The Downfall of the Biggest Coffee Chain
The biggest coffee chain in the world reported its first drop in quarterly revenue since 2020. The slowdown in store traffic was noticeable in the United States, with sales down 3% from January through March.
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CEO Laxman Narasimhan reports that the quick-service offerings are no longer appealing to customers who have become more budget-conscious.
The Luxury of Starbucks Is Unaffordable
A cup of coffee is a luxury these days. Starbucks customers are paying an average of $6 for a standard latte. On top of that, the wait times for these coffees are extremely long, making this “quick-service” item an inconvenience for people on a schedule.
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This dissatisfaction highlights the fundamental disconnect between Starbucks’ premium status and its actual value according to consumers.
The Reason Behind Customer Loss
“Many customers have been more exacting about where and how they choose to spend their money, particularly with stimulus savings mostly spent,” Narasimhan said during an earnings call in May (via CBS News).
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“We saw this materialize over the quarter as customers made the trade-offs, but being food away from home and food at home.”
Updates Coming to Starbucks
Starbucks plans to turn things around by including updates to its app and mobile payment offerings, speeding up service, and overhauling its menu to lure customers back.
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“The consumer is starting to feel the bite of tighter finances, and Starbucks is one of those indulgent luxuries that people can easily cut out,” said Neal Saunders, managing director of retail at GlobalData.
The Former CEO’s Suggestions
However, former Starbucks CEO Howard Schultz, who helped the company expand around the globe for decades, believes that the company needs to refocus its values rather than chasing gimmicks like boba and sugar-free options.
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“The stores require a maniacal focus on the customer experience, through the eyes of a merchant. The answer does not lie in data, but in the stores,” Schultz wrote on his LinkedIn account on Monday.
What Starbucks Should Focus On
Schultz suggests that the company should revamp its mobile ordering system and payment app to “once again make it the uplifting experience it was designed to be.”
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These improvements could help maintain a positive customer experience, but it won’t be business as usual moving forward.
The Biggest Blow to Starbucks
One of the biggest blows Starbucks has taken this year was its strife with employees. In November 2023, Starbucks workers at hundreds of stores went on strike to protest the lack of their first contract with the company despite a nearly two-year organizing drive.
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This is the second time Starbucks workers have struck on Red Cup Day, one of the company’s biggest sales days.
The Great Irony of the Coffee Chain
“It’s not implausible to surmise that the occasional consumer or a consumer with less affinity for Starbucks, in general, might shift a couple of visits, at the margin, away from the brand if they found labor practices particularly distasteful,” Dunlop at MorningStar said to CBS News.
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“The great irony there, of course, is that Starbucks offers one of the best employee value propositions (wages and benefits) in the restaurant industry, so they’re being punished for labor practices that most folks partake in.”
Dissatisfaction Across the Board
The change in workers’ satisfaction has altered the atmosphere inside Starbucks, and customers are picking up on the shift.
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The pandemic also changed the community inside the stores, making them less of a communal place to sit and work or chat with close friends over a cup of customized coffee. Now, the entire experience feels downbeat and transactional.
Competition Is Increasing
Starbucks seems to be unaware of the competition it now faces. McDonald’s and other fast food brands are offering lattes and other simpler coffees at a lower price compared to Starbucks.
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For many people in the cities, local coffee shops offer better quality beverages for a similar price to Starbucks but provide a better atmosphere that customers appreciate.
The Future of Starbucks
While the former Starbucks CEO is right that the company needs to focus on improving the quality of the mobile app and customers’ ordering experiences, Starbucks also needs to refocus on the quality of workers’ and customers’ experiences in the store.
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If people are spending nearly $10 on a drink and food order, then they should be getting the experience they want from the meal.