Starbucks’ $6 iced coffees and lemonades have sparked outrage among customers.
Starbucks sales fell 3% internationally at outlets open for at least a year, including a 2% dip in its own North American market. And that hid Starbucks’ sharp fall last quarter: Total transactions at North American stores open for at least a year declined 6% during the quarter. This was partially countered by rising prices.
In other words, fewer customers are going to Starbucks to purchase drinks and food. It was Starbucks’ second consecutive quarter of sales drop.
Starbucks’ troubles reflect consumer dissatisfaction with high costs at food franchises, restaurants, and stores following years of increases. Starbucks’ business model has shifted from a sit-down coffee shop to a drive-thru and mobile takeaway chain according to client demand.
Customers are demonstrating their boundaries at Starbucks and other franchises such as McDonald’s. McDonald’s reported a 1% drop in revenue at shops operating at least a year last quarter, marking the company’s first decrease since 2020.
Starbucks is also under increasing pressure from competing drive-thru coffee companies, as well as consumers who prefer to make their own morning coffee at home. Prices have risen in recent years, but this year, grocery store costs have slowed, but the cost of eating out has continued to grow.
Starbucks’ strategy to win back customers
“Your more cost-conscious consumer is looking for other options or doing things at home. RJ Hottovy, an analyst at Placer.ai, added that there is increased competition from drive-thru coffee businesses such as Dutch Bros.
Starbucks (SBUX) shares surged more than 2% in after-hours trade. Starbucks stock has fallen 19% this year.
Starbucks’ business strategy has significantly transformed since its inception as a sit-down coffee establishment.
At Starbucks’ 9,500 company-operated outlets in the US, mobile app and drive-thru orders account for over 70% of total revenues. Cold coffees, teas, and lemonades account for a bigger percentage of sales than hot coffee.
Starbucks is launching a number of efforts to boost revenue, including value meals and investments to shorten customer wait times.
Starbucks aims to re-engage customers by offering bargain menus, similar to fast food restaurants. The chain just introduced a new “Pairings Menu,” which offers a drink and a breakfast item for $5 or $6. The firm announced Wednesday that the pairings menu experiment is paying off, with multi-item orders increasing.
The company also introduced new technology dubbed the Siren System, which is intended to reduce the amount of time it takes to create cold drinks. Faster blenders and new dispensers for materials such as milk and ice are placed up in a queue, allowing personnel to mix beverages without having to bend down to get milk or whipped cream concealed under the bar.
“Our plans are beginning to work,” Starbucks CEO Laxman Narasimhan said during a call with analysts on Wednesday. “We are regaining our brand from. “We are rebuilding the operational foundation of our stores and supply chain.”
