Rundown: Fast casual earnings, Etsy's loyalty program launch & Howard Schultz's olive oil investments

0:05Hello and welcome to the Modern Retail Rundown. I am senior reporter Gabby Barco, and I'm here with editor-in-chief Kale Guthrie-Weissman. Hey, Kale, how are you today? I'm doing pretty well. It's hot out in New York, but a beautiful day. How are you, Gabby? Yeah, we're surviving. All right, well, we have a lot to cover this week, a lot of coffee talk, so I'm sure you're excited for that. Love it. But in a very, you know, I mean, Starbucks, but still. But yeah, we're going to start out by talking about fast casual results. There's been some interesting and mixed results from Chipotle, Starbucks.

0:45So it's kind of interesting to see the contrast between who's doing well and who's struggling in this current economy. And then we're going to look at Etsy's new loyalty program for shoppers. So it's the first ever that they've announced. and it gives the shopper some perks. That will be interesting. So it really turns into like a full-fledged marketplace now. And then finally, there's a story out of Semaphore this week that looks at how former Starbucks CEO Howard Schultz is still sort of indirectly involved in the company. It's a little bit complicated, so we'll get into it later. But there's a lot of olive oil involved.

1:31So we'll give you that as a preview. Yeah. For those who don't remember, we talked about Starbucks' olive oil coffee drink. Right when it came out, I remember. Yeah. Yeah. Okay. So first, let's talk about some of the recent fast casual and fast food results. So at Chipotle, the overall business is looking pretty good. There's obviously a few different factors for that. But, Cale, why don't you give us some of the sales numbers because they're huge. Yeah, exactly. I was kind of shocked when I was doing the research for this. But at its most recent earnings, which I think was this past week, net sales grew 18.2 % year over year, hitting$2.97 billion.

2:15And that exceeded what analysts expected. Analysts were expecting sales to hit$2.94 billion. So good for them. Same store sales grew 11.1%, also exceeding analyst expectations. Analysts thought it would hit 9.2 % growth. And traffic to the stores has increased 8.7%. And so pretty much on most accounts, the numbers are looking very good at Chipotle. And it's pretty interesting because Chipotle has definitely been in the news or at least on social media feeds over things. We'll talk about it probably more robustly in a few minutes, but people have been claiming that if you go to Chipotle, they've lowered their portion size or the portion size is variable.

3:01There have been a lot of social media accounts that have really made it there, like their whole thing that they're going to show that Chipotle is no longer, you know, it doesn't give as big a portion sizes as it used to. And so it's interesting that even with this, there've been a lot of stories written about it in the press. Business is still doing great. There's also another thing which we'll talk about more in a few minutes, but Chipotle has raised its prices. And so it's sort of bucking a lot of trends that we've been noticing where prices are going up, people are trying to reel back in what they're spending, but everybody still wants a burrito bowl, I guess.

3:37Yeah, exactly. And so I guess we can talk a little bit about what created some of these really great results. I mean, Chipotle has just been growing and growing since the peak of the pandemic because people just love their burrito bowls. So for one, the company has raised its prices a bunch of times earlier this year included, and this is the sixth time since 2021. So I feel like we were hearing a lot almost every other quarter about price hikes. And it said that the most recent price hike helped it offset avocado prices, which have really gone up in the past couple of years. And it seems like, yeah, that price tag is not really stopping people from buying a burrito bowl.

4:27I'm not really sure what the threshold is like at some point. Yeah. I think I'm sure they're going to be careful to not make it, you know, go near. I mean, I don't even know what what it costs right now, but I know in New York, at least it's it's not that cheap anymore. No, it's like around like fifteen dollars, I want to say, or something like that. Chipotle also did address the portion sizes. So for those who don't know on TikTok, a lot of people have pointed out that there's inconsistency between the sizes of the burritos and the bowls at every location. This is really fun. A Wells Fargo analyst ate 75 burritos at different locations and he made a graph of all the sizes and he said that the bowls could be as small as 14 ounces and as heavy as 27 ounces.

5:14That's like almost double. Yeah, that's that's an analyst report. If I ever saw one, it's tough eating, eating 75 burritos and then putting them into Excel. We love that. Yeah, exactly. And so I mean, there is a lot of anecdotal evidence, at least that that was what's happening. But it again, it hasn't really stopped people. We did see some like, quote, unquote, hacks on TikTok of people asking for bigger portions or, you know, more ingredients and things like that from the people behind the bar. But yeah, it again, it hasn't stopped them. But this quarter specifically, Chipotle did actually address the issue and is promising that it will fix it.

5:58Yeah. Do you want to give us the CEO's take? CEO Brian Nichol said at like when he was talking with analysts, we have focused in on those with outlier portion scores based on consumer surveys, and we are re-emphasizing training and coaching around ensuring we are consistently making bowls and burritos correctly. We have also leaned in and re-emphasized generous portions across all of our restaurants as it is a core brand equity of Chipotle. So pretty much he's saying, we've seen the TikToks and we're going to try and make this more consistent. I always liked that it was a crapshoot personally, where maybe you'll get a bigger one, maybe you'll get a less one, but it seems like they're going to try and make it a little bit more equitable for everyone.

6:41So we'll see how that goes. Yeah. So, you know, if you're like really nice to the employees. Yeah. You have to say, you have to say, hey, how are you? And then maybe they'll give you a little bit more beans. I don't know. Like. Exactly. On the other end of the spectrum, we have Starbucks where things are not going as swimmingly at Starbucks this quarter. And it hasn't been for a few quarters at this point, But the revenue dropped 1%, which doesn't sound like a lot, but it is now at$9.11 billion. So that's a lot of millions compared to what analysts expected, which was$9.24 billion. And then the traffic to the U.S.

7:20store has dropped by 6%. And then domestic same-store sales went down by 2%. But on the other hand, the average ticket order did see an increase. So that was a little bit of a bright spot. But yeah, what is driving these results? I mean, Starbucks has been just kind of flailing a little bit, like I said, and it seems like no one can really fix it, which is really unusual because they had been growing for a really long time. Yeah, no. Pretty much what Starbucks is saying is the main issue is that it's the economy. The new CEO pretty much put it bluntly that the issue is a, quote, challenging consumer environment.

8:01We've talked about this with many other retailers and brands where it seems like people are reeling back what they're spending. They don't want to do splurges. And it seems like that is extending to areas like, you know,$10 lattes. Starbucks has been trying to lean into other types of drinks. Like it's been doing new types of teas to try and bring people in. It's been doing a lot of things. I thought one thing that was really interesting, and this was from last quarter. and as you mentioned earlier Gabby like Starbucks has had some pretty poor quarters for the last you know year or so but Howard Schultz its former CEO actually took to LinkedIn and pretty much said like this what's going on at Starbucks isn't an issue of diving into the data and figuring it out it's about going back to your core and so he specifically said that they needed to focus on the stores and make the stores better and also needed to revamp the mobile experience which I I thought it was super interesting that like Starbucks is a pioneer of mobile ordering.

9:01Like when it first started, that was the company that you would do mobile ordering for and it went as well as any other. And now Howard Schultz is saying that they have not iterated and made it better and they're sort of losing it in that regard. And so kind of interesting that that is one of the reasons why it might not be doing as well. So just something to think about. Which is interesting because like you said, I mean, they've invested so heavily in mobile order drive-thrus. So I guess I'm kind of unclear on how much more they could be doing. But and then even their stores have been, you know, moving towards that design to be optimized for pickup.

9:34And I did see a tweet the other day that said they just don't feel like a third space or place anymore. So, yeah, you don't see as many couches and chairs and everything is really focused on picking up and taking it out. But, you know, Charles disagrees. We will talk about him more a little bit later. Are there any commonalities between the two earnings? I mean, obviously, there's an economy that is weighing consumers' decisions. But it seems like people seem more amenable to the larger portions. It's sort of like a value drive that, you know, a real, quote unquote, real meal like beans and rice and meat will bring you.

10:18versus like a latte or a frappuccino at this point, even though those are considered small luxuries too. So it's interesting. I don't know, what are your thoughts? No, I think that that's exactly right. Where, you know, yes, Chipotle is getting more expensive, but I don't think it is perceived quite like a luxury because it is at its base, like a pretty, you know, you're getting beans, rice, and meat. And so I think that it is able to buck the trend of people really, you know, spending less because it is seen as a big and full meal. And so I think this issue of value is really what's driving it.

10:54And we're seeing this also at even the regular fast food restaurants. So there was a recent CNBC article that mentioned how pretty much every fast food chain, this includes McDonald's, Wendy's, Taco Bell, Burger King, they have all either launched or revived$5 value meals. And so it seems that every food chain is focused on bringing in people who are looking for value. One researcher told CNBC, it's the war for the less affluent customer. And it seems like with Starbucks, that's not going so well. With Chipotle, somehow it is going well. And there's one thing that we'll know next week because they haven't reported yet.

11:34But the other big fast casual chain that I think is most interesting to watch out for is Sweetgreen. And they have not reported yet. And so that will give us another clue as to what's going on. Yeah. I remember back in 2008, they were calling them like recession specials. In this case, I think they're more like, oh, we raised our prices so high that we actually do have to walk them back a little bit. Like there's been complaints about McDonald's costing upwards of$10. Like you're no longer just a fast food sort of value play at that point. And people were trading up. So this is all happening for a reason.

12:11But yeah, we'll like you said, we'll look out for what else happens. But so far, it seems like Chipotle just seems pretty immune, like we keep saying. Yeah. All right. Well, next up, we are talking about Etsy. So it announced its first ever membership loyalty program this week. It's called Etsy Insider. And it includes a bunch of different benefits. So this is for the buyers or shoppers, not the sellers themselves, but includes free domestic shipping on millions of items at no cost to the seller, which we will get into. It's And as of now, customers will be able to purchase a seasonal or an annual membership.

12:54I did not see what the cost will be anywhere. So TBD on that. But yeah, the beta version is launching in September to select US customers. So we'll start to kind of see that data rolling in. But yeah, other perks, you know, birthday bonus, access to special discounts, exclusive, select merchandise. And then every year you get a limited edition gift designed by an Etsy seller. So they're really pushing the sort of, yeah, artisan, handmade aspect of Etsy like as a special perk. But yeah, I mean, as the CEO, Josh Silverman, said, it seems like this is going to be a big initiative for them this year.

13:37Yeah, I mean, it's kind of surprising that Etsy has not had such a program yet. and I do wonder if maybe they missed the boat in certain regards. But it'll certainly be interesting to see how many Etsy power users sign up for it. I think the pricing will be a really big question. That will be – it'll all depend on that. Do they want to get scale of people and have it be a small price or do they want to actually make more revenue from it? So we'll see how that goes. And so, yeah, as you said, Josh Silverman said, will test, learn, and iterate and are optimistic that over time Etsy Insider can be a needle mover, driver of buyer frequency, and Etsy love.

14:17And so, you know, Etsy has been making a lot of changes recently, which we'll go into in a few minutes. And it's also been just trying to drive more growth. And so I think this is just another example of that. Yeah, this is coming at a pretty interesting moment for the company. It's been going through this sort of transitional moment. so we'll talk about the latest performance. So for the second quarter, revenue increased by 3 % to$647.8 million. Gross merchandise sales, which comes from all the sellers, were down 2.1 % year over year to$2.9 billion. And then the net income was down 14.4 % to$53 3 million.

15:04So a little bit of mixed results there, but there's been a lot of updates too. You know, as we've been reporting on a lot in the last year, there's like some tension between the sellers, which are, you know, these sort of handmade artists and craft people who feel like the marketplace is really moving towards sort of more commoditized, like Amazon-like marketplace, which we have covered, like I said. But yeah, at the same time, Etsy knows this. So they have been making a bunch of updates to keep some of the sellers happy. Yeah, so Etsy had a new revamped homepage. One of the new big things was this new standards for products listed.

15:46And it pretty much gives new types of ways to say, is it made? Is it resold? Is it vintage? Pretty much it's about, you know, it was a little, you could have, there's a little bit more wiggle room before about what the standards or what the listing of a type of product on Etsy is. And now Etsy is giving more choices so that Etsy sellers can have new types of titles above it, which is interesting. And it was in direct response to sellers saying they feel like there's a push to have a more commoditized offering and that it seems like Etsy is trying to compete with the likes of, you know, Timu and Amazon, et cetera.

16:24And so it's interesting that they're doing that. And then there was this brand new ad campaign that Etsy has been running that champions, quote, human performance and critiques automation and faceless commerce. That's a quote, faceless commerce. And so it's the idea of positioning itself as, you know, a platform that is selling products made by individual humans making things. But, of course, there's a tension there. Etsy is a shopping platform and you need scale to be a shopping platform. And usually if you have scale, it means that you are producing things quickly and one after the other after the other.

16:59And that's not how Etsy merchants work. And so Etsy is trying to sort of do both at the same time, drive growth, but also still say that all of these products are made by individuals who likely aren't creating their products at scale. So it's interesting just to see how it's approaching that. Yeah, I mean, like at every other company, AI has become a big concern for the sellers. And so this is what this international campaign has been about. But, you know, again, there's a lot going on there. In December, the company announced it's laying off 225 employees. So that's about 11 % of its workforce.

17:42And yeah, I mean, I guess we'll see what this new program will bring. But it'll be interesting to see how it can kind of thread that needle between being like this, you know, you can wait a few weeks for this custom made item to be ordered and made. But then at the same time, you're getting these sort of almost like Prime-like perks. You know, a lot of loyalty programs we're seeing, like free shipping, for example. and it'll be interesting to see how much Etsy can cover, I guess, because free shipping is not cheap if it's not going to be charging the sellers themselves. Yep. Lastly, we have, this is a fun one, as I've been alluding to.

18:24There is a semaphore story this week. It has everything. It has former Starbucks CEO Howard Schultz. It's got Sicilian olive oil, entangled corporate financials, which I felt like I was like I had to read multiple times to really make sure I got it right. But yeah, to set the table, we will take it back to the olive oil infused coffee drink that Starbucks announced last year. It was called the Oleato. And I believe the pilot program started out in Italy, which we now know there was a reason for. But yeah, for those who don't recall, it did receive mixed reactions, but Schultz himself was really bullish on it.

19:06I mean, he was kind of everywhere talking about how this is going to be the future of coffee. He said people are going to be adding a teaspoon of Partana extra virgin olive oil into their drinks. I'm sure of it. Partana is what we will be getting into. This is the new company that produces olive oil that Starbucks uses. Yeah. Yeah, he was really bullish on it. He said, no one's ever thought of mixing the two except me. You really want to spray the coffee into your mouth. I still have yet to have an oleata, but I don't know if I want to spray it into my mouth. We'll see. Yeah, it just didn't really seem to take off.

19:44But, you know, regardless of that, now we know the connection between Schultz and the Starbucks olive oil source. So as Semaphore reported, Starbucks buys all of its olive oil from Partana, which is an olive plantation in Sicily whose controlling family sold 19 % stake to Schultz in 2023. This was found in U.S. and Italian corporate filings. And then Starbucks paid Partana$26.5 million between October 2022 and September 2023 for all of that olive oil they've been using. And a source that's familiar said that Partana needed the cash to expand in order to meet all of these orders, hence Schultz's involvement.

20:33And I guess Starbucks kind of becoming an investor indirectly. Yeah, it's super interesting because Starbucks didn't need to only use one source. You know what I mean? And I think the story pointed this out because Starbucks could have used different olive oil, but instead it was only using Partana. And so just kind of an interesting sort of entanglement way it seems an executive is using one money making operation to make money on another operation. So yeah, super, super fascinating. Yeah, especially at the time he was an interim CEO that was kind of on his way out transitioning after coming in to save the company for the third time, I believe.

21:14But yeah, which brings us to this relationship that he's had with Starbucks for decades at this point. He remains the sixth largest shareholder and chairman emeritus for life, meaning that he can attend board meetings and he gets to keep his parking spot. I thought that was fun. Lucky him. Yeah. And so Schultz was the CEO at the time. So he offered Starbucks the chance to invest in its own money into Partana. But he left the decision to the incoming CEO, Laxman Narasimhan. But this is the interesting part here. Kale, do you want to take this and kind of unravel what we've found actually to be happening under the surface?

22:00So this is according to Semaphore, but Starbucks at that time was already indirectly invested in Partana due to a private equity deal in 2019 that seems confusing. So then CEO Kevin Johnson invested$100 million into Valor Equity Partners, which owns a stake in Partana. A person briefed on the transaction told Semaphore. of so Valor's goals of this so this this fund equity partners was to incubate food startups specifically affiliated with Starbucks so GoPuff was involved Brightloom whose mobile ordering software is used in Starbucks stores is also a Valor portfolio company in 2023 Schultz also participated in a funding round for coffee startup Cumulus alongside Valor so pretty much There's just a lot of dealings of Starbucks-affiliated entities and executives investing in companies that are intended to be part of the Starbucks ecosystem.

23:03And it's A, difficult to explain, but also difficult to untangle who is investing in what and how much money do they get from it. So super, super gnarly stuff. Yeah. And like I said, this sort of behind the scenes corporate dealings just showcase how complicated, if that's the right word, that relationship between Starbucks and Schultz's. you know, I mean, he did come in a few different times to help turn the business around or revamp it. So it makes sense that, you know, he will always have a role there. But yeah, it's, it's interesting, because as we said earlier in the in the show, he continues to kind of be on the sidelines criticizing the current administration or the management there, you know, and kind of blaming the, yeah, the stores and the mobile ordering operations for the slow sales lately.

23:57But yeah, so yeah, this is a great story that kind of really went into that nitty gritty details on it. Yeah, it's always fun to see just, I don't know if this is exactly how it is, but like how the sausage gets made or how it's not as clean as you're the CEO of a company and that's it. There are always other undercurrents there. And this really got at some of those weird financial undercurrents. Yeah. And I think also just all the investments that Starbucks makes as a company is really interesting. like the GoPuff one I actually did not know about. Yeah, me neither. That is our show for this week.

24:32You can rate and review us on Apple Podcasts or Spotify or wherever you're listening. And don't forget to subscribe to the Modern Retail Podcast. On Thursdays, you can hear interviews with Kale and industry leaders. Kale, do you have a preview for us for next Thursday? Yeah, I spoke with the performance eyewear company, Revo, which used to be owned by Luxottica, has been around for decades, but is now relaunched, revamped, has a new store in the U.S. And we talked all about eyewear and what's going on with it, and even the Olympics, though I will say they are not an official Olympic sponsor. And we talk about why that is, which was fun.

25:13So check it out. Yeah, they're very, yeah, apparently it's very strict. Yeah, he was like, we have athletes who are at the Olympics, but that is all I can say. I cannot actually use the O word. and I thought that was funny. Yeah, exactly. All right. Well, we will see you back here on Saturday for the Modern Retail Rundown.