Startling Sales Decline Has Starbucks CEO Questioning Strategy

We are all too familiar with that infamous green logo printed on cups of joe and signature iced drinks, a global visual staple, right up there with the other brands that color our existence. 

Many of us thought Starbucks had it all figured out, with a rock-solid strategy in place that has stood the test of time. Turns out, the king of caffeine has some serious issues to face as sales have fallen dramatically for the third consecutive quarter, leading to a suspension of its annual forecast – a big development for such an omnipresent brand.1

The Skinny on Sales

Starbucks’ sales numbers are rather bleak. For its fiscal fourth quarter (ended September 29), earnings per share were expected to be at 80 cents. However, analysts had actually been looking for earnings per share of $1.03. In examining the company’s overall performance, Starbucks reported that comparable store sales in the US were down 6% on a 10% decline in comparable transactions, regardless of a 4% increase in average ticket. China’s outlook is even worse, as Starbucks locations are facing more intense local competition, with comparable store sales falling 14%.2

With this, the company’s new CEO Brian Niccol recognizes that the company must “fundamentally change” its overall business strategy to rise above what could potentially be a more dramatic downfall, looking at key factors like menu pricing, marketing efforts, shop quality, staffing, and more.  

Rewards Just Didn’t Cut It

Starbucks’ rewards program is something that is very attractive to its customers and has been an integral part of the company’s overall marketing efforts. In fact, it has shown to be one of the most successful loyalty programs out there with over 40 million active members, not just due to free drinks, but also because of the strategic thought and effort that has been put into customer engagement.3

However, in the larger assessment of the company’s sales number, Starbucks’ rewards program ultimately did not help with increasing customer traffic, which to many comes as a surprise. In response, Niccol plans to modify the marketing approach and make sure all customers are part of the overall strategy and not just focused on the company’s rewards members. 

The Big Pivot

Starbucks’ substantial sales struggle is not a new development in the food and beverage industry, even among big brands, as evident in this recent development. But in some ways, this is to be expected, as the consumer wants and needs continuously change, especially with the emergence of new products and more desirable experiences.

Considering that this decline in sales for Starbucks is part of a pattern seen in previous quarters, perhaps taking action much sooner could have helped the company avoid the annual forecast suspension. The question now remains: Will they be able to make the pivot under Niccol’s new vision? And will it be enough to keep away from a dark roast drowning? 

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References

1. Starbucks suspends annual forecast as new CEO prepares turnaround plan. Reuters website. https://www.reuters.com/business/retail-consumer/starbucks-expects-quarterly-sales-decline-north-america-weakness-2024-10-22/ October 22, 2024.
2. Starbucks Suspends Guidance After Sales Slump Persists. Morningstar website. https://www.morningstar.com/news/dow-jones/2024102210215/starbucks-suspends-guidance-after-sales-slump-persists October 22. October 22, 2024.
3. Inside the Starbucks Rewards program: A complete diagnosis. Open Loyalty website. https://www.openloyalty.io/insider/starbucks-rewards-program#:~:text=The%20Starbucks%20scheme%20is%20often,the%20free%20drinks%20and%20perks