Starbucks rolling out changes, including cutting 30% of menu; sales, visits fall
Starbucks Corp. is introducing a number of changes as it seeks to improve its customer experience and stem the tide of falling U.S. same-store sales.
The changes include a “roughly” 30% reduction in both beverages and food SKUs by the end of fiscal 2025. CEO Brian Niccol said during Starbucks’ earnings call on Tuesday. He did not name any of the items that would be cut.
“We've been focused on simplifying our menu to position partners for success, improve consistency, drive customer satisfaction, and enhance our economics,” Niccol told analysts. “As part of this work, we made some late simplifications to our holiday product lineup and believe we have more opportunities ahead.”
Starbucks is also looking to bring back its “community coffeehouse” vibe. To that end, coffee condiment bars will return to all its U.S. company-owned stores by the end of this week. The company has also brought back ceramic mugs and handwritten notes on cups “to better connect with customers and elevate the cafe experience for those who choose to stay and work,” Niccol said.
In addition, the retailer has expanded free refills on hot and iced-brewed coffee and tea for in-store customers. (And as previously announced it is no longer charging extra for beverages with nondairy milk.)
“Both the reintroduction of coffee condiment bars and the expansion of free refills were identified as top drivers of purchase intent,” he noted.
During the next 18 months, Starbucks plans to deploy digital menu boards across its U.S. company-owned stores over the next 18 months, with a goal of making its offerings more easily understood and to better show customization add-ons.
“In the coming months, our teams will be focused on refreshing our menu boards and improving cafe merchandising to reflect the coffeehouse feel and better showcase our simplified menu,” Niccol said.
In other changes, Starbucks has reduced the frequency of discount-driven offers, resulting in 40% fewer discounted transactions year-over-year.
Starbucks will reduce the number of new stores and renovations planned over the next year. But on a long term basis, the company still sees the potential to double its U.S. store count while improving its existing locations, Niccol told analysts. Plans include include a strong store renovation program, new store builds and store closures.
“And we're going to make sure our stores are warm and welcoming with work continuing on store design standards and cost to build,” Niccol said.
The changes outlined by Niccol are part of his plan to reinvigorate the company’s ailing U.S. business by getting “Back to Starbucks.” The strategy is driven by four initiatives, including reestablishing Starbucks as the community coffeehouse.
Earlier this year, the company reversed its seven-year-old open-door policy and said it would require that visitors to its stores make a purchase if they want to use the restroom or linger. The announced the change in a post on its website entitled “Our Coffeehouse Code of Conduct.”
Q1
Starbucks’ net income totaled $780.8 million, or $0.69 per share, for the quarter ended Dec. 29, down from $1.02 billion, or $0.90 per share, in the year-ago quarter.
The company’s net revenues of $9.4 billion were flat with last year.
Global comparable store sales declined 4%, driven by a 6% decline in comparable transactions, partially offset by a 3% increase in average ticket. North American and U.S. same-store sales decreased 4% as store traffic fell 8%.
“We are encouraged by our Q1 results, which demonstrated the effectiveness of our ‘Back to Starbucks’ strategy, evidenced by our top-line trend,” said Rachel Ruggeri, CFO. “Although we are in the beginning chapter, and have much more work ahead of us, we will continue to prioritize shareholder value through dividends, providing a predictable return of capital while we turn around our business,”
Starbucks opened 377 net new stores during the quarter, ending it with 40,576 stores: 53% company-operated and 47% licensed. Starbucks stores in the U.S. and China comprised 61% of the company’s global portfolio, with 17,049 and 7,685 stores in the U.S. and China, respectively.
