Starbucks says Omicron hit ingredients costs and staffing levels much more than expected

Starbucks says Omicron hit ingredients costs and staffing levels much more than expected
Starbucks says it spent much more on supplies and staff sick pay than expected.Budrul Chukrut/SOPA Images/LightRocket via Getty Image
  • Starbucks execs said Omicron disrupted the supply chain and caused higher levels of staff sickness.
  • As a result, the coffee chain spent more on supplies, sick pay, and isolation pay than expected.

Starbucks says that the emergence of the Omicron variant piled greater pressure on costs and worker absences than they had been expecting during the pandemic.

Executives on Starbucks' earnings call Tuesday said that the coronavirus variant had a huge impact on the company, forcing up costs and causing more staff to call in sick.

"Prior to the emergence of the Omicron variant, we were experiencing some inflationary pressures and staffing issues resulting from the broader pandemic," CEO Kevin Johnson said. "When the Omicron surge began, inflationary costs and staffing shortages were amplified, well in excess of our expectations."

Johnson said that Omicron led to "higher-than-anticipated" expenditure, driving up the cost of supplies and causing the chain to spend more on COVID-19 sick pay and isolation pay for staff.

The CEO also said that Starbucks had been hit by a "rapid increase" in supply-chain costs as distribution and transportation providers had to scale back some of their operations due to Omicron-related staffing shortages. Johnson said that this meant Starbucks had to rely more on getting supplies from the "much more expensive spot market" as well as using alternative delivery solutions.


More staff have been getting sick, too. John Culver, the company's chief operating officer, said that there had been a surge in the number of coronavirus cases among Starbucks staff amid the spread of the Omicron variant. Johnson said more staff had been using Starbucks' COVID-19 isolation pay, too, which he said was "a critically important partner benefit."

Johnson said that this had led to "significantly higher COVID-related benefits paid than expected," and added that Starbucks has forecasted that it will remain high throughout the quarter.

Though executives outlined how Omicron had impacted operations, Tuesday's earnings call didn't show the full impact of the variant on Starbucks' sales and bottom line.

Starbucks posted booming sales for the quarter. Total net revenues, at $8.05 billion, were up by just over 19% compared with the same period the previous year, and 13% on a two-year basis.

But these figures only cover the quarter to January 2, and Omicron was first identified in late November. Rachel Ruggeri, the company's chief financial officer, said sales in some areas had been hit by rising coronavirus cases.


Starbucks' operating income for the quarter rose to $1.18 billion, up 29% on the previous year. But this was a drop of just over 3% from the quarter to December 29, 2019. It doesn't include the huge impact that Omicron had on staff sick pay and rising ingredient costs in January.

Ruggeri said that costs related to inflation and staff sick pay and isolation pay had "accelerated in December and have intensified, really largely related to omicron into January."

The company ultimately revised its fiscal 2022 operating margin because of inflation, staffing problems, and the effects of COVID-19 surges.