By Waylon Cunningham
(Reuters) -Starbucks will invest more in staffing and less on equipment, including an automation system that it previously touted, CEO Brian Niccol said on Tuesday, breaking with a wider industry trend to rely more on technology for store operations.
Niccol said additional staffing was critical to improving the customer experience – his main objective since assuming leadership in September.
“Over the last couple of years, we’ve been removing labor from the stores, I think with the hope that equipment could offset the removal of the labor,” Niccol said in an investor call. “What we’re finding is that wasn’t an accurate assumption with what played out.”
On Tuesday, Starbucks reported North American same-store sales fell 1% for the fiscal second quarter ended March 30, worse than the 0.24% drop estimated by analysts in an LSEG poll. The company said sales in Canada returned to growth in the quarter.
Margins at Starbucks have shrunk for five straight quarters, falling 590 basis points in the second quarter reported on Tuesday.
Starbucks increased its staffing levels at five stores as a pilot since Niccol took the helm. By May, between 1,500 and 2,000 U.S. stores will have increased headcount, with around 3,000 by the end of the year.
The increased labor will add to costs, Niccol said.
“We’re banking on some growth to come with the investment in the labor and the store experience.”
Starbucks will pull back from a deployment of its Siren system, a suite of tech and equipment rolled out in 2022 intended to streamline drink-making.
As recently as October, the company had slated the system for a widespread roll-out, according to executives on its earnings call. Then by January, executives said it would only be deployed to the top-quartile of stores by sales volume.
On Tuesday, Niccol said the Siren system would only be installed in “very targeted” stores, such as those with high drive-through customer volumes and overall sales.
The move cuts against the trend of other large restaurant companies, which have announced significant new investments in technology. For example, Chipotle’s CEO, who succeeded Niccol when he left the fast food chain, said in February the company would continue efforts at kitchen automation with an eye toward possibly cutting labor costs.
(Reporting by Waylon Cunningham; Editing by Sam Holmes)
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