Starbucks is looking to transform its business by becoming less of a fast food chain and more of a neighborhood coffee house.
Brian Niccol, the struggling company’s new CEO, on Thursday share a vision from Starbucks to “a welcoming coffee house where people gather and where we serve the finest coffee.”
Talks with analysts for the first time since taking the job on September 9, Niccol laid out a plan to reverse the trend reflected in the company’s fiscal fourth quarter results, in which they saved sales down 7%, the third straight down. For the full year, Starbucks said its revenue rose less than 1% to $36 billion.
The Seattle-based coffee giant released bad financial news last week and said it would delay its financial guidance for fiscal year 2025 to give Niccol time to settle the business.
“It’s clear that we need to change our fundamental strategy to win back customers and return to growth,” said Niccol, who labeled the earnings report “extremely disappointing.”
Looking to placate customers turned off by higher prices and longer waiting times, Niccol said Starbucks did not raise prices during the current fiscal year, which began at the end of September, and took steps to send orders in less than five minutes.
“We probably have about 50% of the stores or 50% of the transactions that have happened in less than 4 minutes. So we know that we can do it,” said Niccol. “We just have to do it in all stores in every transaction.”
Starbucks is also working out the kinks in its staffing levels as baristas contend with in-store, drive-thru and online ordering, not to mention ceaseless customization options, the CEO said.
The coffee giant plans to reduce its overly complex menu and focus on fewer but tastier offerings, while taking steps to “Better mobile ordering options from the cafe experience,” Niccol said.
Starbucks will discontinue its Oleato olive oil-infused beverages from most locations beginning next month, in what longtime Starbucks chief Howard Schultz called a “transformational idea” when he introduced it in Italy early last year.
Starbucks will stop charging extra for nondairy milk
As of next Thursday, November 7, Starbucks will stop charging more for nondairy milk at its company-owned and operated cafes in North America. The option to choose oat, soy or coconut milk is the company’s most popular customization after taking extra expresso, Niccol said. Once in place, almost half of those who pay for the modifier can see a price reduction of 10% or more when they choose nondairy milk, according to executives.
At Starbucks in Michigan, for example, it costs 70 cents to switch to almond milk in a medium Pumpkin Spice Latte.
Move to come after a lawsuit earlier this year by three Californians who claim the extra charge for nondairy substitutions marks a form of discrimination against people who are lactose intolerant or have other dietary restrictions.
Starbucks also plans to bring back self-serve flavored coffee bars in all cafes in early 2025. The company had moved milk, sugar and simple drip coffee behind the bar at the start of COVID-19, but the switch needs to be flipped. giving baristas more time to make lattes, macchiatos and other drinks with less downtime.
Furthermore, Starbucks plans to offer ceramic cups to those who want to drink hot drinks at Starbucks, and provide a more comfortable place to make the location attractive to people who want to sit, work and meet. It also plans to bring back Sharpie pens so baristas can write messages on customer orders.
“While we are confident in our strategy, we expect that the turnaround will take time, as Starbucks faces ongoing challenges in key markets, including China, along with increased competition, high prices, long wait times, and staff shortages/ turnover,” Arun Sundaram. , venture analyst at CFRA Research, wrote in a note.
While early in the turnaround, much of what Niccol laid out seems prudent, according to Neil Saunders, managing director, retail, at GlobalData.
“One of the big issues customers have with Starbucks is the wait time for drinks and the length of lines at some stores,” Saunders said. “In general, most people want a quick coffee fix on the go – which makes timeliness and efficiency paramount. Starbucks has failed to deliver this over the past few years,” the analyst said. “This is a critical improvement if Starbucks wants to rebuild sales.”
At the same time, Starbucks also has to consider customers who want to stay, because it’s “increasingly competing with independent coffee shops that often have a good vibe,” Saunders said.
Niccol stepped into the new role weeks after the caffeine provider ousted Laxman Narasimhan, whose 18-month stint at the helm was marked by sluggish sales, and amid waning fondness for the brand, especially among Americans.
A restaurant executive for 20 years, Niccol is credited with reviving Taco Bell’s image and for turning things around at Chipotle after a series of food-safety problems.
There are nearly 40,000 Starbucks stores worldwide, and approximately 17,000 locations in the US.
