Updated October 30, 2024 at 18:46 PM ET
You know things are rough at Starbucks when the company drops bad news preemptively, which it did last week to get ahead of Wednesday's deadline to report earnings.
Sales in the U.S. have fallen for months, down 6% in the latest quarter compared to a year earlier, making it the worst quarter since the pandemic-era shutdowns. The number of purchases dropped 10%.
The chain's new CEO on Wednesday ordered up big changes: drinks ready in four minutes or less, no upcharges for non-dairy milks, a simpler menu, a store redesign and the return of the condiment bar, where people used to pour their own milk and sweeteners before the pandemic.
"It is clear we need to fundamentally change our strategy to win back customers," CEO Brian Niccol told investors in his first address about two months into the job. "We're reclaiming the third place, so our cafes feel like the welcoming coffeehouse our customers remember."
Much of Niccol's focus appears to be on separating mobile ordering, which will have fewer customization options, from the in-store experience, where he plans to add more comfortable furniture and ceramic mugs to encourage people to stay.
Too fancy to be basic, too basic to be fancy
Two women with paper coffee cups chatted at a table near an airy, new Starbucks in the upscale Washington suburb of Bethesda, Md. Closer inspection revealed the cups to be from another cafe a block away.
"We're just here for the sun," said one of the women, Tamar King. "This is a park."
In fact, this Starbucks is swarmed by rivals: This busy downtown stretch counts 11 coffee spots within a two-block radius. That includes the usual suspects Dunkin' and Panera, the trendy options Tatte Bakery and Ceremony Coffee Roasters, and even another Starbucks. This kind of competition didn't use to threaten the coffee giant, but it's grown intensely.
Plus, there's another battlefront. The company that got America hooked on coffee now competes not only against other cafes, but also against all the fancy coffee makers people have at home or work.
That leaves Starbucks stuck in the middle: Too fancy to be basic, too basic to be fancy.
"I used to go [to Starbucks] every day for years," King said. What changed? "The office where I work has a fantastic coffee machine. Fantastic."
On Wednesday, Starbucks revealed that it's losing not only occasional customers, but also once-loyal visitors.
"We loved it so much for years," said Lisa Janofsky, who came by the Bethesda Starbucks with her husband Jerry to cash in on his rewards card: a free venti skim latte as a gift for his birthday.
They used to go to Starbucks regularly. But now they gravitate to gourmet coffee shops when they want the "community feel" and superior coffee flavor. The daily lattes get made at home, they estimate, for about $1 a cup.
"We have a nice machine at home that we use," Jerry Janofsky said. "And my wife is a great barista, she makes designs for me."
On the wish list: better beans and latte art
Lisa Janofsky says she'd visit more often, if Starbucks beans tasted less burnt, size options included a short latte with just one shot of espresso, and if baristas did latte art.
Niccol said latte art — designs on top of the milk foam — is something baristas told him they love to do. But it's hard to imagine at the pace of Starbucks, especially during the morning rush: mobile orders piling up, stores crowded, workers overwhelmed.
Now, Niccol is reassessing staffing levels during busy hours. He hopes to give baristas more time to focus on espresso drinks. One way is through a simpler menu and "guardrails" around customizations.
"Where we sometimes, I think, get twisted is in all the different customizations that we offer up — and then the complexity of the customization that people take us up on," Niccol said. "And I think a lot of it is unnecessary."
The CEO did not specify what food or drink options will go, though an internal memo obtained by Bloomberg said Starbucks will start by nixing olive-oil coffee and toffee nut syrup.
The coffee giant is betting big on Niccol, literally. The coffee company lured him from Chipotle, which he's credited with rebooting after a series of foodborne-illness outbreaks. At the coffee giant, he could earn one of the biggest paychecks in the industry — more than $100 million — if he succeeds in turning it around.
Niccol's challenges are many.
Several shoppers in Bethesda bring up their disappointment that Starbucks is still fighting its unionized shops. The chain has lost its footing in China. It's facing boycotts in the Middle East and Asia over the company's perceived support of Israel in its conflict with Gaza. One woman in Maryland says that's why two dozen people she knows in the U.S. have also stopped visiting Starbucks.
And the biggest complaint by far?
"It's way too expensive," says Anjeli Smith, who regularly works from Starbucks cafes, and on this day met a friend over a pumpkin cream cold brew. "I mostly just use my gift cards for birthdays and graduation."
Asked about this on Wednesday's call, Niccol said the chain has only begun reviewing its menu and prices. The end of extra charges for non-dairy milks will kick things off on Nov. 7, in Starbucks-owned stores in North America.
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