Mobile ordering and Uber Eats and Doordash pickup areas at Starbucks coffee shop, Queens, New York.
Lindsey Nicholson UCG Universal Image Group | Getty Images
It has become a familiar sight Starbucks cafe: the counter is crowded with mobile orders, customers are frustrated waiting for their drinks to be ordered and the barista is overwhelmed trying to keep up with everything.
Fixing those problems will be top of CEO Brian Niccol’s to-do list to turn around the struggling coffee giant when he takes up the role on September 9.
Investors and executives alike point to operational problems as one of the reasons the chain’s sales have lagged in recent quarters. Other reasons for the decline in same-store sales include weaker consumers, boycotts and the deterioration of the Starbucks brand.
Former CEO Howard Schultz, who has no official role with the company but remains involved, has also pointed the finger at the mobile app. He said that has been the “biggest Achilles heel for Starbucks,” on an episode of the “Acquired” podcast in June.
Mobile ordering accounts for about one-third of Starbucks’ total sales, and tends to be more complex. While additions like cold foam or syrup are more profitable for Starbucks, they tend to take up more of the barista’s time, creating frustration for both the customer and the customer.
“I agree with Howard Schultz,” said Robert Byrne, senior director of consumer research for Technomic, a restaurant market research firm. “It’s not in the data – it’s in the store. It’s a problem.”
Hold up to cellular growth
In late April, current CEO Laxman Narasimhan said the company was struggling to keep up with demand in the morning — and scared off some customers with long wait times.
Schultz said he encountered the problem when he visited the Chicago location at 8 p.m
“Everybody shows up, and all of a sudden we’ve got a mosh pit, and it’s not Starbucks,” Schultz said in the “Acquired” episode.
Making mobile ordering more efficient is one of the main ways Niccol can reduce crowding at Starbucks.
When Schultz built Starbucks into the coffee giant it is today, he positioned it as a “third place” between work and home. Since then, the chain has lost that reputation as more and more customers prefer mobile ordering and prefer not to stay in a cafe.
“Because it’s a drink, and because I drink a lot in the car or on the go, it has to be very convenient,” Byrne said.
But Starbucks also did not make significant adjustments to its operations to anticipate changes in consumer behavior.
In 2017, Schultz stepped down as CEO for the second time, handing the reins to Kevin Johnson. Before joining the coffee chain as chief operating officer, Johnson served as chief executive of Juniper Networks, a technology company. Under his leadership, Starbucks invested in technology and continued to increase digital sales, but restaurant operations were struggling when he left the company.
Schultz is stepping down as interim CEO when Johnson retires in 2022.
“Companies are not doing a good job of anticipating the technological refinements that need to be made to prevent them from happening. … The stock is at a record high, companies are not investing ahead of the curve, not paying attention. to the speed of mobile applications and what happens until late, ” said Schultz.
Shareholders are also experiencing frustration with digital ordering – and see it as a critical area for Niccol.
“The problem we have in New York City, for example, is the wait time,” said Nancy Tengler, CEO and chief investment officer of Laffer Tengler Investments, which owns shares of Starbucks and Chipotle. “And mobile ordering is ahead of in-store ordering. (Niccol’s) is going to have to flip that somehow so people can spend more time and more money in-store.”
The problem of mobile ordering increases the pressure on baristas. Burnout, supported in part by the application, helped some employees to unionize, starting in 2021.
This November, Starbucks Workers United, which now represents workers at the chain’s roughly 450 U.S. stores, forced the company to turn off mobile ordering during promotions. (Starbucks said at the time it was in the process of making possible changes.)
Channeling Chipotle’s strength
Digital sales aren’t the same albatross that Niccol’s employer is now, Chipotle.
In the last quarter, 35% of the company’s revenue came from online orders. The pandemic has led to a shift to online ordering that has stalled, as the share of digital orders rose from 18% in 2019.
When Niccol joined Chipotle in 2018, most restaurants had already installed a second preparation line dedicated to digital orders, with the aim of avoiding bottlenecks as online sales became more important to the business. That same year, it also began adding drive-thru lanes just for online order pickup, called “Chipotlanes.”
In his six and a half years at Chipotle, Niccol and executives boosted digital sales through various promotions: ordering sports star favorites, limited-time offers, rewards programs and the launch of long-awaited quesadillas. In particular, quesadillas are a digital-only option because they will be slow to operate.
Chipotle has also been testing automation to make burrito bowls ordered through a mobile app through a partnership with robotics company Hyphen.
Mobile makeover
Starbucks has taken steps to speed up service and improve the barista work experience.
In 2022, under Schultz’s leadership, Starbucks introduced a reinvention plan that included overcoming congestion through new equipment and other measures to speed up service.
Narasimhan generally sticks to that strategy. This February, the mobile app finally started showing customers the progress of their orders, giving them a better idea of when their drinks will be ready. And in late July, Starbucks launched the “Siren Craft System” in North America, a series of processes to make drinks faster and baristas’ jobs easier.
But the problem for Starbucks, may require another drastic step.
For example, the rollout of equipment has been slow, with approximately 40% of locations in North America expected to install new machines by the end of fiscal 2026. Speeding up the timeline could cut service time in half – as promised at the investor day in 2022. – and reduce strain on the baristas.
“It’s not going to be easy to lift by any means, it’s going to take time and training and investment and (capital expenditure),” said TD Cowen analyst Andrew Charles.
“In our view, Brian has incredible credibility, if he tells investors, ‘This is the answer to the problem we’re having,’ and can explain why he believes it – he’ll get a pass,” Charles said.