Photo by kevs on Unsplash
Why Is Starbucks on the Decline, and Can the Situation Be Turned Around?
Starbucks has been on a recent decline marked by decreasing stock prices and a prediction of declining sales after an increase in November.
Concerns over Starbucks’ recent sales slump — marking 11 consecutive days of stock decline and eradicating 9.4% of its market value (a loss of almost $12 billion) — have escalated among investors, according to Bloomberg. This downturn, noticeable in November, contrasted sharply with the 8% comparable sales growth in fiscal Q4. JPMorgan analyst John Ivankoe, in a recent note, downgraded Starbucks’ Q1 U.S. comparable sales growth forecast from an initial 6% to 4%. Overall, Starbucks shares have fallen by 1.6% this year, contrasting with the S&P 1500 Composite Restaurants Index’s 11% increase.
One of the major and most recently publicized reasons for this decline may be attributed to Starbucks’ treatment of workers, their wages, workload, and desire for unionization.
Employees at Starbucks have been voicing concerns about their working conditions and have tried repeatedly to unionize. The Associated Press reported that since 2021, a minimum of 366 U.S. Starbucks stores have opted for unionization per the National Labor Relations Board. However, there’s still no labor agreement between Starbucks and the Workers United union at these locations.
Starbucks has made every effort to deter unionization, and this may be harming both the company’s image and the morale of its employees. After Starbucks announced plans for a global expansion and increased wages for its workers in November, it specified that some of the benefits will only be available to employees who haven’t joined a union, “despite a previous ruling by a National Labor Relations Board judge who found that Starbucks had violated federal labor law with similar measures.”
As a result, strikes have been popping up, and they have been costly to the coffee retailer — most notably the recent Red Cup Rebellion, which saw thousands of workers at over 200 U.S. Starbucks stores go on strike during Red Cup Day on Nov. 16.
The Public Perception of Starbucks
An additional detriment to Starbucks is how the public perceives the company’s image in response to recent news. Notably, on Reddit, many users from around the globe have been sharing their opinions, feelings, and observations about the company’s quality, pricing, and treatment of its employees.
Critics argue that Starbucks has compromised quality and shifted its focus away from customers through aggressive cost-cutting, increased prices, and uninspired design, which they believe is driven by a relentless pursuit of profit growth. Reddit users also highlight concerns about reduced wages, decreased store hours, and labor cuts. Furthermore, accusations of poor employee treatment circulate online, discouraging patrons from supporting such businesses.
Starbucks’ Pricing Is Out of Control
Another important factor that many consumers have noticed is how Starbucks has continued to increase and inflate its prices on a regular basis. Many customers feel that these price increases are not justified and are more of a direct result of corporate greed.
Reddit users regularly discuss how Starbucks’ consistent price-raising practices are not only insulting but also unwarranted considering a perceived decrease in food quality and flavor. This has led some to consider alternative, upscale coffee houses that offer higher quality drinks at similar pricing or find cheaper alternatives that are improving their quality, like 7-Eleven.
Starbucks on the Decline
With the overall inflation and suffering economy, there’s no doubt that many consumers are also shying away from their usual Starbucks treat to help offset their holiday spending. However, there are many other aspects that will continue to erode Starbucks’ dominance beyond the holidays if not properly addressed.
Ultimately, Starbucks faces a multitude of challenges that result from consumer pushback due to rising prices, lack of innovation, and employer-worker issues.
Discussion Questions
What do you think is the primary reason for Starbucks’ recent decline, and do you think it can recover and regain trust? Do you think Starbucks can justify its increasing prices to consumers with the continued innovation of new drinks or foods? Should Starbucks allow its employees to unionize to help alleviate tensions between the company and its workers?
Poll
Loading …BrainTrust
Mark Price
Adjunct Professor of AI and Analytics, University of St. Thomas
Gary Sankary
Retail Industry Strategy, Esri
While Starbucks has to address labor relations, profitability and yes, even a less-inspired store design, they should not overlook the court of public opinion–where their customers weigh-in on all these issues too.
It’s easy to overlook the bonds that can develop between baristas, store employees and local customers but this bond can be strong, especially in high volume stores. Customers know these are not particularly high paying jobs but they value their local store employees. Any suggestion that employees are being treated unfairly will find customers siding with employees. This is compounding an already complex issue.
Since 1986, Starbucks CEO has changed leadership some half a dozen times, the market place has changed, their dominance has been sqeezed from all sides and covid birthed a new allegiance to local stores and their employees. This is not the same environment that propelled their success and Starbucks won’t find success again, until they find themselves.
Unfortunately, Starbucks original brand purpose has been mired by expansion, profit/gains and cost-cutting over the last decade. Unless they find center-of-gravity around their brand purpose and the role of their store employees within that brand purpose, they will continue to see a marketplace that is growing without them.
Great summary. Times are different nowadays, and it seems like the squeeze is coming from every angle. Starbucks needs to pick a path, embrace a brand position and avoid being all-things-coffee-related-to-everyone.
Rachelle…YES! The barista/customer bonds have been strained for a long while in light of barista dissatisfaction with their work environment. It has a lasting, negative impact on us as customers.
The share price slump is largely the result of deflated expectations. Starbucks has been on something of a growth spurt and this was expected to continue into the final quarter. However, it seems that sales growth has slowed down and that the holiday drinks lineup has gotten off to a slow start. When heady assumptions built into a share price fail to materialize, the price gets squeezed. Of course, what actually happens remains to be seen when the actual results are released. It’s also the case that we are talking about slower growth, not a sales decline – so it’s not as if Starbucks is doing terribly.
Right – comp store growth of 4% is something most businesses would kill for. The lesson is to not be led around by stock analysts. I would like to see management act like adults and deal in good faith with the unions – that’s supposed to be the American Way, after all – and gradually work through this drama.
Despite the challenges, Starbucks continues to have a strong following and I remain hopeful that they can turn things around. However, the executive changes and ham-handed labor relations have hurt the business and the brand. Increasing prices haven’t helped. But Starbucks didn’t achieve its success by accident – they are the most successful specialty coffee retailer in history. Starbucks needs to continue to innovate with food and drinks as it always has and it must once and for all resolve their festering labor issues. What does appear to be true is that they can no longer rely on Howard Schultz to save the day – as his last engagements have shown, he doesn’t have all the answers either. And with new, formidable competitors like McDonald’s new CosMc’s offering, Starbucks has it’s work cut out for itself.
Only time will tell, of course, but a slowdown in growth is not yet a reason to panic, and while I agree with the concerns over how Starbucks treats its workforce, I am not at all convinced that a bunch of Reddit(!!) users represent a true read on consumer sentiment. Reddit users for the most part aren’t happy unless they have grievances to air, and I have learned to take anything sourced from Reddit with a large helping of salt. Nonetheless, Wall Street appears to be paying attention, and Starbucks will need to figure out how to manage its employees more fairly. And I also think they need to be cautious with their pricing before sales <growth> declines become <sales> declines.
In a few words, Starbucks coffee is too expensive for these times, Starbucks may have opened more stores than they should have and some of them don’t perform.
Starbucks faces growth challenges from all angles—maybe even from space. I’ll get to that later. Right now, I think what we’re seeing is that even the core Starbucks customer has something resembling price sensitivity. The labor issues are real, and the AFL-CIO has already announced that it’s looking for every opportunity to boost membership. What would Starbucks’ 380,000 paychecks—with a side order of union dues—do to the bottom line?
Now, back to space. As if Starbucks wasn’t already facing PR pressure for pricing, labor practices, and even food and drink quality, what if there really is intelligent life elsewhere? And what if it’s actually from McDonald’s? I’m talking about CosMc’s. It’s only in test now, but branding it as a retro space thing also sets it up for automation. This is going to get interesting fast, maybe even at warp factor six.
On paper Starbucks seems to be struggling, but the passion for the brand and the crowds in their stores tell a different story. Having been in a few of their stores recently, they need to work on efficiency and speed. When you have to wait 20 minutes for coffee, it does make you second guess your destination. Unionizing would only cause increased prices, so I would not support that approach. Starbucks has always been aggressive in their support for their workers with tuition programs and other benefits. They have cut their assortments back and I think that impacted their impulse sales and higher ticket items–bring back the barista bear and all will be well.
How true, with the small statistically insignificant sample of stores I visit in different states, (and in particular airport stores) that high/quick service by hustling barristas and staff is on the decline. I’ve walked away as many times as I’ve waited. A long line in the past wasn’t necessarily a long wait.
Too many businesses today are struggling because they have fallen out of sync with their customers and employees. Starbucks was built on the premise of affordable luxury in a “third place” between office and home and employees were respected for their skills and customer engagement. But now the employee experience has become almost fully automated, and customers are finding prices too steep to justify a now commoditized experience. It isn’t too late for Starbucks, but they will need to evolve away from their current growth first strategy and bring back some of the fundamentals that consumers, employees and communities loved — and still crave.
‘fallen out of sync with their customers and employees’ <<<You nailed it DeAnn
Truly fascinating. For so many years I have heard people say they actually prefer other coffee brands than Starbucks. In Europe people often comment about Costa (purchased by Coca-Cola a few years ago). But this cannot be isolated.
Starbucks must have also been impacted by the change of work location of many – ie working from home.
Despite this people will typically go to a coffee place that is closest to them – and very often – outside of a city centre – it is Starbucks.
I have wondered about Starbucks moving into other areas – while I see their coffee in supermarkets I am amazed they have not launched their own in-home coffee machines. While one might argue that this might cannibalise demand but in reality this is unlikely – if people want a coffee machine then they will get one anyway… A uniqueness of a machine that re-orders automatically or is leased in some way may be an offering that does not exist in the marketplace – one that Starbucks have the size and name to be able to facilitate.
I think this goes to a subject I’ve been mulling over in my head. And it has to do with ubiquity being the antithesis of luxury. Or more simply, the commoditization of luxury.
That’s a lot of big words that mean, if something is worth a premium price, there is some implication of scarcity in there too. There are so many places to buy Starbucks coffee that the price feels “in your face.” It doesn’t help that the people who work there are unsatisfied, but I do think it all comes back to over-expansion for a product at such a high price point.
I expect to see the entire luxury industry to feel that pain. I don’t think unionizing Starbucks will necessarily help matters. That just makes it even more of a commodity.
Market leaders always have a bullseye painted on their backs. The competition is gunning for them from every angle. And ever increasing prices leave plenty of room for the competition to come calling. Starbucks current P/E ratio is about 27. Not crazy high but not amazing value either. With growth prospects diminishing, and with turmoil in the ranks, it’s no real surprise that the stock price is slipping. I suspect that Starbucks will continue to enjoy strong loyalty from many customers for some time to come. But they have a year or two of organizational mayhem to deal with. Competition once again proves to be the best market mechanism for keeping market leaders on their toes with regard to both customers and employees.
Starbucks is a mature brand that is on the other side of hypergrowth. It’s not easy balancing automated efficiency and people-powered engagement, especially when customers’ preferences for either can change on a dime. Starbucks is at a commoditization crossroads.
The death of Starbucks’ highly acclaimed service was the extreme growth in mobile orders. The demand is so high for the order ahead, that many stores have the in-store customers wait while they fill the mobile orders. It has escalated so much in the past year that there are hack videos on how to avoid the lines (drive-thru and in-store). This brings us to the over-worked baristas making the working environment less desirable. With that said, they are one of the few retailers who have absolutely captured the market share of the very young generations! Starbucks does not need to unionize to fix its employee issues, it needs to set forth actions that demonstrate a commitment to the well-being of the workers. Broad unionization will increase SG&A and potentially raise prices even higher.
Starbucks sales are an economic barometer. More consumers are foregoing affordable luxuries to save money amid high inflation, interest rates and student loan repayments. Some customers are rethinking their habits and switching to comparatively cheaper alternatives.
Starbucks used to offer affordable splurges, but price hikes are slowing that growth. It’s not hard to spend $7 on a beverage there, and that kind of sticker shock makes an impression. Add to that the favorable opinions of younger consumers towards unions, and Starbucks may actually be experiencing a generational shift away from its former popularity.
Starbucks has successfully navigated a middle ground between coffee connoisseurs, and those who love the coffee house experience (who shun the brand), and folks who are fine with gas station coffee for $1.50 a cup. This is still a massive segment of the market. And, despite the headwinds Starbucks has faced recently, I do expect them to continue to be successful. They have some course corrections to make around pricing and labor practices, but I have no doubt they will be fine in the long run. They’ve reinvetned themsleves before, and will continue to do so.
The product has become expensive, and as other has noted, customer facing service has declined. I know airport stores are expensive, buy a $6.50 grande frappucino, or a $5+ drip coffee?
The omnipresent Starbucks may have experienced slower growth. However, they are in no danger of a significant business downturn. The Seattle coffee giant has essentially become that “third place” for people to gather outside of their homes, offices, and schools. They have achieved a cult following amongst the emerging GenZ, and Gen Alpha has a place to gather and get customized drinks.
With great power comes great responsibility. Considering the size and scale of Starbucks, the unionization movement is significant, and consumers are paying attention to the headlines. There is a corporate social responsibility element that consumers look out for, and the negative headlines of Starbucks deterring the unionization movement does not help the brand equity.
Despite the ubiquitous nature of the brand, it’s high time for Starbucks to reimagine what the customer experience, drink, food menu, and cafe atmosphere need to be heading into 2024. The drink and food menu needs some inspiration, and the majority of the cafe experiences outside the Starbucks Reserve stores conjure up 2005 vibes. Additionally, clear customer journeys must be determined between the mobile orders and those who want the cafe experience.
The “third place” positioning used to be part of Starbuck’s super power, but I think that too is fading, as the shops become less comfortable for longer stays. While it makes sense economically to turn the tables rapidly, it also sends a message to customers that their presence is not quite as welcomed as it used to be.
Absolutely true. I feel increasingly unwelcome in the cafes as they are often overrun with mobile orders, and people are on the go. Howard Schultz’s vision of replicating the Italian cafe experience in the US has proven to be challenging to scale profitably in the US.
In the long run, it makes more sense to have Starbucks set up for online fulfillment orders only and another format for those who want a cafe-like experience.
It feels like Starbucks has lost touch with the core values that made the chain such an indispensable part of people’s lives. Customers were not buying coffee; they were buying into the brand – a relaxed vibe driven by employees who went above and beyond to make customers feel special. I believe the pricing is not an issue when the overall value proposition is right. The company must figure out how to bring that warm coffee-house feel back through employees. You cannot overwork, underpay and treat employees like they are replaceable and succeed in this market.
A lack of speed to serve, suspect innovation and continual price increases have contributed to negative consumer sentiment. Combine this with continued inflationary effects that create pause in the minds of buyers, and you have a recipe filled with headwinds. If there’s one thing I’d focus on, its innovation, particularly, with drive-thru. There’s a ton of operational improvement Starbucks can achieve in this area.
I am a regular customer although I have cut back quite a bit.
Regarding the declining results, I believe Starbucks has lost its way. Here is an example-The store I visit has a large chalkboard above the napkins and trash area, and for over a year that board has stated the “store’s purpose” is to “provide a warm safe environment for baristas, and customers–a place everyone can call home”…a nice sentiment, for sure. What strikes me is there is nothing in the “local mission statement” that hints at serving a great cup of coffee-nothing about product excellence or value.
Using one store as a sample size is flawed obviously, however I think this points to a broader issue-union or no union, this is a chain that is not focused on the day to day operations enough to justify higher prices. And at many locations they are understaffed enough to, at times, turn off the mobile ordering capability because they cannot keep up. Quality is being sacrificed for speed, and the entire reason for opening up in the morning is skewed to social justice and harmony…not to serving a great product.
The recent decrease in Starbucks’ stock price is primarily driven by a decrease in their rate of growth, not a decrease in revenues. Starbucks has some of the most loyal customers in any industry. I know people who spend more than $5,000 a year at Starbucks and they are proud to say that it is their personal perk and they deserve it. While some customers may reduce their frequency when they have less discretionary budget (due to inflation or holiday expenses), they are still very loyal.
Starbucks will continue in a strong position because of its customer loyalty driving programs and name brand recognition. Although it might seem small potatoes, customers still want their custom Starbucks coffee every morning just the way they like it. I believe the downturn is short term and the SB team will turn this around relatively quickly. Even with price increases and the threat of unionization during a time of inflation across the board, SB has a reigning brand. Few folks who have been carrying around a SB cup will want to be seen carrying a different brand. The cachet of luxury is too compelling. This decline is due to investor perception driven and a short term miss on a long term goal.
It seems to me that the issue may be leadership. Starbucks was hurt by COVID in a different way than other foodservice operators. I think it underestimated how much of its appeal was based on habit and socializing, Once people couldn’t hang out out going to Starbucks was – for one reason or another – no longer a fixed part of their daily routine they learned they could live without it. In terms of pricing Starbucks always relied on a “boiling frog” approach. It get increasing prices continuously, but slowly, so there was never a “sticker shock” issue among its core consumer base.But that approach only works if people are visiting you every day or two, not if they haven’t been in a year or two. The prices aren’t justifiable. Starbucks “pushes” their beans, great if you are trying to save money as an operator but bad for consumers unless they really like bitter coffee. I really don’t know what impact unionization would have at this point, but settling the labor issue is both critical and only one part of a total solution set. Starbucks doesn’t have any easy options.
I see this less about Starbucks in a state of concerning decline and more about the company simultaneously navigating significant, yet solvable challenges to the brand, that unfortunately have been self-inflicted:
Can Starbucks find a better path forward for its brand, its employees and its customers? Of course. Does it have the courage and clarity to do so? That remains to be seen.
The Starbucks attraction and secret sauce for decades has been coffee innovation and a unique experience. It separated them from places who were focused mostly on drip coffee and donuts. But with dramatic expansion came compromises, in many different kinds of formats and levels (from high touch/high quality to inexpensive kiosks), and what feels like a shift to more to operational and financial optimization.
Starbucks can justify higher prices if they focus on proving innovation and the customer experience is still the priority. This is where customer trust is built. They must convince customers they are committed, which may require financially painful but focused decisions in locations, formats, operational processes, decor/design, people. Are they going to compete for coffee marketshare against everyone, including a large donut shop chain, or focus mostly on the quality-oriented customers?
I’m confused by this question. Starbucks revenue is doing quite well — dipping 20-30% during Covid and recovering to pre-Covid levels. The same is true for Starbucks profits — they were even profitable through Covid.
The issue doesn’t seem to be demand for their products. Instead, there IS a lot of upheaval from employees and investors are responding to bad headlines so that their stock suffers. Not the first time stock and company fortunes follow separate paths.
That said, they do need to get the employee dissatisfaction under control. I’ve written quite a lot about what appears to be an error of “managerial creep” which micromanages Starbucks employees with too many micro-metrics (out of their control). There is no faster way to drive employee dissatisfaction. For their very long run, they need to get this under control.
Also, many corporate programs have made the job of the Barista’s far harder — like online orders. I watch barista’s fight to balance all of the demands on their jobs. It’s very difficult to balance a large influx of online orders with 7 adults in one drive-thru car each ordering a sandwich and a blended drink with a busy restaurant. Management seems not to comprehend what they’ve foisted onto barista’s.
But are they in decline? Not according to their numbers — only according to investor mythologies. These are problems — quite solvable ones if the MBAs are shuffled out of the way so that people who understand the human factors can step in.