Starbucks to Raise Wages After Better-Than-Expected 3Q23 Results

Starbucks reported better-than-expected gains in 3Q23, although it still reflects a contraction in operating margin due to ongoing negotiations with unionized workers. Nevertheless, the company has announced a 3% raise in hourly pay for its US retail employees at the beginning of next year. 

During 3Q23, Starbucks expanded its global store count, ending the period with 37,222 stores, of which 51% are company-operated and 49% licensed. Stores in the United States and China constituted 61% of the global portfolio, with 16,144 stores in the United States and 6,480 in China. The company has 791 stores in Mexico. Starbucks also achieved consolidated net revenues of US$9.2 billion, reflecting a 12% increase from the previous year, or 14% when accounting for a slight negative impact from foreign currency translation.

As for the performance of its brands during the quarter, Starbucks continues to stand out with a 24.9% increase in sales in-store (VMT), according to Alsea, Mexico’s licensed Starbucks operator. In Mexico, comparable Starbucks store sales growth by segment reached 26.5%. Additionally, Starbucks Rewards Mexico reached 1 million active users. 

The North American segment experienced substantial growth. Net revenues for this segment reached US$6.7 billion in 3Q23, signifying an 11% increase compared to the same period last year. This growth was primarily driven by a 7% rise in company-operated comparable store sales, stemming from a 6% increase in average tickets and a 1% increase in comparable transactions. 

The segment's operating income also showed improvement, increasing to US$1.5 billion in 3Q23 compared to 3Q22’s US$1.3 billion. However, the operating margin contracted slightly from 22.0% to 21.7% due to investments in labor, including store partner wages and benefits, as well as increased spending on partner training.

Starbucks introduced a US$3 billion cost-saving initiative, with US$1 billion expected to come from store efficiency improvements and the remainder from the cost of goods sold. Through its "Triple Shot Reinvention Strategy," Starbucks aims to "elevate" the brand, "strengthening and scaling" its digital capabilities and increasing its global presence. Starbucks is set to double the hourly income of baristas by the end of fiscal 2025, which will result from increased hours and higher pay, reports NBC News. 

Starting on Jan. 1, hourly retail employees will receive a raise of at least 3%. Furthermore, workers with two to five years of employment at the company will gain a 4% raise, and those with more than five years of experience will earn at least a 5% raise, the company said. 

More than 350 Starbucks locations have unionized under Starbucks Workers United, with ongoing negotiations regarding collective bargaining agreements and allegations of labor law violations. “Over the last 18 months, Starbucks has waged the most aggressive and illegal union-busting campaign in the modern history of our country,” said Senator Bernie Sanders before the Senate earlier this year, according to the WSJ. 

Howard Schultz, CEO, Starbucks refutes these allegations, arguing that “there is no other company in retail that offers more benefits than Starbucks.” 

Starbucks projected earnings per share growth of 15% to 20% annually over the next three years and annual same-store sales growth of 7% to 9%. 

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