Starbucks is brewing a turnaround plan that involves speedier service and expanding the number of promotions after its most recent quarter was “disappointing,” in the words of its own chief executive.
Shares fell more than 12% in premarket trading Wednesday after the coffee giant reported a decline in same-store sales for the first time since 2020 and slashed its full-year sales outlook, culminating in a concerning quarter for Starbucks, which traditionally reports strong earnings.
“Let me be clear from the beginning, our performance this quarter was disappointing,” said CEO Laxman Narasimhan on the earnings call.
Same-store sales in the United States fell 3%, a sharp reversal from the same quarter a year ago, when they grew 12%. In China, the chain’s second-largest market, sales fell a staggering 11%, with the company blaming competition from “value players” in the country.
In total, global revenue dipped nearly 2%, to $8.56 billion, coming in below analysts’ expectations. Starbucks is now forecasting revenue to grow in the low single digits, a steep decline from its previous forecast of 7% to 10%.
“We face a challenging operating environment,” Narasimhan said. “Headwinds discussed last quarter have continued in a number of key markets, we continue to feel the impact of a more cautious consumer, particularly with our more occasional customer, and a deteriorating economic outlook has weighed on customer traffic and impact felt broadly across the industry.”
Those difficulties he mentioned include Starbucks’ Middle East franchisee, Alshaya Group, recently cutting thousands of jobs at its coffee shops because of a “challenging” work environment as the chain grapples with boycotts over the brand relating to Israel’s war against Hamas in Gaza.
A number of changes are in store for Starbucks in a turnaround plan it’s billing as a “Triple Shot Reinvention with Two Pumps” strategy that Narasimhan will deliver on “limitless potential” for the brand.
Starbucks app users will soon see an upgrade, with the focus on attracting “occasional customers” who have abandoned the chain, plus new promotions and “significant improvements” to the wait time metric that will hopefully cut down on the number of people abandoning their drinks during the order process because cafes are too busy.
Narasimhan said that despite strong mobile order and pay sales, customers using the feature “put items into their cart and sometimes chose not to complete their order, citing long wait times of product and availability.”
The menu is also being tweaked, with the chain introducing its first tapioca-style pearls, the chain’s first “texture” for drinks. A “reimagined” blueberry muffin also recently hit stores.
Starbucks is also hoping to attract health-conscious customers, too. Five sugar-free customization options, like syrups, are coming soon and the chain is launching a zero-to-low-calorie energy beverage that has been popular at its rivals.
Lastly, Starbucks sees opportunity overnight. A pilot program to serve customers from 5 pm to 5 am, when its cafes are usually closed, doubled its business and it envisions a $2 billion business from that over the next five years.
“As you can see, there is significant demand in the morning and even more potential during afternoon, overnight, and the weekend we have yet to realize,” Narasimhan said. “We are accelerating our execution engines to meet it.”
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