Starbucks Ramps Up Test-and-Scale Strategy: Can It Fuel a Turnaround?

Core Insights - Starbucks Corporation (SBUX) is implementing a turnaround strategy through a "test-and-scale" approach, focusing on disciplined experimentation rather than sweeping changes [1] - The "Back to Starbucks" plan involves piloting operational and experiential improvements in select stores, scaling successful initiatives to enhance customer experience and efficiency [1] Operational Improvements - The green apron service model has been introduced to improve speed and partner connection during peak hours, expanding from a few stores to nearly 2,000 locations with promising results [2] - A new order sequencing algorithm has been tested, resulting in a reduction of average café wait times by approximately two minutes, with 75% of peak-hour orders fulfilled in under four minutes [3] - The iterative process includes menu simplification, beverage innovation, and store design enhancements, with a pause on the rollout of capital-intensive equipment in favor of labor-focused adjustments [4] Strategic Framework - Starbucks employs a structured framework of test, learn, refine, and scale to minimize execution risk and align upgrades with partner capability and customer demand, aiming for profitable transactions and improved long-term unit economics [5] Industry Comparison - Dutch Bros Inc. (BROS) is also using an iterative strategy, particularly in digital ordering, with its Order Ahead program achieving double the transaction penetration rate compared to the system average [6] - Chipotle Mexican Grill, Inc. (CMG) is taking a hybrid approach, combining operational pilots and equipment-driven innovations to enhance throughput and guest experience, with plans for new equipment rollouts in 2025 [7] Financial Performance - Starbucks shares have increased by 11.5% over the past three months, outperforming the industry average rise of 4.6% [8] - The Zacks Consensus Estimate for SBUX's fiscal 2025 earnings per share (EPS) indicates a decline of 25.1% year over year, while fiscal 2026 EPS is expected to rise by 20.5% year over year [12] - Starbucks currently trades at a forward price-to-sales ratio of 2.80, below the industry's average of 4.07X [17]