Starbucks Sales Continue to Slide as It Strives for Comeback Under New CEO

A sign outside of the Starbucks Center in Seattle on July 3, 2024. David Ryder/Getty Images

News Analysis

Starbucks’s comeback under its new CEO is still a work in progress. Store sales continued to decline despite higher spending per transaction. The company’s turnaround plan, which includes ceramic mugs and free refills, is not enough to bring the hype for the old brand back.

This week, the company reported financial results for its 13-week fiscal first quarter ending Dec. 29, 2024, which shows that its global comparable-store sales declined by 4 percent year over year, led by a 6 percent decline in similar transactions, partially offset by a 3 percent increase in average ticket.

The sales declines were almost even across all geographic regions, with transactions hit the hardest in North America, partially offset by the most significant increase in the average ticket.

Similar to the previous quarter, these sales patterns suggest that demand for the company’s espresso and other exotic mixed drinks is turning elastic. This means the revenue gains from price hikes are less than the revenue losses from a decline in the number of drinks sold. The company’s strategy of opening new stores—a net of 377 in the first quarter alone—has not worked either.

However, there are a few reasonable explanations for it. One is the persistence of inflation, which leaves consumers with less discretionary income to spend daily on the company’s lattes, especially after Starbucks hiked prices last year.

Another reason is that the company has deviated from its original business model of the 1980s, a “Third Place”—a spacious and well-furnished place where customers could spend some time sharing espresso drinks with friends and business associates away from home and office.

This departure from the community-style coffee shop is evident in the new stores, which are small, plainly furnished, and focus on convenience, such as buying a drink to-go rather than sitting inside socializing with others.

While the new business model is less costly to make and maintain, it opened up the company’s market to competition from upstarts domestically and abroad.

A third reason is market saturation and “cannibalization.” With more than 40,000 stores worldwide, Starbucks is running out of new locations to expand. As a result, new stores are being opened near existing ones, reducing their sales.

After touring Starbucks stores, its new CEO and chairman, Brian Niccol, recognized that the giant coffee chain had moved away from its core business model and took a few steps to address the issue under the “Back to Starbucks” strategic initiative.

These steps include enhancing the in-store experience by returning the condiment bar, writing on cups, offering more ceramic mugs, and revising the code of conduct. In addition, it shifted marketing from discounts to highlighting the brand story and coffee leadership while improving price transparency.

“While we’re only one quarter into our turnaround, we’re moving quickly to act on the ‘Back to Starbucks’ efforts, and we’ve seen a positive response,” Niccol said in the company’s latest financial report press release.

“We believe this is the fundamental change in strategy needed to solve our underlying issues, restore confidence in our brand, and return the business to sustainable, long-term growth.”

Rachel Ruggeri, Starbucks’s chief financial officer, praised the company’s new strategy and its impact on the top line and shareholder value.

“We are encouraged by our first-quarter results, which demonstrated the effectiveness of our ‘Back to Starbucks’ strategy, evidenced by our top-line trend,” Ruggeri said in the press release.

“Although we are in the beginning chapter and have much more work ahead of us, we will continue to prioritize shareholder value through dividends, providing a predictable return of capital while we turn around our business.”

Some business strategists and equity analysts agree with Starbucks’ leadership that the company was moving in the right direction.

“Although Starbucks reported an 8 percent decline in U.S. comparable transactions during the most recent quarter, this marks an improvement from previous periods,” R.J. Hottovy, Placer.ai’s head of analytical research, told The Epoch Times via email.

“While CEO Brian Niccol’s vision of transforming Starbucks back into a ‘community coffeehouse’ will take time to materialize fully, initial steps—such as enhancing customer engagement, reducing operational complexity, and streamlining the menu—are already showing positive results, with visitation trends improving as the quarter progressed.”

John Zolidis, president of Quo Vadis Capital, a Paris-based equity analysis firm, believes things could improve from the following quarter.

“The current quarter will be worse from a profitability perspective,” he told The Epoch Times via email.

“Subsequently, things will start to get better sequentially based on the assumption that initiatives currently in place start to drive improvement in traffic.  In terms of observed improvement, we could characterize the situation as closer to planting/ germination rather than actual green shoots.”

Zolidis said the new CEO, who has been around for four months, should be given enough time to execute the company’s turnaround plan.

“The new team is still being assembled,” he said. “We think the company is focused on the right things, including better execution in the stores, transparency on pricing, expanded marketing, and cleaning up the menu.”

However, Georgi Todorov, founder and CEO of Create & Grow, is skeptical of the “Back to Starbucks” strategy.

“Starbucks sells a routine, a habit, a comfort rather than only coffee,” he told The Epoch Times via email. “Any true turnaround thus depends on keeping consumers hooked while changing with the requirements.”