 million. Usually that time of year, we also see a natural decline as well. We kind of broke the seasonality of it, and then we also broke the idea of making a change, being able to keep people engaged. 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. 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. 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 effective. Then the other thing that we did in here is we recognized people for their loyalty. Now you have a Reserve status, a Gold status, and a Green status.
There was an element of like, "Geez, why am I treated the same way as the person that comes once a year versus I come 200 times a year?" I think they had a point. 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 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. I'm amazed how many people have already achieved their status again. It's pretty powerful in that Gold and Reserve area.
The other thing that we did too is on the reloadable card, you now get differentiation in stars for how you reload your card. $50 gets more stars of reloadable, $30, and then $25. We've seen, as a result, more stored value because people want the rewards to go with it. 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. What we've seen is that becomes really sticky for people, and then that becomes part of their new routine. 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 were doing this and we're another company, we'd talk 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. Why do you think they're staying in the game, the low-income consumers? 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, it's clear, 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. 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. We're going to have to continue to push to make sure that when they decide to spend $10 with us, they feel like it was a good choice to spending the $10 with us. I think 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. I don't think it gets any easier. That's why I wish we could get these uplifts done even faster. We're going to have to continue to make sure that our partners are giving the experience where people walk out of that experience saying, like, "Hey, that was worth it." Regardless of what income level you are, you want people walking away feeling like, "Yeah, that was worth handing over my $10.
I want to talk about competition a little bit and how you view your own strategy when you see that competition. People here in New York, they might see a Luckin doing just digital orders in a very small box at cheap prices. They could see a higher price artisanal brand down the way. They see in the suburbs the Dutch Bros of the world. 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's an endorsement of the category. I think 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. 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. When we compete correctly, I like our chances of coming out on top. When you put a drive-thru with a cafe just about anywhere, it works. When we do an in-line cafe with the right seating, with the right partner experience, again, that works. 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 Refreshers business. The fact that we only have two really drinks in our Refreshers business. Meanwhile, there are whole businesses that basically exist because of the Refreshers platform. I think it's a wake-up call. I think it's a wake-up call that says opportunity. At the end of the day, I've got the scale, and I've got the market share, and I've got the brand. I view it as like stay on your front foot, and you need to compete. We weren't competing. We didn't have a small drive-thru execution. We didn't have a half-acre execution with the cafe. Now we do. We'll start building it. 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 daypart opportunity, can you just give us a sense of what that daypart is today? Maybe the TAM? What's the opportunity?
Yeah. Well, I'll put it to you this way. 50% of our business happens before 10:00 AM and 65% of our business happens before noon. I want to emphasize, winning the morning is not any less important.
Yeah.
We have to continue to win the morning and be the premier solution. I actually like what Mike says on this. It's we're going to be the first coffee shop open in the morning, we're going to be the first choice for coffee in the morning. We are going to be the first destination in the morning. By no means saying that we can create an afternoon daypart does it 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 2:00 and 5:00PM. I think it can be driven by drinks. I think we've got another tremendous opportunity to put food with those drinks. 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. We've got a really strong platform with Matcha, we've got a really strong platform with Refreshers, I think we're going to 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. We'd love to see the strong comps and profitability, please.
Me too.
Both, the combo.
Yeah. Me too.
I guess, the last quarter, phenomenal comp growth. There was still some North America margin compression. A lot of this is planned. You're obviously still in the labor investment year. As we kind of cycle past some of those, that half a billion dollars you spent on Green Apron Service, are we going to see that 60%, 65% incremental margin from that business?
Look, there's no structural reason that would prevent us from doing that. If we don't have growth, it's very hard to do it, right? You got to have consistent comp performance. Assuming we have the consistent comp performance, we're going to have cost discipline. We're going to have a stronger supply chain. From here, you earn all the additional labor hours. I wouldn't say I spent a half a billion. I would say I invested a half a billion into our stores with labor. I think we're going to see that play out and continue to pay dividends. By all means, I think I said this from the beginning. It's like, look, we got to fix the basics, get the top line growing, then we will get the bottom line.
I share everybody's desire to get to the margins that we experienced in the past sooner rather than later, it is a process. I think the good news is we're ahead of schedule on that process, I think you can start to see, we stay disciplined on the things that matter. We'll get the top line, 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, it kind of goes all in for this, the $2 billion savings, which is a third COGS, a third OpEx, and a third G&A. Almost $700 million per area. I guess on the OpEx side, you just got done spending the incremental labor or investing.
Yeah. Thank you.
You're very welcome. Are there any savings that are going to come back? 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. It's a little bit of both.
Yeah.
What I would say is, our goal is to flow as much of it as we can to the bottom line.
Yeah.
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. I don't know what I don't know, right? Right now I'm dealing with some higher fuel prices. A year ago it was high coffee prices and tariffs. I think it's just more prudent to tell you, hey, I know I can control getting the $2 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. It's going to come in phases.
It doesn't all happen at once. The good news is we've got really great line of sight on it. We've captured, I think, clarity on hundreds of millions of that $2 billion, and we see our path to how you get to the $2 billion over the next, call it 12 to 18 months.
Labor productivity, you guys did a lot of that at Chipotle. The first step was to invest in labor, but now we have a world of AI-
Yeah.
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.
How can we think about that sort of labor productivity upside from here?
I think you touched on it. One, we're learning better how to deploy and where, 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. The other thing I will tell you is, the good news is as you earn from here, it's not a one-for-one kind of thing, right? It's one of those things where you don't need to add a person because one additional drink went out the door. By the way, to add a person, that requires a fair amount of transaction growth before that happens. On the other side of this too, with AI and technology, ideally what we want is our technology to be invisible to the customer and invisible to the partner.
At the end of the day, it's going to be a human experience. You're going to have barista-to-customer experience. What you should see with our technology, it's all happening kind of back of house. Supply chain, forecasting, management of the Smart Queue System of how you sequence tickets, establishing the queue, inventory management. A lot of the tasks that frankly take our partners away from servicing customers is what we want to use AI in tech and robotics to solve for. There's even opportunities, I think, in the corporate office as well to embrace the technology to be even more efficient and effective.
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 tasks that frankly, at the end of the day, take our partners away from servicing the customer is a big, big opportunity.
Yeah. I know we're coming up towards the end. I just want to make sure I ask something about how you spend capital going forward and unit growth opportunities. I know some people would find it hard to believe that there is an opportunity to double units. Why could that be? Then just double-clicking back on the uplift, what is the sales uplift-
Y eah.
From these uplifts?
To answer the first part, look, we've got clear line of sight on at least another 5,000 units, it's not hard to get there when you start looking at the places where we're frankly under-penetrated. We're really under-penetrated in the middle of the country in, call it Texas up to Virginia. Okay? 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. Perfect example is even Nashville. 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.
Even when you go out to a Franklin or some of these other suburbs, we have one, and we should have, like, eight. Okay? 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 in-line store for sub-1,000 square feet. There's probably another 5,000 sites that we can add on top of the 5,000 that we've already identified, that's how you get to 10,000 additional stores in the U.S. 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.
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. There's a lot of Sirens to be developed around the world and in the United States. To your question about the uplift.
Part of the reason why we're so excited about get going on the uplift is, one, all of them are coming in budget or below budget, we're spending $150,000 or less, we're seeing a transaction uptick. That is really exciting because what we were doing before with this remodel program and the Siren Program was spending a lot of capital for not a whole lot of return.
I think we're doing the right type of remodel uplift and getting a really exciting return. The trick is how can we do it faster? We'll have over 1,000 by the end of this year, and then hopefully 2,000 or 3,000 next year.
Ideally by 2028, you'll get to 8,000. By the time you get to 2029, you're like, "Wow, you're through this program.
Yeah. Well, thank you very much. Great conversation.
Yeah. Thanks, David.
I appreciate it. Thanks, everybody.
Yeah. Thank you.