Starbucks’ new strategy includes four-minute service, cozier cafes, simpler menu
On the heels of disappointing full-year and fourth quarter results, the new CEO of Starbucks outlined his turnaround strategy to return the company to growth.
Brian Niccol, the former Chipotle CEO who took the reins of Starbucks in September, said it is clear that the company needs to “fundamentally change” its strategy to win back customers.
“'Back to Starbucks’ is that fundamental change,” Niccol said in the earnings release. “My experience tells me that when we get back to our core identity and consistently deliver a great experience, our customers will come back. We have a clear plan and are moving quickly to return Starbucks to growth.”
Among the planned changes, starting on Nov. 7, Starbucks will no longer charge customers extra for beverages made with dairy alternatives such as oatmilk. With the elimination of the non-dairy surcharge, almost half of Starbucks current U.S. customers who pay to modify their beverage at will see a price reduction of more than 10%.
In addition, Starbucks will also not increase prices for its 2025 fiscal year.
On the company’s earnings call, Niccol discussed other changes in his “Back to Starbucks” plan, including reclaiming its cafes’ “third place” positioning, or being places that customers want to work, socialize and linger in. As part of that, the company is reviewing its store designs, with a focus on bringing back more comfy seating and other amenities, including ceramic mugs.
“The reality is the majority of what we have are these cafes that I think don’t have the right seats, potentially have the right texture, don’t have the right layers, don’t have the right warmth,” Niccol said on the call. “We need to bring that back.”
In other in-store changes, Starbucks is bringing back its condiment bars where customers can add milk and sugar to beverages. The chain eliminated the bar at the start of COVID, which gave an extra step to its baristas in preparing drinks. The return of the stations will help the company meet its new goal of customers receiving their orders in four minutes or less.
To that same end, the Starbucks menu is also getting a revamp and will be slimmed down with “fewer, better” offerings. The change should result in faster service, according to Niccol.
With mobile orders accounting for more than 30% of Starbucks’ U.S. sales, the company is looking to improve the accuracy of its app to give a more accurate estimate of when a beverage is ready.
Financial results
Starbucks reported net income of $909.3 million, or $0.80 per share, in the quarter ended Sept. 29, down from $1.22 billion, or $1.06 per share, in the year-ago period. Net sales dropped 3% to $9.07 billion, missing estimates of $9.36 billion.
The company’s global same-store sales fell 7% amid by weak demand in its two biggest markets: the U.S. and China. Traffic worldwide fell 8%.
U.S. same-store sales fell 6%, with a 10% decline in traffic. In China, same-store sales were down 14%.
For the full year, Starbucks’ sales fell 0.6% to $36.1 billion. U.S. same-store sales fell 2%
The company opened 722 net new stores during the quarter. It ended the period with 40,199 stores, 52% of which were company-operated and 48% licensed
At the end of the fourth quarter, stores in the U.S. and China comprised 61% of the company’s global portfolio, with 16,941 and 7,596 stores in the U.S. and China, respectively.
