- Starbucks is planning to use zero-based budgeting starting during its next fiscal year.
- The coffee chain is trying to cut expenses to pay for its turnaround efforts.
- Other companies have used zero-based budgeting, though some appear to have cut perks too deeply.
Starbucks is planning to use a cost-cutting method with a tough reputation as it continues its turnaround.
The method, called zero-based budgeting, asks managers to justify every item they spend on each year, instead of using the previous year's spending as a baseline as many companies do.
Starbucks executives say ZBB will help them find savings as they spend more on their Back to Starbucks plan, including paying for more hours for the baristas who staff its stores.
"We're going to be looking at ways to grow the business and also take a really hard look through the zero-based budgeting approach to understand where else there might be some offsets," CEO Brian Niccol said during the company's earnings call on Tuesday.
"I love deploying a few tools like zero-based budgeting" to "help us get after some of those maybe-stranded costs," CFO Cathy Smith, who joined Starbucks in the last few weeks, also said on the call.
A Starbucks spokesperson did not respond to questions about how the company planned to use zero-based budgeting.
ZBB gained popularity in the 1970s, thanks in part to former president Jimmy Carter, who advocated — ultimately unsuccessfully — for its use by the federal government.
More recently, some major brands have adopted the strategy.
Private equity firm 3G Capital has deployed the method at Stella Artois-maker AB InBev and Kraft Heinz, the company that makes Oscar Mayer and Lunchables, for instance.
The strategy, which includes moves like making all senior execs fly coach class even over long distances, did lower costs and improve the companies' margins. But in some cases, the spending cuts were so severe that it made it tough for employees to do their jobs, Business Insider reported in 2021.
One employee, who had recently left Kraft Heinz at the time, told BI that she could only spend $5 annually on office supplies. She also had to bring in her own Keurig pods from home since the company, which makes Maxwell House coffee, provided no coffee in the office break room.
Other Kraft Heinz employees told BI that strict spending controls hampered the development of new products and ultimately made it less competitive.
Some companies have adopted the method at key turning points.
Managers at X, formerly known as Twitter, reportedly had to use zero-based budgeting after Elon Musk bought the company in 2022, for instance.
And in 2020, General Motors implemented ZBB as a way to manage its way through disruptions caused by the pandemic. The company temporarily cut spending by slashing advertising and furloughing some employees, then-CFO Dhivya Suryadevara said at an investor conference.
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