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May 20, 2024
What Will It Take To Reverse Starbucks’ Decline?
Starbucks faced a disappointing quarter with declining same-store sales in the U.S. and China, leading to a 2% dip in global revenue and its first quarterly sales decline since 2020.
CEO Laxman Narasimhan acknowledged the challenges, including competition and cautious consumer behavior. “Our performance this quarter was disappointing and did not meet our expectations,” he said on the quarterly earnings call.
With all of the rising problems, Narasimhan has proposed a myriad of solutions aimed at tackling the company’s issues.
Starbucks is banking on its “Triple Shot Reinvention with Two Pumps” strategy. The focus is on enhancing the Starbucks app to entice “occasional customers” back, improving service speed and wait times, and introducing new promotions.
Additionally, Starbucks is trying out menu changes, such as its first time adding “texture” to drinks in the form of tapioca-style pearls. Options like sugar-free customizations and low-calorie energy drinks are also being offered to appeal to the health-conscious. Furthermore, as a quick fix of sorts, Starbucks plans to extend its operating hours to capitalize on late-night business, projecting a $2 billion revenue boost over the next five years.
Cold drinks are currently a major driver of Starbucks’ sales, reflecting a broader trend in the U.S. where iced beverages are booming. In a bid to capitalize on this, Starbucks is introducing raspberry popping “Pearls” to its summer menu, reminiscent of the popular boba tea.
However, unlike its competitors and its own previous attempts in 2021, Starbucks is not calling these additions “boba.” By using the term “pearls,” Starbucks sidesteps a direct nod to Asian culture. This move, whether intentional or not, seems to position Starbucks as a trendsetter rather than a follower, subtly erasing the rich history of boba tea. It’s a sharp contrast to how the company highlighted the cultural roots of its olive oil coffee drinks from Italy.
Starbucks also experienced declines in visits by those who are “occasional customers,” due to traffic issues and consumer saving habits, despite some boosts from new products like the lavender matcha latte. Challenges with meeting demand, especially during peak hours, contributed to incomplete orders and decreased Starbucks Rewards membership numbers.
To address these issues, Starbucks is investing in store efficiencies, introducing new equipment and labor efficiency solutions, and expanding digital marketing strategies. One significant change is opening up the Starbucks app to everyone, not just rewards members, to enhance the mobile ordering experience.
Analysts are weighing in on the company’s potential paths to recovery. Jon Tower, a restaurant sector analyst at Citi Bank, suggests that Starbucks needs to address its pricing strategy. He notes that as the second-largest restaurant brand in the United States by footprint, Starbucks must offer value to its customers. The increasing costs of food and beverages at Starbucks are likely contributing to a decline in sales among average consumers. To combat this, Tower advises that Starbucks should consider cost-cutting measures within the company’s broader business model or a value menu to make its offerings more appealing to the average customer.
Former Starbucks CEO Howard Schultz has also weighed in on the company’s recent sales struggles, advocating for a return to basics: coffee. In a recent LinkedIn post, Schultz emphasized the importance of senior leaders spending more time in Starbucks stores, engaging directly with baristas and customers.
Schultz believes that a renewed focus on the customer experience within Starbucks’ U.S. operations is essential for the company’s recovery. He argues that coffee should remain the cornerstone of Starbucks’ brand identity.
Schultz also highlighted the need for innovation in Starbucks’ mobile ordering and payment platform. “One of their first actions should be to reinvent the mobile ordering and payment platform — which Starbucks pioneered — to once again make it the uplifting experience it was designed to be,” he said.
As a significant shareholder and former leader of the company, Schultz has a track record of stepping in during challenging times. With Starbucks navigating another period of uncertainty, his insights may prove valuable in guiding the coffee giant back to its roots of exceptional coffee and customer experience.
“We always appreciate Howard’s perspective. The challenges and opportunities he highlights are the ones we are focused on. And like Howard, we are confident in Starbucks’ long-term success,” Starbucks said in a statement.
Discussion Questions
Amidst declining sales, how can Starbucks optimize its digital strategies and app enhancements to attract and retain customers, ensuring a seamless experience during peak hours?
How can Starbucks maintain brand authenticity while introducing innovative menu items and addressing cultural sensitivity concerns with new offerings such as “pearls”?
To drive recovery, how should Starbucks balance innovation with a renewed focus on the customer experience, as advocated by former CEO Howard Schultz?
Poll
Loading …BrainTrust
Kenneth Leung
Retail and Customer Experience Expert
Cathy Hotka
Principal, Cathy Hotka & Associates
Shannon Flanagan
VP|GM Retail & Consumer Goods at Talkdesk
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Starbucks is suffering from a volume squeeze.
Is this because of pricing? Yes, but there isn’t one single reason behind the decline. Some of it is indeed due to tightening finances and consumers cutting out the odd coffee here and there. Some of it is due to a worsening experience in stores, including longer wait times. Some of it is the ongoing trend of defection to independent coffee shops. And a very small part might be down to boycotts over labor disputes and other matters.
Offers and deals will help somewhat. But they do not address the experience issue. Stores need to be more welcoming, processes need to be more efficient, and there needs to be an improvement in areas like food and bites to eat which drive incremental revenue.
In my career, and in my travels, I have met a countless number of famous people, but none that I admired as much as Howard Schultz, Starbuck’s founder. Okay, so maybe I enjoyed having a drink with Stevie Nicks, too. True story, I promise. OK, back to Howard Schultz.
Howard is a marketing genius on so many levels, and I remember every word he said. He remarked how coffee shops come and go, in every town, but Starbucks outlast all of them and the main reasons are, quality, consistency, atmosphere, and brand. If you read his book you will learn all about it.
I once had a policy that I would never choose an office building that didn’t have a Starbucks on the bottom floor. Three visits each day was my lifestyle. I knew the barista’s so well that I was invited to weddings, and attended concerts with Starbucks employees that were like family to me.
Starbucks was heaven. I walked in to the friendliest atmosphere, enjoyed the scent of the coffee and pastry, and ordered a latte and delicious scone. As I traveled the country, I knew employees inside the the airport stores, and the ones in my hotels. So you get the idea. Starbucks was a big part of life for me.
These days, I have one latte each day instead of three. The rest of the day, I make my own coffee. Why? Starbucks isn’t what it used to be. In fact, I don’t even know what the Starbucks brand even means anymore. It lost its way.
There is no longer a sense of identity for Starbucks right now. They keep changing directions and appear to be lost in a fog. On one day, they view their future as mostly drive-throughs; on another day, the vision expanded inside coffee shops with an all-inclusive theme, which sounds very nice, but I don’t know what that actually means, or what it has to do with expanding the stores.
There has been crazy divisive woke stuff at Starbucks, such as asking baristas to handwrite social messages on cups. What a good way to polarize ourselves from customers. Recently, the employee union adopts an outspoken anti-Israel stance, further polarizing customers. Do they even know that their founder, Howard Schultz is a Jewish man who has a strong commitment for Israel?
As for its operational standards, Starbucks needs to raise them back to where they were in their best days. But drink quality is inconsistent across stores. One day at Store “A” the lattes have the right balance and taste, then the next day at Store “B” the same drink has a completely different taste, or lack of. That was never the case at Starbucks in the past.
The stores no longer have the classic scent, environment, or comfort of a Starbucks coffee shop. Has anyone there read Howard Schultz’s book? Schultz is obsessed with detail, consistency, and uncompromised standards.
In my opinion, store management is no longer as sharp as it used to be. It is common for stores to run out of stoppers, cup wrappers, Stevia, and even mixers on a counter inside the stores. One of “my” Starbucks stores were still using Christmas cups in mid March. Pumpkin latte’s are not as good as they used to be. The menu at Starbucks these days is convoluted. All too often they are out of certain syrups, powders, and coffee types.
I once had a policy that I would never choose an office building that didn’t have a Starbucks on the bottom floor.
The brand image of Starbucks has been compromised. It’s time for Starbucks to get back on track. They need you back, Howard! -Db
OK, now we need to hear more about the Stevie Nicks story at some point;) A songwriting and musical powerhouse.
Simply put, Starbucks is too expensive. An afternoon icy drink splurge is appealing, but if it’s almost $7.00, a lot of people are going to think twice. Starbucks and its fast-food brethren have some thinking to do.
That is simple…I like that! But what is equally simple – tho Dennis glossed over it – is that ultimately profit is more important than revenue. I’m not intimate with Starbucks’ cost structure, but it may be that X million @$7/per is better than (X+3)million @ $5.49/per.
Totally agree @cathy. I only drink Starbucks on work trips. I’d much rather have a Nespresso @ $1.25 a cup over a $5 Starbucks regular coffee. It’s just stupid.
Yes, 100% plus one additional simple point. Convenience. If you’re not in a downtown urban environment with s Starbucks on every corner, then going out for coffee, is just that. It’s going out to somewhere to get a coffee. That implies time. If the whole journey isn’t conveniently quick enough, you might give the whole experience a second thought and either make your own coffee, or skip it. How does Starbucks account for that? It’s knowing your customer region by region. Do they need to make the in-cafe experience better to make the overall experience a destination? Or do they need to create more mobile order only locations to serve up extreme convenience. Or maybe a given region needs a combination of both! It’s no longer a one-size fits all experience. While Starbucks has experimented with this, they’ve not committed to the idea of all these formats strongly enough!
I totally agree Cathy! High prices are causing occasional customers pass on Starbucks and loyal customers are reducing their frequency. I think the Starbucks Rewards structure should be revamped to be more lucrative to make it more inspiring to reach a certain level to earn a reward. The app could be more encouraging by reminding customers they are “one drink away from a free drink” or some other perk. Similar to the way airlines inspire travelers to reach a certain level.
There is a dissonance between its coffee and food. Fix the brand by fixing the latter.
I’m a mother of three teenagers, two of whom are obsessed with Starbucks. Personally, I find the menu to be overwhelming, but there is at least one demographic that loves all of the options, in particular the cold drinks. IMHO most of their strategies make sense. I think opening up the app to anyone will help encourage occasional customers, as their mobile ordering is a big win. Extending store hours in certain locations, especially college ones, should be another win. I do echo Christopher, uping their food game and differentiating it from others would be an area of opportunity not mentioned.
More consumers are rethinking whether to keep Starbucks’ affordable luxuries as part of their frequent habits. Pricing promotions during non-peak hours could give customers a deal and smooth out demand during the day.
Starbucks is almost too popular. Long lineups and bottlenecks at the register and pickup area affect the customer experience. Customized drinks delight customers but they often take longer to make. Investments in omnichannel operational efficiency and strategic staffing can help, especially at peak times.
Coffee is Starbucks’ differentiator yet younger consumers rush to TikTok and Instagram to celebrate its non-coffee innovations, including vibrant drinks with tapioca pearls. Promotions that highlight different menu offerings could encourage occasional customers to visit more often for Instagram-worthy aesthetics.
From reading about Starbucks and talking with the many employees I know, creeping managerialism has taken over the company. Today, micro-management by micro-metrics (among other practices) has removed all agency from employees in stores. The result is the disaster we should always expect.
That this happened is a surprise given the powerful insight which led Howard Schultz to rely heavily on smart barista’s to carry out the message about espresso based coffees. But it’s no surprise his managerially trained executives have imposed command-and-control style management leading Starbucks to suffer from the same practices which hurt retail everywhere — failure to rely on the natural self-organization of stores as a management strength.
GK Chesterton once observed how raising children in society relies on natural self-organization — the self-organizing unit of the family The only alternative would be a system too expensive to be practical and lacking the emotional household value.
Starbucks needs to mount a major effort returning the store as its natural unit of self-organization. Doing this is not easy as it requires savvy choices for the rules which give stores appropriate autonomy without risking disaster. But it will be worth it — it’s the only option I see for Starbucks to regain its past glory.
I used to be a Starbucks devotee, but the cost of a basic drink make me blanch. Real math: a Venti black tea lemonade (aka an Arnold Palmer ne Sunjoy) at my Starbucks is nearly $7 “as is,” which means packed to the brim with ice, no syrups or extras. Contrast that with the same drink at Chick-fil-A literally next door. Their large, which is double a Starbucks venti, is $3.23. You think I wouldn’t notice? I did, and clearly Starbucks has noticed my absence because the offers they send me to come back just keep getting richer. Sorry, but you already lost me with your exorbitant prices and teeny portions.
First, I’m not a regular Starbucks customer. When traveling, if convenient and not a line, I may stop in. Also, it’s typically a convenient landmark to meet someone (assuming you align on the same location, since there can be so many nearby in busy areas).
They seem to have a myriad of issues – pricing, menu, staffing, and likely too many shops. But most of these would not be as glaring if it weren’t for the pricing, especially in today’s economy. Consumers simply aren’t tolerating excess expenses when they can avoid it, period. Focus on that immediately, and work on the rest with strong leadership and brand consistency – but with urgency as well.
Howard Shultz is right. Starbucks needs to get back to its roots. They need to look at what got them to wear. They were at their peak and find ways to replicate that past success, Wow, at the same time, keeping up with the changing consumer habits and expectations.
As for stock prices, one or two quarters does not mean the demise of a company.
In the restaurant industry, it’s interesting to think about whether a brand can really have staying power generation over generation. That may be part of the problem – “your father’s coffee shop”. Starbucks is also suffering from China market challenges, and both Starbucks & McDonalds are caught in the middle of polarized politics, which is a lose-lose proposition. You lose if you take a stand, and you lose if you don’t. But definitely I look to both companies as bellwethers of consumer spending and both companies reported pullback, so rather than just launching a barrage of new products, lowering prices might be a novel approach to juice revenue these days.
The luxury we have is the luxury of the critic. A critic’s chair is always comfortable!
My family and I remain frequent flyers. Maybe they should give us a “status” like the airlines. We all use the app and we adopted the personal cup when mobile ordering. The reality is that it’s difficult to know what’s wrong and easy to make a mistake by guessing. Is Howard Shultz right or is this his Kodak moment? Does Starbucks serve coffee or community?
I believe Starbucks lost some of its “community” when it redesigned its stores. I believe their quality has suffered and I know because I’ve been to Starbucks all around the states and in many parts of the world; my order often tastes different blocks from my home Starbucks . I believe it has suffered in its ability to deliver an insanely fast service from order to cup. I don’t think “food” is the answer but I do eat breakfast there and, on occasion, lunch. And, finally, pricing is an issue but it has always been a premium to McDonalds or Dunkin so that can’t be the entire story.
“Let’s not make things worse by guessing!” One thing I will not disagree with is that all leaders, managers and executives should spend time in their stores talking to their staff and customers. There are answers there. And I’m not sure “coffee” as in pure, drip, black coffee is the cornerstone to which they should return. They’re a different company today than in 1971. However, there’s something to be said for figuring out what the basics are to which they wish to return (and if it’s really time to return or to redefine).
Great way to put it. “Coffee or community…???”
No doubt if leaders, managers and executives haven’t spent time in stores working behind the counter, they need to. They’ll quickly learn the operational challenges of their vast menu, see inefficiencies, hear from customers, and get closer to your “coffee or community” question!
Starbucks customers have periodically been faced with inflationary pressures from gas prices, the cost of food, and so forth — and the company has succeeded in the past to hang onto loyal consumers’ discretionary dollars. What’s different this time? As with any other retailer, it mostly comes down to product offering and store experience.
I tend to agree with Howard Schultz that the consistent quality of Starbucks’ coffee is not what it used to be, for whatever reason. (Although the current CEO probably wishes Schultz weren’t looking over his shoulder…) All the beverage and other menu enhancements may drive new customers and help Starbucks stay “on trend,” but ultimately it’s all about the coffee.
I’d add that the drive-thru business is essential (although a heavy lift at peak hours), but the brand’s original image as a neighborhood “gathering place” has been somewhat tarnished as a result.
“Subtly erasing the rich history” is definitely not a good idea- they should be fully acknowledging the culture of the foods and drinks they’re taking from. I think it’s just time that consumers tire a bit of Starbucks. If a brand isn’t doing everything in its power to stay ahead, it will fall in line. I don’t believe they’ve fallen behind, they’re just not growing like they were.
They’re called pearls in Japan, and even in Taiwan shops are getting away from the word “boba”. This isn’t heritage being erased – it’s because people want to not use a sexist slang term for certain female anatomy.
Starbucks is dealing with combination of factors. Work from home reduced the number of office workers getting ttheir caffiene in the mornings and afternoons. Online ordering allowed instagram worthy but difficult to make custom drinks which kills productivity of barristers especially during rush hours. Specialty drinks help but again they are complex to deliver when someone needs a coffee to go for work.
I think starbucks need to go back to executing the basics well, deliver coffee quickly and efficently for in store and mobile orders. Limit the availability of highly custom drinks to off hours from apps so that barristers can focus on fulfillment of orders in store.
“…a renewed focus on the customer experience.” Exactly. Perfect. Many years ago I came up with my own condensed version of Starbuck’s Brand Promise. It was simply “urban oasis”. It wasn’t “good coffee” or “great snacks”. Just “urban oasis”. I was always mildly irritated at overpaying for mediocre coffee even a decade ago. And the wraps were OK as a quick bite. It was really about the opportunity to take a breather, maybe have a meeting, or access Wi-Fi when it wasn’t ubiquitous. I’m not on the go like I used to be, but it seems to me that a renewed focus on customer experience is the place to start. And yes, coffee, iced drinks, snacks and pricing are important, but it sounds like Starbuck’s would benefit from a tighter menu that was more efficient for more customers more of the time. Which means more efficient for the baristas. Which means more people served faster. Which means……
My neighborhood local walk to starbucks closed, which means I really only visit when travelling, which I do much less frequently than in the past. To me Starbucks is about “more” and not in a good way. More line ups and a lot more expensive. Vente Drip Coffee at an airport for nearly $6.00, all the while with lines that don’t seem to move as fast as they used to? Diagnosis is simple? Fix is more complex.
Starbucks has shifted over the decades as primarily a ‘good quality coffee experience with community’ brand. More product variety in sandwiches and cold drinks and a well-built app also helped increase sales and convenience. And so now customers may have a different interpretation of what it is or should be – is it primarily fast or community? Digital or an in-person experience? Food or coffee? Coffee or cold fun drinks? Can Starbucks do well at all of these at the same time?
Adding layers changes the brand, the promised experience, and increases operational complexity in processes, equipment, and training. Starbucks eventually may want to accelerate breaking up the different experiences and products into being really good but focused. Some locations can be really great at coffee and community, some great at fast and digital, some great at fun cold drinks.
Segmenting ops and locations shifts the brand promise again, but operationally and from a customer experience standpoint, everyone knows what they are buying into.
I agree with others and based on my personal experiences and comments with friends – Starbucks is just too expensive and is no longer “an affordable luxury”. Both their food offerings and drinks are way overpriced and their loyalty program suffered when they dropped the Chase Starbucks credit card. It will take a lot for those I know to increase visits.
I also agree, Starbucks needs a “value menu” like others have.
The simplest and most immediate step for Starbucks is to fix its store operations – namely hiring 1 extra person per shift to wipe down the tables, clean the bathrooms, ensure that snacks are stocked on the shelves, etc. I can’t remember the last time I went into a Starbucks and it actually looked nice/clean.
Almost everything Starbucks offers is a “faux” luxury item that has lost its luster. Why? Because nothing from Starbucks is special anymore. It is just….coffee, and there are other choices out there that have a different appeal (organic, having special needs employees, etc.) than Starbucks. Further, the customer experience has suffered, I believe in part due to the growth experienced in the past. By my very subjective calculation (I go there a lot) about one in five Starbucks has surly associates. The rest are great but that one store kind of poisons the well.
I am confident the various changes will yield some value both for customers and for the firm. Not to mention the fact that many of the items on the menu (especially the cold beverages) are intensely fattening. In part this is a brand that has created this situation percisely because of its earlier success.