Starbucks' new CEO wants to get back to the basics
Starbucks (SBUX) thinks it has a problem: enjoying a cup of coffee is too complicated. Once a beloved gathering place, many customers now feel overlooked, leading to fewer visits and dwindling sales.
“We’ve made it harder to be a customer than it should be,” said Starbucks CEO Brian Niccol in a video. “We’ve stopped communicating with them.”
To address the issue, Starbucks is launching a “Back to Starbucks” initiative aimed at reconnecting with what it calls its “core identity.” The retro-like push will focus on creating a welcoming environment that serves quality coffee made by “skilled baristas.”
This sentiment comes as Starbucks reports its early fourth-quarter earnings, which show its sales woes have worsened, slipping for the third consecutive quarter. The company says a few culprits are to blame for its sluggish sales, including reduced demand in North America, where same-store sales fell by 6%. Traffic dropped by 10%, despite increased investments in promotions through its mobile app and a wider selection of products. The U.S. is the chain’s largest market.
Meanwhile, in China, Starbucks’ second-largest market, same-store sales nosedived by 14%. The company linked this sales shrink to heightened competition from local brands like Luckin’ Coffee (LKNCY) and shifting consumer spending, prompting a reevaluation of its strategy in the region. In September, a Bank of America (BAC) research note suggested that Starbucks could benefit from licensing its operations in China.
Starbucks acknowledges that recent changes may have complicated the customer experience. While introducing new products and focusing on Starbucks Rewards, the coffee chain inadvertently left many customers feeling neglected. Some recent reports indicate a shift in marketing efforts towards younger generations. To turn things around, Niccol stated that Starbucks plans to simplify its offerings, fix its pricing structure, improve communication, and address staffing and operational bottlenecks.
William Blair analyst Sharon Zackfia told Quartz that the chain needs to scale back on innovations and focus on popular items that customers want, like it’s Refreshers. She emphasized that the company has the cash to tackle it’s staffing issues. Streamlining operations can ensure customers have a memorable and seamless experience, “especially during peak morning hours.”
Niccol added that the company wants to empower it’s baristas by offering benefits such as the opportunity to earn a four-year college degree.
In a fast-paced world where communication is vital, Niccol acknowledged that Starbucks has “a lot of work” ahead, but he remains “confident” the chain can overcome all these challenges. However, this will take time.
Starbucks plans to share its progress as it gets “Back to Starbucks” but has suspended its fiscal 2025 outlook, citing the CEO transition and the current state of the business.