Starbucks has hit a rough patch, with many consumers growing weary of paying $6 for iced coffees and lemonades. The coffee giant recently reported a 3% drop in global sales at stores open for at least a year, with a 2% decline in its core North American market. This downturn underscores a significant decrease in customer visits; transactions at North American stores open for a year fell by 6% last quarter, even as the company tried to offset this with higher prices.
BREAKING: Starbucks reports SECOND STRAIGHT quarterly decline in revenue, with Q2 2024 revenue falling to $9.1 billion, below expectations.
Traffic at US stores fell by 6% and same-store sales slid 7% internationally.
In China, same store sales were down by a massive 14% last… pic.twitter.com/hSfYsfbDfk
— The Kobeissi Letter (@KobeissiLetter) July 30, 2024
In essence, fewer people are stopping by Starbucks for their coffee and food needs. This marks the second consecutive quarter of declining sales for the company. The situation reflects a broader trend of consumer fatigue with rising prices at various food chains, restaurants, and stores. It also highlights potential flaws in Starbucks’ business model, which has shifted from being primarily a sit-down coffee shop to focusing more on drive-thru and mobile orders.
This trend isn’t unique to Starbucks. Other major chains like McDonald’s are also feeling the pinch. McDonald’s reported a 1% drop in sales at its stores open for at least a year, marking its first sales decline since 2020.
Starbucks is also facing stiffer competition from rival drive-thru coffee chains and from consumers opting to brew their morning coffee at home. While prices for grocery items have stabilized this year, the cost of dining out continues to climb. RJ Hottovy, an analyst at Placer.ai, noted, “More cost-conscious consumers are either finding alternatives or choosing to make coffee at home. There’s also increasing competition from other drive-thru coffee chains like Dutch Bros.”
Despite these challenges, Starbucks’ shares rose more than 2% in after-hours trading, though the stock has fallen 19% this year.
Starbucks $SBUX same store sales are down for a second straight quarter.
Customers are still feeling the pinch from constant price hikes. Same story at McDonalds $MCD pic.twitter.com/5ehwt9mh3b
— Raj | Hospitality & Real Estate (@rajchudasama) July 30, 2024
To win back customers, Starbucks is implementing several new strategies. The company’s business model has dramatically evolved from its origins as a sit-down coffee shop. Today, mobile app and drive-thru orders account for more than 70% of sales at its roughly 9,500 company-operated stores in the United States. Cold beverages, including iced coffees, teas, and lemonades, now make up a larger share of sales than hot coffee.
In an effort to attract more customers, Starbucks has introduced value meals and made investments to reduce customer wait times. The chain recently launched a “Pairings Menu,” offering a drink and a breakfast item for $5 or $6. According to the company, this new menu is already yielding positive results, with an increase in multi-item orders.
Starbucks is also rolling out new technology, dubbed the Siren System, designed to speed up the preparation of cold drinks. This system includes faster blenders and new dispensers for ingredients like milk and ice, arranged in a way that allows employees to prepare beverages more efficiently.
BREAKING: STARBUCKS REPORTS SECOND STRAIGHT REVENUE DECLINE
Starbucks’ Q2 2024 revenue dropped to $9.1 billion, missing expectations.
Traffic at US stores fell by 6%, with international same-store sales down 7%.
China saw a sharp 14% decline in same-store sales. pic.twitter.com/NkIhs8YSLH
— PLANET NEWS MONITOR (@planet_monitor1) July 30, 2024
“Our plans are beginning to work,” said Starbucks CEO Laxman Narasimhan during a call with analysts. “We are recovering our brand and rebuilding the operational foundation of our stores and supply chain.”
Major Points:
- Starbucks experienced a 3% global sales drop at stores open for at least a year, with a 2% decline in North America, indicating fewer customer visits despite higher prices.
- The company has transitioned from a primarily sit-down coffee shop to focusing more on drive-thru and mobile orders, with over 70% of sales coming from these channels in the U.S.
- Starbucks faces more competition from other drive-thru coffee chains and consumers choosing to make coffee at home, influenced by rising prices at food chains and restaurants.
- To attract customers, Starbucks introduced a “Pairings Menu” offering a drink and breakfast item for $5 or $6, which has already shown success in increasing multi-item orders.
- The company is implementing the Siren System, featuring faster blenders and efficient ingredient dispensers, to reduce wait times and improve service speed, particularly for cold drinks.
Fallon Jacobson – Reprinted with permission of Whatfinger News
