January 29, 2025
Image Courtesy of Starbucks
Starbucks Faces Declining Traffic, Flat Revenue: Will Its Turnaround Plan Succeed?
Starbucks reported its Q1 fiscal 2025 earnings on Jan. 28, and the results were a bit of a mixed bag.
According to Business Insider, the company’s turnaround plans — seeking to rectify flagging sales and traffic — appear to be working, at least somewhat. While revenue remained flat versus year-ago levels, coming in at $9.4 billion, this was a bit of bright news set against more ominous markets.
Traffic remains a concern for the green-and-white brand, with same-store sales dipping by 4% in the U.S., per the company’s earnings report, and 6% in China, the second-largest market for Starbucks. Further, the company’s net income plummeted by around 23% to $780 million, down from $1 billion a year ago. Starbucks attributed that tumble to increased wages and benefits for frontline staff, as well as to ending the practice of charging a premium for nondairy products such as oat and soymilk in its beverages.
Starbucks CEO Brian Niccol Upbeat Over Company’s Future
While the company’s recent earnings call represented a good news/bad news scenario, Starbucks CEO Brian Niccol remained positive over the company’s performance during his brief tenure at the helm thus far.
“Despite near-term challenges, we have significant strengths and a clear plan,” Niccol said during the earnings call. “We’re on track to turn the business around. We’re where we want to be one quarter in, but much of our work is just beginning.”
Niccol has enacted several changes to company policy in short order after taking the CEO chair. The company’s open-door policy has been revoked, and a return to customizing to-go orders with the customer’s name written on the cup by the barista is in play. All customers can now receive free refills on certain for-here coffee or tea orders rather than just Rewards members, and in-store beverage orders can be served in ceramic mugs, as Yahoo! Finance reported. Condiment bars, a casualty of the COVID-19 pandemic, are also making a return, taking a bit of work away from baristas and hopefully allowing them to increase their serve times.
Furthermore, Niccol has underscored a goal of having coffee in customer hands in four minutes or less, increasing labor hours at 3,000 locations and streamlining Starbucks’ mobile ordering systems in an effort to reach this metric. However, as things stand, the CEO admitted that there is a lot of work to be done in the days ahead.
“We’re not where we want to be yet. But I’m confident we stay after these strategies. We continue to test and learn. We listen to the feedback. We take action. We will return to growth,” Niccol said.
This is the first @Starbucks commercial under new CEO Brian Niccol’s leadership.
Work by @Anomaly.
What do we think? pic.twitter.com/Z4Y4Tj201P
— Michael J. Miraflor (@michaelmiraflor) January 27, 2025
Starbucks Could Expand Further Into Texas, the Southeast as Niccol Oversees Exec Shakeup
The New York Times reported that Niccol surprised many when he announced a plan to double the number of Starbucks stores in the U.S., indicating that one very specific region was rife with opportunity.
“Places like Texas, the southeast. As we continue to open stores in those areas, they are opening with great economics,” the CEO said.
Further, Niccol is overseeing a significant executive shakeup concerning North American operations. Sara Trilling, president for North America, and Arthur Valdez, head of Starbucks’ supply chain, are making an exit. Meanwhile, Mike Grams — president and COO for Taco Bell — will be taking on the role of chief stores officer for North America and will be responsible for store performance more broadly. Meredith Sandland, chief executive of Empower Delivery, will head up store development and design.
Wall Street Somewhat Skeptical Over Starbucks’ Fortunes in the Near Future
Given that Starbucks’ most recent earnings report was neither disastrous nor impressive, Wall Street analysts appear lukewarm over the prospects of buying the stock.
Yahoo! Finance data suggested that analysts are marking down earnings projections for 2025, with Citi analyst Jon Tower weighing in on the matter.
“We see puts and takes to the same-store sales narrative in the coming quarters (mobile ordering adjustments, 30% stock-keeping unit rationalization), and, particularly with coffee prices continuing to press higher, we find it hard to make the long case for risk-reward without a better anchor for the ‘right’ level of re-based earnings power in fiscal year 2026,” Tower stated, indicating a neutral rating on the company’s shares.
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Discussion Questions
Will Starbucks CEO Brian Niccol’s plan to return the company to its former standing, and profitability, succeed?
What moves could Starbucks make to shore up or increase traffic and per-guest spend?
What factors are most concerning to the future of the company from an operations perspective?
Poll
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The latest quarterly results were weak. The saving grace is that they were not quite as weak as expected and represented an improvement over the prior quarter. Even so, Starbucks still faces the same old issues: declining loyalty, a crimp on consumer spend, competition from niche coffee shops, and an experience that is below par. It is far too early for Brian Niccol to have had a major impact, but he has, at least, started on the journey. The menu has been streamlined, charges for non-dairy milk have been removed, and they’re trying to improve efficiency. All of that is good. However, the biggest issue to solve for is that of experience, and I think there is a long way to go on that yet!
As I shared in an OFFBounds podcast with Paula Macaggi, Brian Niccol has a unique opportunity to restore the brand and enhance the customer experience while driving profitable growth. These are the areas of opportunity the company should consider to get out of the commoditization patterns
1. Separate the customer journeys and enhance the in café experience
- Mobile first customers have a designated area separate from the main café.
- Ensure there is enough staff to support the volume for both grab-and-go customers and café dwellers
2. Prioritize the Café space transformation
- Drive a significant cafe upgrade capital investment plan to modernize the locations
- Integrate elements of the Starbucks roastery into the legacy 1990s locations that are outdated and underwhelming
- Close nonprofitable locations to rationalize the footprint
- Have the café reflect the community it serves with local designs, artists food offerings, etc
3. Quality quality quality
- Improve the coffee and espresso experience with organic, sustainably sourced coffee
- Rediscover the art of coffee making and sourcing
- Align the price with the quality customers expect
- Transform the food offerings. The menu is tired and does not meet the needs of the health-conscious customers
- Bring in organic and premium prepared foods from local producers. No more frozen foods that are reheated
4. Elevate the loyalty program
- Revisit the loyalty program to better incentivize customers to come back for more
- Drive more personalized experiences. You have the data. Leverage it for growth and customer retention
- Improve the gamification strategies across the metaverse, Roblox
- Leverage social selling strategies – TikTok etc
“Given that Starbucks’ most recent earnings report was neither disastrous nor impressive…” Correction: on Wall Street, anything that isn’t impressive is disastrous; and that quip, I think, is the Starbucks story in a creamer cup: it’s no longer the darling that puts a store on every corner – and gets a story in RetailWire three times a month; it’s revenues have plateaued, which translates as small year-on-year gains being as over hyped as are the subsequent small declines are over-lamented. Welcome to maturity.
Brian Niccol is on the right track: Getting back to the passion, personal touch and smooth processes that made Starbucks so successful.
Streamlining operations and the menu, creating comfortable stores and encouraging patrons to linger honors Starbucks’ heritage as a welcoming third place. These changes will also deepen the brand’s emotional bond with customers and earn their loyalty.
Starbucks has become a luxury brand. Prices are very high. That has changed customers’ habit of snagging a beverage every mid-afternoon. Unless Starbucks can reduce prices, it could become irrelevant to middle-class customers.
Brian Niccol’s is a very experienced QSR executive, and he well understands what needs to be accomplished. Only time will tell if his strategies pay off, but it’s clear that he’s not afraid to make changes, and that’s a good sign. Simplifying store operations, increasing store labor, and growing the US store footprint seem like smart moves. China is a big headwind and given the current geopolitical situation, it’s hard to say how that will play out. The honeymoon is over for Mr. Niccol and it’s time to see action. It’s already started.
Financial markets provide the most objective measures of publicly traded companies’ performance and future expectations. When Starbucks announced they recruited Brian Niccol as the new CEO on August 13 last year, the share price soared nearly 25 percent, ten times the normal volume. Once more, following their Q1 2025 conference call, share prices jumped eight percent- the financial markets are signaling confidence in Starbucks’ turnaround and growth strategy (doubling the number of US stores) under Brian Niccol’s leadership, with improving top and bottom lines. Mr. Niccol highlighted the digital menu displays, optimizing the menu offering (30 percent reduction in items), flexibility in the day part “merchandising” options, and refocusing on the in-store experience versus the current to-go order culture. To make customers fall in love with Starbucks stores all over again will be a tall order, but one that the markets are betting that the company will achieve. Over the coming quarters, the company must carefully manage EPS expectations to fund its aggressive US store count.
Even just a few years ago, the coffee shop market was very different. During the 1990s and early 2000s, four or more chains competed head-to-head with each other based on the same business model, and with the same shapes and sizes, and similar pricing. Competition was healty but Starbucks was the perrenial market leader.
There are now a variety of places in which lattes are sold, including fast food, convenience stores, restaurants with drive-through windows, food trucks, donut chains, grocery stores, and so on. Starbucks faces enormous competition, all shapes and sizes, at a wide varity of price models.
Even with tons of competition, Starbucks would have been less affected a few years back. Customers were loyal to Starbucks because of its quality consistency, atmosphere, and d brand loyalty.
However, today Starbucks is just another coffee shop with a drive-through, a few tables inside, and very high prices. Are the products still of the highest quality? Many would argue that it’s not so much.
I have read all kinds of bad ideas. A lower price, a higher price, more focus on the coffee shop itself, less focus on the interior and more focus on drive-throughs, open a bunch of new stores, close a bunch of existing stores, and of course the international market is a whole different subject.
It will take Brian Niccol’s consumer goods background and the right essentials to get Starbucks back on track to profitability. It won’t be easy, but I have confidence in him.
I stand by the fact that writing on cups will not turn Starbucks around. The goal of getting customers their orders in under 4 minutes is crucial, as I’ve had to wait a long time in drive thru’s and in stores if I haven’t mobile ordered. It would be smart to have the app tell you how long the wait time will be if you don’t use it to order, and stores just need to be faster in getting customers their orders. Opening new stores is fine if the market data shows they’ll be profitable, but then I’d consider closing more stores that aren’t turning a profit- I think there’s an overdue recalibration opportunity there.
What I don’t see mentioned as a threat to Starbucks growth is the maturing at-home coffee market. Several data points make this a threat to Starbucks growth.
- Covid normalizing work from home (and brew from home)
- Covid putting a lot of machines in a lot of homes
- YouTube videos demystifying making specialty coffee at home and creating a bit of an at home coffee culture
- Coffee prices near historic highs making it more economical to brew at home and could contribute to less coffee consumption (Coffee magazine predicts a 20% price increase in 2025)
Those data points take a lot of customers out of the out-of-home coffee market.
Where Starbucks has an advantage is in specialty drinks. Something either difficult to produce at home or that requires infrequently used ingredients.
Agree John….My Nespresso at approx $1/cup outshines a $4 house blend from Starbucks all day….Plus, I can get 2.5lb of Starbucks at Costco for like $16…the math is easy.
By sheer number, Starbucks has become as common as McDonald’s. We may like what they offer but we don’t need to stop in every time we pass one.
The stores are not as welcoming or comfortable as they used to be, and the beverages aren’t cheap. I remember when a visit to Starbucks was enjoyable. It makes sense for Brian Niccol to look hard at the company’s roots and reimagine what made the stores irresistible.
I think going back to the interior experience will be a big deal. People will go back, they’ll get out of the house, go meet people for a drink, go back to the vibe that Howard saw in Italy. Everyone else is focused on drive-thru and speed which can’t be ignored, but isn’t there a gap in the market of places where people can slow down, go deep and be human. I like it. Let’s see.
It’s early in the game for this shift at Starbucks. Wall Street loves results in one quarter, but with over 17,000 locations in the US alone this will take several months or more. We’re just now seeing unfold an updated menu, changes in customer service, a new brand campaign and directional shifts in store experiences. Let’s talk again in 12 months.
All the other comments about time to service, and interiors to be considered the fact is that Five-Bucks (headed for Ten-Bucks) has become progressively more expensive such that a latte and a breakfast sandwich as a daily habit turns into an occasional treat.
While I have little doubt that the cost of building and serving the Starbucks products has also gone up and that Retail prices are probably reasonable for the costs, some portions of the formerly addressable market are not going to be spenders.
The reward for frequency has also been diluted – you need to spend $200 to get just a single prepared drink. If I come in every day for 6 weeks, get one free latte…..not very compelling is it?
-If your addressable customer base is shrinking then you either need to find a way to lower prices (and take care of service friction) to enlarge that base or increase the spend from remaining customers. I’d look to vastly enhancing the rewards program – encourage an afternoon drink with a price concession, frequency by offering more points the more times a week you come in and buy. A more creative use of rewards to encourage loyalty and frequency will go a long way to boosting spend.
Spot on Mr. Charness……
I am writing to you from my local Starbucks, waiting for my wife’s car to be ready from the repair shop. The experience is definitely different….my hot tea coming in a nice porcelain mug, with all the refills my bladder can muster while I wait. My food served on a plate. All good with me, the amount of paper waste coming out of a Starbucks is immense. Of course these changes are only impactful when you sit here, which I rarely do. And if you are here to focus on your work, the high decibel music is, at least for me, detrimental. The signage stating that “restrooms are only for customers” is new and snce it is just a sign I am not sure any real change will happen there.
Incremental changes, but in aggregate the in store experience is slightly improved. The real question as always is how will this impact business, and my view from the bleacher seats is the impact will be minimal, primarily because the market (led by SB’s) is saturated in so many areas. The threadbare joke of “Starbucks just opened a new store and it is in my bathroom” (or something to that effect), is telling here.
Big growth is over. We are now in an era of incremental improvement.
First, I’m a fan of Starbucks. But when I put my CX hat on, the comment I have related to this topic is that they aren’t the same Starbucks many of us long-time customers remember. I’m not sure going back to that is the right answer, but it’s something to consider. Furthermore, there is more competition in this space than ever. At one time, Starbucks may have been the best place to enjoy a cup of coffee (and more). Today, there are many options for the same/original Starbucks experience.
Starbucks established the coffee house category and saturated established markets as competition increased. While expanding into new markets will help total sales, it will not help existing stores increase sales or traffic.
The new TV spots romanticize the coffee occasion and sell the coffee house category, not Starbucks. To improve sales and traffic, Starbucks needs to evolve the customer experience, it needs to lead the category not promote and claim generic experiences found at any coffee house.
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The latest quarterly results were weak. The saving grace is that they were not quite as weak as expected and represented an improvement over the prior quarter. Even so, Starbucks still faces the same old issues: declining loyalty, a crimp on consumer spend, competition from niche coffee shops, and an experience that is below par. It is far too early for Brian Niccol to have had a major impact, but he has, at least, started on the journey. The menu has been streamlined, charges for non-dairy milk have been removed, and they’re trying to improve efficiency. All of that is good. However, the biggest issue to solve for is that of experience, and I think there is a long way to go on that yet!
As I shared in an OFFBounds podcast with Paula Macaggi, Brian Niccol has a unique opportunity to restore the brand and enhance the customer experience while driving profitable growth. These are the areas of opportunity the company should consider to get out of the commoditization patterns
1. Separate the customer journeys and enhance the in café experience
2. Prioritize the Café space transformation
3. Quality quality quality
4. Elevate the loyalty program
“Given that Starbucks’ most recent earnings report was neither disastrous nor impressive…” Correction: on Wall Street, anything that isn’t impressive is disastrous; and that quip, I think, is the Starbucks story in a creamer cup: it’s no longer the darling that puts a store on every corner – and gets a story in RetailWire three times a month; it’s revenues have plateaued, which translates as small year-on-year gains being as over hyped as are the subsequent small declines are over-lamented. Welcome to maturity.
Brian Niccol is on the right track: Getting back to the passion, personal touch and smooth processes that made Starbucks so successful.
Streamlining operations and the menu, creating comfortable stores and encouraging patrons to linger honors Starbucks’ heritage as a welcoming third place. These changes will also deepen the brand’s emotional bond with customers and earn their loyalty.
Starbucks has become a luxury brand. Prices are very high. That has changed customers’ habit of snagging a beverage every mid-afternoon. Unless Starbucks can reduce prices, it could become irrelevant to middle-class customers.
Brian Niccol’s is a very experienced QSR executive, and he well understands what needs to be accomplished. Only time will tell if his strategies pay off, but it’s clear that he’s not afraid to make changes, and that’s a good sign. Simplifying store operations, increasing store labor, and growing the US store footprint seem like smart moves. China is a big headwind and given the current geopolitical situation, it’s hard to say how that will play out. The honeymoon is over for Mr. Niccol and it’s time to see action. It’s already started.
Financial markets provide the most objective measures of publicly traded companies’ performance and future expectations. When Starbucks announced they recruited Brian Niccol as the new CEO on August 13 last year, the share price soared nearly 25 percent, ten times the normal volume. Once more, following their Q1 2025 conference call, share prices jumped eight percent- the financial markets are signaling confidence in Starbucks’ turnaround and growth strategy (doubling the number of US stores) under Brian Niccol’s leadership, with improving top and bottom lines. Mr. Niccol highlighted the digital menu displays, optimizing the menu offering (30 percent reduction in items), flexibility in the day part “merchandising” options, and refocusing on the in-store experience versus the current to-go order culture. To make customers fall in love with Starbucks stores all over again will be a tall order, but one that the markets are betting that the company will achieve. Over the coming quarters, the company must carefully manage EPS expectations to fund its aggressive US store count.
Even just a few years ago, the coffee shop market was very different. During the 1990s and early 2000s, four or more chains competed head-to-head with each other based on the same business model, and with the same shapes and sizes, and similar pricing. Competition was healty but Starbucks was the perrenial market leader.
There are now a variety of places in which lattes are sold, including fast food, convenience stores, restaurants with drive-through windows, food trucks, donut chains, grocery stores, and so on. Starbucks faces enormous competition, all shapes and sizes, at a wide varity of price models.
Even with tons of competition, Starbucks would have been less affected a few years back. Customers were loyal to Starbucks because of its quality consistency, atmosphere, and d brand loyalty.
However, today Starbucks is just another coffee shop with a drive-through, a few tables inside, and very high prices. Are the products still of the highest quality? Many would argue that it’s not so much.
I have read all kinds of bad ideas. A lower price, a higher price, more focus on the coffee shop itself, less focus on the interior and more focus on drive-throughs, open a bunch of new stores, close a bunch of existing stores, and of course the international market is a whole different subject.
It will take Brian Niccol’s consumer goods background and the right essentials to get Starbucks back on track to profitability. It won’t be easy, but I have confidence in him.
I stand by the fact that writing on cups will not turn Starbucks around. The goal of getting customers their orders in under 4 minutes is crucial, as I’ve had to wait a long time in drive thru’s and in stores if I haven’t mobile ordered. It would be smart to have the app tell you how long the wait time will be if you don’t use it to order, and stores just need to be faster in getting customers their orders. Opening new stores is fine if the market data shows they’ll be profitable, but then I’d consider closing more stores that aren’t turning a profit- I think there’s an overdue recalibration opportunity there.
What I don’t see mentioned as a threat to Starbucks growth is the maturing at-home coffee market. Several data points make this a threat to Starbucks growth.
Those data points take a lot of customers out of the out-of-home coffee market.
Where Starbucks has an advantage is in specialty drinks. Something either difficult to produce at home or that requires infrequently used ingredients.
Agree John….My Nespresso at approx $1/cup outshines a $4 house blend from Starbucks all day….Plus, I can get 2.5lb of Starbucks at Costco for like $16…the math is easy.
By sheer number, Starbucks has become as common as McDonald’s. We may like what they offer but we don’t need to stop in every time we pass one.
The stores are not as welcoming or comfortable as they used to be, and the beverages aren’t cheap. I remember when a visit to Starbucks was enjoyable. It makes sense for Brian Niccol to look hard at the company’s roots and reimagine what made the stores irresistible.
I think going back to the interior experience will be a big deal. People will go back, they’ll get out of the house, go meet people for a drink, go back to the vibe that Howard saw in Italy. Everyone else is focused on drive-thru and speed which can’t be ignored, but isn’t there a gap in the market of places where people can slow down, go deep and be human. I like it. Let’s see.
It’s early in the game for this shift at Starbucks. Wall Street loves results in one quarter, but with over 17,000 locations in the US alone this will take several months or more. We’re just now seeing unfold an updated menu, changes in customer service, a new brand campaign and directional shifts in store experiences. Let’s talk again in 12 months.
All the other comments about time to service, and interiors to be considered the fact is that Five-Bucks (headed for Ten-Bucks) has become progressively more expensive such that a latte and a breakfast sandwich as a daily habit turns into an occasional treat.
While I have little doubt that the cost of building and serving the Starbucks products has also gone up and that Retail prices are probably reasonable for the costs, some portions of the formerly addressable market are not going to be spenders.
The reward for frequency has also been diluted – you need to spend $200 to get just a single prepared drink. If I come in every day for 6 weeks, get one free latte…..not very compelling is it?
-If your addressable customer base is shrinking then you either need to find a way to lower prices (and take care of service friction) to enlarge that base or increase the spend from remaining customers. I’d look to vastly enhancing the rewards program – encourage an afternoon drink with a price concession, frequency by offering more points the more times a week you come in and buy. A more creative use of rewards to encourage loyalty and frequency will go a long way to boosting spend.
Spot on Mr. Charness……
I am writing to you from my local Starbucks, waiting for my wife’s car to be ready from the repair shop. The experience is definitely different….my hot tea coming in a nice porcelain mug, with all the refills my bladder can muster while I wait. My food served on a plate. All good with me, the amount of paper waste coming out of a Starbucks is immense. Of course these changes are only impactful when you sit here, which I rarely do. And if you are here to focus on your work, the high decibel music is, at least for me, detrimental. The signage stating that “restrooms are only for customers” is new and snce it is just a sign I am not sure any real change will happen there.
Incremental changes, but in aggregate the in store experience is slightly improved. The real question as always is how will this impact business, and my view from the bleacher seats is the impact will be minimal, primarily because the market (led by SB’s) is saturated in so many areas. The threadbare joke of “Starbucks just opened a new store and it is in my bathroom” (or something to that effect), is telling here.
Big growth is over. We are now in an era of incremental improvement.
First, I’m a fan of Starbucks. But when I put my CX hat on, the comment I have related to this topic is that they aren’t the same Starbucks many of us long-time customers remember. I’m not sure going back to that is the right answer, but it’s something to consider. Furthermore, there is more competition in this space than ever. At one time, Starbucks may have been the best place to enjoy a cup of coffee (and more). Today, there are many options for the same/original Starbucks experience.
Starbucks established the coffee house category and saturated established markets as competition increased. While expanding into new markets will help total sales, it will not help existing stores increase sales or traffic.
The new TV spots romanticize the coffee occasion and sell the coffee house category, not Starbucks. To improve sales and traffic, Starbucks needs to evolve the customer experience, it needs to lead the category not promote and claim generic experiences found at any coffee house.