Starbucks: Are problems brewing at the coffee giant?

Image source, Getty Images

Article information

• Author, Natalie Sherman
• Function, BBC News
• Report from New York

• June 9, 2024

Andrew Buckley, a self-described “mocha guy,” recently kicked his Starbucks habit, reeling after the company’s latest price increase sent the cost of his drink above $6.

The 50-year-old, who works in technology sales in Idaho, has been a loyal customer for decades, valuing his almost daily venti mocha as a small luxury that allowed him to stretch his legs during the workday.

But the company’s latest price increase went overboard.

“It was the final straw that broke the camel’s back on my feeling of inflation in general. It’s like, ‘This is it. I can’t take it anymore,'” says Buckley, who called customer service with complaints before taking to social media. media to ventilate.

“I just lost control,” he said. “I don’t plan on going back either.”

The decision was a sign of bigger problems brewing at Starbucks, which is facing new resistance from inflation-weary customers at the same time as unionization struggles and protests against the company are presented as a way to oppose to Israel’s war in Gaza, are provoking calls for a boycott and tarnishing the brand.

Image source, Andrew Buckley

Image caption Andrew Buckley now makes coffee at home or goes to The Human Bean, a smaller chain

The company’s sales were down 1.8% year-over-year worldwide in early 2024.

In the US – by far the company’s largest and most important market – sales at stores open at least a year fell 3% – the biggest drop in years outside of the pandemic and the Great Recession.

Among those who jumped ship were some of the company’s most committed customers – rewards members, whose active numbers marked a rare 4% drop compared to the previous quarter.

Former assistant David White says he has stopped nearly all of his Starbucks shopping in recent months, sometimes abandoning orders mid-purchase, horrified by the totals in his cart.

He says his outrage over the price increases has been reinforced by other company decisions, including the crackdown on workers seeking to unionize.

“They got really full of themselves,” says the 65-year-old from Wisconsin. “They are trying to squeeze too much out of their daily customers and profit from their employees and prices.”

For Andrew Buckley, the decision to leave the company depended on prices, but he notes that the various noises surrounding the company about political issues left a bad taste in his mouth.

“This is a coffee shop. They serve coffee,” he says. “I don’t want to see them on the news.”

In a conference call to discuss the company’s latest results, Starbucks Chief Executive Laxman Narasimhan said sales were disappointing, citing in part more cautious customers, while acknowledging that “recent misinformation” had weighed on sales, especially in the East. Average.

He defended the brand and promised to bring back business with new menu items like boba drinks and pesto egg sandwiches, faster in-store service and a flurry of promotions.

Chief Financial Officer Rachel Ruggeri said this week that the company was seeing signs of revival, noting growth in the number of active rewards members.

The company does not intend to back down on its expansion plans, but warned investors that the challenges will not disappear quickly.

“We believe it will take some time,” she said.

Image caption Friends Veronica (left) and Maria Giorgia (right) say they’ve noticed an increasingly corporate vibe at Starbucks

The company’s struggles have sparked debate over whether they are a kind of canary-in-the-coal-mine warning that the unlucky consumer spending that has driven the world’s biggest economy in recent years may be abruptly losing momentum.

As well as Starbucks, a number of other major fast-food brands, including McDonald’s, Wendy’s and Burger King, have reported falling sales, announcing discount offers to try to revive enthusiasm.

But many analysts believe Starbucks’ declining sales reveal more about the company than the broader economy.

“When you look back and see the magnitude of the change… that has occurred in such a short amount of time, it generally doesn’t point to anything macro in nature or price-related in nature,” says Sharon Zackfia, head of consumer at the management firm investment firm William Blair, who expressed concern in a note to clients last month that the brand could be losing its luster.

Image source, Getty Images

Image Caption: There were protests outside Starbucks branches across the country and calls for a ceasefire between Israel and Hamas

The company was already under pressure due to a years-long fight with union activists, who raised concerns about wages and working conditions that conflicted with the company’s progressive reputation.

Then, in late October, after Starbucks sued the union over a social media post expressing “solidarity” with the Palestinians, the dispute put it in the middle of debates over Israel’s war in Gaza, triggering calls for global boycott that took on a life of its own.

Starbucks – which is not the only American brand to face backlash over this issue and is not a target of the official Boycott, Divestment and Sanctions (BDS) movement – blamed misinformation about its views, after issuing a general statement condemning violence in the region.

It has also taken a different approach with the union in recent months – the two sides are now issuing joint press releases claiming progress in contract negotiations.

But calls for a boycott increased on social media in January and continue to persist, according to a Bank of America analysis.

Last month, YouTube comedian Danny Gonzalez apologized to his 6.5 million followers for the incidental presence of a Starbucks cup in a recent video following a backlash.

Although Starbucks executives remained relatively silent on the issue during sales discussions, as Zackfia says, “You’d really be burying your head in the sand if you didn’t think it had some effect.”

Bank of America analyst Sara Senatore says she was initially skeptical that the boycott would have a major impact, but other causes seemed insufficient to explain such a sudden and severe drop in sales, noting that the company’s price increases were not stand out from their competitors. .

She says a quick recovery could be a difficult task, comparing the impact to the brand crisis Chipotle faced after its stores were found responsible for triggering E-coli outbreaks that took years to eliminate.

“All you can do is try to dampen the sound or essentially overpower it with other things,” she says. “It may just be a matter of time.”

Image caption, Customer Maria Soare thinks Starbucks needs to improve its food

On a recent sunny midday in New York, where the density of Starbucks cafes is among the highest in the world, it was difficult to gauge the state of the business.

Some stores seemed empty, until customers coming in to place orders via cell phone punctuated the calm.

Even loyal drinkers said they saw opportunities for improvement.

Maria Soare, a 24-year-old who lives in the city of Washington, DC, still buys drinks from the company three or four times a week, but her patronage has decreased since the pandemic, when it served as a reason to leave the house.

She says the recent price increases “hurt” and advises the company to “change the food.”

For friends Verônica and Maria Giorgia, the atmosphere at the company has changed.

Veronica, 16, says she doesn’t go as much anymore due to a combination of better options elsewhere, rising prices and recent protests by labor activists.

“It opened my eyes,” she says. “It looks more like a chain.”

And although Maria Giorgia remains a regular customer, the 17-year-old says her perception of the company has changed.

“It used to be cool in high school. Now it’s just convenient.”

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