Coffee giant Starbucks has been struggling of late and this week, after reporting declining worldwide sales, the company announced a change of leadership at its top level.
It’s an indication that all is not well for the corporation these days.
George Minakakis, Founder and CEO of Inception Retail Group, said Starbucks has lost its coffee alchemy.
“Once the gold standard of coffee culture, it now faces a stark reality: it’s struggling to maintain its allure in a rapidly evolving market. Let’s start with the simple argument that economically, a cup of coffee at this brand is a luxury for many, and that’s why sales are dropping. That’s just the tip of the iceberg.
“Many issues are challenging Starbucks. Let me be blunt: you don’t part with a CEO because sales decline in a slower economy. There is something more under the brand that isn’t working, and the board of directors acted. Given (the recent) announcement, a search has been underway for a while.
He said COVID changed the work culture in society and as a result, fewer people meet in person for coffee because we can stream meetings.
In China, Starbucks is being beaten by LuckIn, a Chinese brand that offers affordable coffee and has twice as many stores.
“Over the last few years, the brand has been at odds with its own employees, who turned to unions for job security. This was an Artisan Coffee Maker with a cult following of caffeine drinkers looking for innovative brewed mixes. Baristas were the talk of every retailer, who highlighted their service skills as a model to follow. That was the past. Then came the drive-thru, which moved consumers from sitting in the store to sitting in their cars, never allowing them to experience the brand’s culture.
“When you change consumer models so drastically, something will break in the brand. I am sure that they have lost sales in second cups of coffee and food. What’s missing is greater product innovation, and the in-store experience has to be brought back to life, inviting guests back in to have a seat, listen to music, talk to people, and do their work! Starbucks needs to revive its alchemy if it wants to differentiate itself from all the other fast-food giants that have drive-thrus and sell coffee. Right now, they are beginning to look like everyone else in the food service industry. The new CEO has to figure out how to reassemble this whole thing.”
Doug Stephens, Founder of Retail Prophet, said Starbucks is a textbook example of a company that reshaped and created a category unto itself.
“Then the rest of the coffee world began catching up. But instead of doubling down on its core strengths – things like community, customer experience and craft – Starbucks instead began commoditizing its own brand by doing away with many of the cultural and experiential elements that made them so special and important in people’s lives, replacing them with label printers, a watered down loyalty programme and drive-thrus,” he said.
“In my opinion the brand has never been the same since Howard Shultz left and later returned as CEO in 2008 to salvage the brand. At the time Shultz said that “growth had become the strategy.” And that, he maintained had killed the soul of the company. Shultz righted the ship but I’m not sure he ever regained the soul.”
Bruce Winder, retail analyst, advisor and speaker, said Starbucks finds itself in an unfavorable position on many fronts and has thus taken the drastic step of replacing its CEO after a short tenure.
“Numerous issues circle the company including poor value perception after raising prices too high and too often, slow execution times in store that have frustrated guests and delivery drivers, slow sales, issues surrounding employee unionization and boycotts as a result of the war in the Middle East,” he said.
“Exacerbating this situation is the current flight to value by the global consumer who has changed how they see premium brands and premium consumption. People are scrutinizing every purchase as interest rates remain elevated (but are decreasing) and inflation, although lower than previous years, leave consumers with elevated prices to contend with.
“Starbucks was once the poster child for social consciousness and has strayed from this positioning of late. Hopefully new leadership will help the troubled brand reclaim their once enviable position.”
Michael Kehoe, Broker of Record at Fairfield Commercial Real Estate Inc., said the coffeehouse business in Canada is extremely competitive and the world’s largest coffee chain, the multinational Starbucks is facing challenges globally that include headwinds at its Canadian store operations.
“This is a big company with complex problems experiencing recent slumping same-store sales and store traffic numbers. Starbucks is a premium brand in the coffeehouse category and with Canadian consumers under increasing financial pressures the firm’s value proposition with its Canadian customer is rather fuzzy,” he said.
“The Canadian Starbucks customer experience is nothing special and the firm’s food offerings for the most part are weak and unappealing. I can’t think of a menu innovation, marketing program or a memorable customer experience at a Canadian store in recent memory and I am a frequent customer. To recapture lost sales and customer footfall there needs to be a focus on efficient coffeehouse operations. This will include a focus on the speed of service, new food offerings and the overall customer experience to differentiate the chain from its numerous competitors.
“The repositioning of many stores to add drive-thru capability and the closure of underperforming stores are all positive moves for the Starbucks Canadian store network. Price conscious Canadian consumers vote with their feet and their wallets, and I am confident that the big ‘green mermaid’ brand with new leadership at the top will win Canadian customers back to regain their sales and traffic momentum.”
Carl Gagnon, Président of IMAGO, said Starbucks appears to have lost sight of its WHY – its original strategic focus.
“For years, the brand was a pioneer, offering a distinct value proposition centred on a premium coffee experience, featuring high-quality, ethically sourced beans, and establishing itself as a welcoming “third place” for consumers. Starbucks set itself apart through personalization, consistency, and by cultivating a global coffee culture that turned coffee consumption into a lifestyle. However, this clear, singular purpose has faded over time,” he said.
“As competitors adopted similar concepts, Starbucks’ once-unique proposition began to blur in the eyes of consumers. This shift prompted customers to scrutinize quality, pricing, experience and brand values more critically, often finding greater value elsewhere. Despite intensifying competition, evolving consumer preferences, rising operational costs, and broader economic pressures, Starbucks must realign with its core audience and reconnect with it on a more personal level. Indeed, Canadians increasingly favour brands that resonate with their values and communities.
“To regain its edge, Starbucks could look to McDonald’s successful global-local strategy, tailoring its offerings to better reflect Canadian tastes and preferences, introducing locally-inspired menu items, and collaborating with local brands and influencers to reestablish an authentic connection. Ultimately, by speaking directly to Canadians and Québécois in their own tonality, lifestyle, and cultural codes, Starbucks would touch Canadians at the heart, revitalizing its relevance and fostering deeper emotional connections with its customers.”
Recently, Starbucks announced that Brian Niccol has been appointed chairman and chief executive officer. Niccol will start in his new role on September 9, 2024. Starbucks chief financial officer, Rachel Ruggeri, will serve as interim CEO until that time. Mellody Hobson, Starbucks board chair, will become lead independent director.
Niccol currently serves as Chairman and CEO of Chipotle.
Laxman Narasimhan is stepping down from his role as CEO and as a member of the Starbucks board with immediate effect.
Starbucks recently announced its financial results for its 13-week fiscal third quarter ended June 30, 2024, which showed that global comparable store sales declined three per cent, driven by a five per cent decline in comparable transactions, partially offset by a two per cent increase in average ticket.
The company opened 526 net new stores in Q3, ending the period with 39,477 stores: 52 per cent company-operated and 48 per cent licensed.
Consolidated net revenues declined one per cent to $9.1 billion.
Starbucks is expensive – why is a cold brew coffee nearly $7 now – customers cant afford this!
I would rather grab a $3 cold brew at McDonalds vs $7 at Starbucks.
Ten years ago I would never drink Tim Hortons or McDonalds coffee and would go out of my way to find a Starbucks. I still love Starbucks coffee but now happily buy coffee at Tim Hortons or McDonalds if it’s more convenient – they’re a lot better than they were. I agree that there hasn’t been much product innovation at Starbucks except in the non-coffee drinks, which do not interest me. The new CEO could start with a fresh look at the food offerings.
“Recently, Starbucks that Brian Niccol…”, is missing “announced” and is then shortly by another “Recently, Starbucks announced its financial…”. 🤦🏻♀️
See how just one missed word (“followed” in my case), makes all the comprehensive difference?
Starbucks has long been my preferred coffee experience, but things have changed. They always offered choice when it came to brewed coffee, but now only offer Pike after 2 pm. Have you seen the size of a tall coffee? They were militant about their use of Tall, Grande, etc, and created havoc for loyal followers and staff when they raised prices and did not keep the old formats, a complete marketing blunder. They give priority to drive thru customers, filling those orders first, even though I placed my order beforehand. On the plus side, they still have the cleanest stores, and do not appear to be abusing the foreign worker programs, both important to me. It is a great brand, I do hope they get their mojo back.
Whenever my husband and I think of going out for coffee, a Starbucks has become the last place we think about. I love their lattes but we choose to go someplace welcoming with comfortable seating and with a nice decor, rather than just little wooden tables and uncomfortable little wooden chairs in undecorated surroundings, to sit in to enjoy our drinks.
Yes it has. My first Starbucks coffee was at what was probably the first in Canada near the Seabus terminal in Vancouver. Most of the stores have closed in Montreal and the ones that remain seem to be franchises. My favourite Ottawa one near Byward Market is no more. I refuse to buy bags of beans from a grocery store where you don’t know how long they’ve been on the shelf, so I’ve had to switch brands for home coffee. No more walking in and browsing the shelves of mugs and espresso machines.
The switch to take out only and take out was the writing on the wall. The one and only time I tried take out they refused to serve me because I walked up to the takeout window with my dog because I couldn’t bring him in and refuse to leave him unattended outside. They changed, but not to the benefit of their first, and now former, customers.
I was in my university years when Starbucks was at its peak, but I remember it being a great “third place” to hang out in. They were especially great in the evenings, quiet and relaxed. Nowadays stores are chaotic, high-traffic, and have a clinical look. You’re lucky if your Starbucks has more than a couple of chairs. The “Starbucks experience” doesn’t really exist anymore, when I think of Starbucks I think of the app and the product itself.
If they want to become more of a grab-and-go place, then they need to be competing with pricing with McDonald’s or Tim Hortons. I would love for them to bring back the in-store experience along with some product innovation. The higher prices would be justifiable in that case.
I am a long-time customer of Starbucks, and I am very disappointed with the trend toward take-out only. I fancied a Caramel Macchiato recently and stopped at a new Starbucks location, only to find that it was drive-thru only. I went elsewhere.
The existing cafés in my area are also removing tables and chairs. For heaven’s sake, there are still many people who actually want to visit in person, not meet by Zoom!
I am also unimpressed with Starbucks’ policy of prioritizing drive-thru customers over in-store patrons.
I hope the new CEO will reverse these trends.