William Simpson
Americans are addicted to caffeine, but not Starbucks, it seems.
When Chicago writer Natalia Nebel goes out for an espresso, for example, Starbucks no longer comes to mind, even though she lives within walking distance of two of the coffee chain’s more than 17,000 U.S. stores.
“I used to go all the time and now I don’t,” said Nebel, 61, recalling her pre-COVID routine of setting up shop four days a week at a local Starbucks, finding it a pleasant change of scenery and a comfortable place to work. . “I liked being around people in a different environment,” Nebel told CBS MoneyWatch.
But Starbucks’ appeal for Nebel faded along with the pandemic. “Once I stopped going, I didn’t really miss it,” she said, noting that she prefers the atmosphere of the independent cafes in her Lincoln Park neighborhood.
“The whole concept got old. Starbucks started to really feel like corporate America in a way that it hadn’t before,” she added.
Delaware resident Troy Turner also sees benefits to brewing at home, saying it’s relatively easy, quick and much cheaper to make “coffee that’s significantly better than anything you’d get at Starbucks.”
The home barista community has gained traction online, with tutorials available on how to make coffee, noted Turner, 29, a license and disability examiner who lives in Dover.
“A few years ago, when I first started liking coffee, I was on the fence about Starbucks and Dunkin donuts, but I quickly stopped going to both places,” said Turner, who calls himself a coffee enthusiast.
Rare drop in sales
Nebel and Turner aren’t alone in building a life without Starbucks, at least if the company’s latest earnings report is any guide.
The largest coffee chain on the planet is losing ground with people around the world, as its first drop in quarterly revenue since 2020 recently showed. The slowdown in store traffic has been particularly sharp in the US, with same-store sales falling 3% in the period from January to March compared to the previous year.
Budget-conscious consumers are spending less on quick-service offerings, and that includes Starbucks, according to CEO Laxman Narasimhan.
“We continue to feel the impact of a more cautious consumer,” he said on an earnings call last week.
“Many customers have been more picky about where and how they choose to spend their money, especially with stimulus savings mostly spent,” Narasimhan said. “We saw this materialize throughout the quarter as customers made compromises, but it was eating out and eating in.”
The company’s plan to turn things around includes updating its apps and mobile payment offerings, speeding up service and revamping its menu to lure customers back, he said.
“The consumer is starting to feel the pinch of tighter finances, and Starbucks is one of those indulgent luxuries that people can easily cut out,” said Neal Saunders, managing director of retail at GlobalData.
Schultz calls for “manic focus”
The financial setback of the last quarter also caused some advice from former Starbucks CEO Howard Schultz, who led the company for decades as it expanded around the world.
“Stores require a manic focus on the customer experience, through the eyes of a merchant. The answer is not in the data, but in the stores,” Schultz wrote on his LinkedIn account on Monday. Starbucks should revamp its mobile ordering and payments app to “once again make it the uplifting experience it was designed to be,” suggested Schultz, who ended his third term as CEO early last year but remains one of largest shareholders of the company.
According to Schultz, Starbucks will recover, but it’s “clearly not business as usual.”
“We always appreciate Howard’s perspective. The challenges and opportunities he highlights are ones we are focused on. And, like Howard, we are confident in Starbucks’ long-term success,” a Starbucks spokesperson said in response to Howard’s comments. Schultz.
“Customer experience is signaled in a world where mobile/digital ordering and productivity are emphasized,” said MorningStar analyst Sean Dunlop. “If baristas are constantly operating at 100% capacity, it’s a challenge to get out of that situation and ensure the customer has a truly unique experience – they just don’t have the bandwidth,” Dunlop said.
If we look at Starbucks’ long history, the brand in its early days was an experiential occasion, with consumers “coming in, ordering a drink the way they wanted it, and having a pleasant interaction with the barista, a nice feeling-good experience,” he said. David Tarantino, analyst at Robert W. Baird. “One of the drawbacks of mobile ordering is that it becomes very transactional.”
Labor strike keeps some customers away
Both Nebel and Turner cited Starbucks’ conflicts with employees as another reason they chose not to patronize the business, although most analysts downplayed the issue.
From Nebel’s perspective, a Starbucks cafe in Chicago’s Old Town neighborhood that used to be buzzing with energy and people now has fewer customers and a pessimistic atmosphere. “I don’t know if the employees seem that happy there, and maybe you notice that too,” she said.
Starbucks and the union that organizes its workers are currently in contract negotiations, after a protracted battle that saw the Supreme Court hear their case, challenging the authority of the National Labor Relations Board.
“It is not implausible to assume that the casual consumer or a consumer with less affinity for Starbucks in general might divert some visits, at the margin, from the brand if they find the labor practices to be particularly unpleasant,” said MorningStar’s Dunlop. “The great irony, of course, is that Starbucks offers one of the best employee value propositions (wages and benefits) in the restaurant industry, so they are being punished for labor practices that most people participate in.”
Meanwhile, headlines about Starbucks employees not being allowed to wear Black Lives Matter attire tarnished the brand of Morgan Bissett-Tessier, a 31-year-old law student and part-time school administrator in New York. Brooklyn resident now avoids Starbucks despite company reversing its dress code policy at BLM.
Starbucks “it was never a normal thing for me because it was expensive, so it was a pleasure,” Bissett-Tessier said. “Now it doesn’t seem worth it.”
