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Brian Niccol has wasted no time brewing plans for a turnaround at Starbucks. Since taking the helm in September, he has slimmed down a very complicated food and beverage menu, cut 7 per cent of its corporate workforce and made moves to hurry up services and spruce up its stores.
All these are steps in the precise direction. But as Starbucks’ fiscal second-quarter results this week show, they’ve yet to offer sales a jolt. The 50 per cent slump in net profit also shows revitalising an ailing coffee giant that has nearly 41,000 stores worldwide will take money and time. Trump’s tariff wars will only add to the challenges.
Niccol has rightly made fixing the US business his priority. The American market is Starbucks’ biggest. The 17,000-plus cafés there generated $26.7bn in net revenue last yr — or almost three-quarters of the group total. But high prices, long wait times, issues with mobile app ordering and rundown locations have all taken a toll on customer satisfaction lately. The result: US same-store sales fell for the fifth consecutive quarter, dropping 2 per cent as consumers sought their caffeine fixes at rivals comparable to Dunkin’ and McDonald’s as a substitute.
Niccol hopes the human touch will lure them back. He’s hiring more baristas, fixing up stores and offering free refills of normal coffee and tea to customers. Bringing back the “coffeehouse vibe” to Starbucks comes at a price, though. Store operating expenses across the corporate rose 12.1 per cent to $4.2bn within the quarter, yr on yr. The North American business’s operating margin contracted 6.4 percentage points, to 11.2 per cent.
Yet despite the price of coffee being at a record high, Niccol is holding off on charging customers more for his or her Grande Iced Caramel Macchiato — for now. That reflects the truth that buyers are more price-sensitive and there is no such thing as a shortage of places for people to get their caffeine fix.
China will likely be Niccol’s second front. It’s Starbucks’ next-largest market, with 7,758 stores that face brutal price war from local chains. It now faces the added risk of becoming a goal for anti-US boycotts, or threatened with retaliatory measures from Beijing.
Having engineered a successful turnaround at US fast-food chain Chipotle, Niccol arrived at Starbucks with loads of goodwill, together with a handsome pay package. But the corporate’s shares, which had risen by as much as a 3rd after Niccol’s hire was announced last August, have given up most of that gain. Caffeine is a stimulant, but its effects are, unfortunately, shortlived.
pan.yuk@ft.com
