US | Starbucks Tackles Growing Inflation On Top of Labour Shortage

Despite a strong holiday season of seasonal food and beverage sales, Starbucks’ positive performance (18 percent U.S. same-store sales growth) during the first quarter of 2022 was hindered by outside forces like high inflation, the omicron variant, and an industry-wide labour crisis.

To address growing inflation concerns, Starbucks raised prices twice in two months — once in October and once on January 1.

“In terms of elasticity, we have not seen any meaningful impact to customer demand,” noted Starbucks chief operating officer John Culver.

“To the contrary, our customer demand continues to grow. We're coming off a very strong quarter in terms of transaction growth at 12 percent for the quarter in the U.S., the highest since pre-pandemic levels, and our ticket is also very strong as well.”

During the first quarter ended on Jan. 2, the U.S. saw a significant spike in COVID-19 cases as the omicron variant spread, a factor that dampened the company’s digital sales growth. As cases surged, customers stayed home, and many were not spending as much on foodservice.

As a result of health challenges, coupled with inflationary concerns that began long before the omicron variant peaked, Starbucks noted that the company’s performance was muted.

“Prior to the emergence of the omicron variant, we were experiencing some inflationary pressures and staffing issues resulting from the broader pandemic,” added CEO Kevin Johnson.

“When the omicron surge began, inflationary costs and staffing shortages were amplified, well in excess of our expectations. These three primary factors — high inflation, COVID-related pay, and training and onboarding of new partners — impacted our profitability to approximately the same degree, even while customer demand remained strong.”

Culver said to adjust to the challenging environment of the ongoing labour shortage, Starbucks has had to adjust its labour model, and store hours in certain cases.

“We're going to continue to make the right investments in our partners, whether that has to do with wage, whether that has to do with benefits or just really giving them the opportunity to grow with the company,” he added.

Starbucks added 484 net new units to its portfolio during the first quarter, ending the period with 34,317 stores globally.