Starbucks’ new chief executive announced a series of changes this week aimed at drawing back customers as the company navigates unionization pressures, declining foot traffic, and frequent leadership changes.
Brian Niccol, who took over as CEO in September, told analysts on an earnings call this week that the company’s financial results “were very disappointing” as sales at U.S. stores opened for at least a year declined 6%, which was driven by a 10% decline in transactions.
Niccol emphasized the need for the company to get back to its roots as a coffee house.
“It is clear we need to fundamentally change our strategy to win back customers and return to growth. Back to Starbucks is that fundamental change,” Niccol said. “We have to get back to what has always set Starbucks apart, a welcoming coffee house where people gather and where we serve the finest coffee, handcrafted by our skilled baristas.”
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Coffee house transformation
Niccol said the company intends to revert the cafes back to their former “coffee house” aesthetic with “personal touches,” including serving coffee in ceramic mugs for customers who dine-in.
The company is also reviewing the cafe design and plans to bring back more comfortable seating and amenities, so customers will be more inclined to sit and work.
Milk substitutes
The company said it will stop charging extra for customizing beverages with non-dairy milk. The company said that customers who swap dairy milk for soy milk, oat milk, or coconut milk at company-operated stores will see a price reduction of more than 10% starting Nov. 7.
Condiment bar
The condiment bar is making a comeback next year. Niccol told analysts that baristas requested the feature, saying it would speed up their service.
“If you order a brewed cup of coffee, it’s a really fast experience because we’re going to just hand it to you right at the point of sale, and then you can go to the coffee condiment bar and doctor up your coffee how you see fit,” Niccol told analysts.
Sharpies are back
Niccol said the company is re-introducing Sharpies, another nostalgic nod to its earlier days when baristas would write customers’ names on coffee cups.
“I think there’s a lot of just simple things that go a long way of saying, ‘you know what, this is a community place, this is a special place where people are here to connect,’” Niccol said.
Part of his immediate strategy also includes simplifying the coffee chain’s “overly complex menu” and fixing its pricing architecture.
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Alex Fasciano, equity analyst at CFRA Research, believes the changes already announced, such as the simplified menu and new pricing architecture, will enhance the customer experience, although he cautioned that there may be near-term headwinds related to pricing,
In particular, the in-store design changes, such as the improved coffee condiment bars and comfier furniture, will “likely require significant investments” in fiscal year 2025, Fascino told FOX Business.
While Fasciano doesn’t foresee the changes making a “major impact,” he said that it remains to be seen what additional plans management has in store.
“From one point of view, the U.S. market is competitive, and management wants to operate each store efficiently,” he said. “From another, they want to improve the customer experience, likely sacrificing margins.”
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If Niccol succeeds in creating a better customer experience, “there is an argument for a major impact on sales and margins. However, we think it will take a while to come to fruition,” Fasciano added.
In a research note published Thursday, Morgan Stanley analyst Brian Harbour was optimistic about the changes, saying that it “sounded much like the Starbucks we first started going to a couple decades ago, and remember fondly.”
Harbour believes Niccol’s vision is achievable, but that there is “a lot to work through in a huge store system.”
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“We’re reminded of the old metaphor ‘building an airplane while flying’,” Harbour wrote. “We’re in somewhat of a waiting pattern now as external observers, and we are still optimistic about the opportunity.”
He projected that key performance indicators in the near term will show “headwinds and some pain.”
